Greek Drama a Regional Sideshow to JPMorgan as Euro Holds Gains

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While it’s no longer “unthinkable” that Greece could leave the European Monetary Union, global markets have little cause for panic, according to JPMorgan Chase & Co.

“The risk scenario of Greek exit from the EMU is a drama for Greece, but in this analyst’s view, not for world markets,” Jan Loeys, chief market strategist at the bank, wrote in an investor note. “Claims on Greece are concentrated at the European Central Bank and EU institutions.”

The euro was little changed as markets opened on Monday in Asia, holding a three-week gain, with European Union leaders due to meet later for discussions that may determine the future of Greece’s membership of the currency bloc. It’s the culmination of months of back and forth between the Mediterranean nation and its creditors that have left the country risking a default.

If the talks fail to produce an aid deal, Greece may need to impose capital controls, according to JPMorgan. While the bank suggested investors reduce bets that peripheral euro-area bonds will outperform German bunds, it said any impact on stock markets from a Greek exit would be limited to Europe.

The euro rose 0.2 percent to $1.1369 as of 5:10 a.m. in Sydney, following a 0.8 percent gain last week.

Compromise Likely

A compromise is still likely, JPMorgan said.

“Our modal view remains that we will either get a last-minute deal at month end as one side blinks, if not both sides, or another move that again pushes out the drop-dead date a few months out,” Loeys and other JPMorgan strategists wrote in the report.

Greece’s Prime Minister Alexis Tsipras briefed German Chancellor Angela Merkel, French President Francois Hollande and European Commission President Jean-Claude Juncker on a Greek proposal to unlock bailout funds in phone calls on Sunday, according to an e-mailed statement from the Greek prime minister’s office.

The extra yield investors demand for holding Spanish 10-year bonds instead of benchmark German bunds was at 1.52 percentage points on Friday, after rising to 1.76 percentage points on June 16, the highest since May 2014. The average spread in the past year was 1.23 percentage points.

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