Greek Contagion Muted Across Markets as Crisis Seen Quarantined

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Greek Numbers `Don't Imply a Contagion,' Wieting Says

Financial markets barely shuddered after Greek voters rejected austerity demands, a sign investors see the nation’s debt crisis contained for now. Crude oil tumbled the most in five months.

The Standard & Poor’s 500 Index slipped 0.4 percent by 4 p.m. in New York, while the Stoxx Europe 600 Index lost 1.2 percent. The declines were muted compared with a week ago, when Greece first announced the snap referendum. The euro shed 0.5 percent to $1.1056, paring a loss of as much as 1.3 percent. Ten-year Treasury yields fell 10 basis points to 2.29 percent.

While investors sold equities around the world and sought out havens from the yen to German bunds after the Greek “no” vote, signs of financial panic did not materialize. Greece is under pressure to come up with a plan to stay in the euro, with the nation facing an economic calamity that analysts and investors say probably won’t spread beyond its borders for now.

“I think it’s going to be hard to get any real traction until we get some type of clarity,” said Walter Todd, who oversees about $1 billion as a chief investment officer for Greenwood Capital Associates LLC in Greenwood, South Carolina. “You can’t escape the noise created by this situation. Our opinion has been and remains at this point that Greece is more noise than anything else.”

Waiting Game

European finance chiefs are waiting for a proposal they can use to re-start bailout talks, with Greece naming a new minister to replace the outgoing Yanis Varoufakis. The European Central Bank maintained the level of Emergency Liquidity Assistance available to Greece, while tightening terms related to collateral. Greek banks remain shut through Wednesday.

European stocks plunged 3.4 percent last week for their biggest drop of the year, while U.S. equities saw their worst week since March after Greece unexpectedly halted talks and called the referendum. The euro has been relatively resilient in the face of the Greek crisis, which could lead to the country’s exit from the 19-nation currency.

“After five years, you have to believe a measure of the news from Greece is already built into the market,” Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion, said by phone. “How many times can you be concerned about the same news? It loses it’s effectiveness over the near term.”

Monday’s rout in oil aside, the muted reaction in the world’s financial markets may mean the Federal Reserve can continue to watch the latest U.S. economic data and avoid hard conclusions about the timing of interest-rate increases for now.

New Focus

BlackRock Inc. and TCW Group are among money managers predicting any fallout from the Greek crisis won’t roil the broader markets. Investors including Bill Gross of Janus Capital Group Inc. and Rebecca Patterson, chief investment officer of Bessemer Trust, said the next key date for Greece will be July 20, when the country has to pay 3.5 billion euros ($3.9 billion) back to the ECB.

German bunds rose, sending 10-year yields down three basis points, or 0.03 percentage point, to 0.76 percent, while rates on Spanish and Italian bonds climbed at least 14 basis points. Both sets of yields jumped more than 20 basis points on June 29, the first trading day after Greece called the referendum.

A U.S.-listed exchange-traded fund tracking Greek stocks fell 7.5 percent Monday, extending last week’s 7.9 percent tumble. American depositary receipts of National Bank of Greece SA declined 12 percent after sinking 24 percent on June 29. Greece’s stock exchange has been closed for the past week.

No Crisis

“It is still early, and bigger moves may well surface in the near future, but I do not expect to see the start of another financial crisis,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki.

The MSCI Emerging Markets Index dropped 2.2 percent Monday, the most in a week, with the Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong declined a third day, slipping 3 percent.

The Shanghai Composite Index gained 2.4 percent, even as two shares fell for every one that rose. China suspended initial public offerings over the weekend, while brokerages pledged to buy shares and the central bank said it would provide liquidity for margin trading.

The government is striving to shore up a market that has tumbled 27 percent from its June 12 peak amid concern leveraged traders are liquidating bullish bets after equity valuations exceeded levels seen during China’s stock-market bubble of 2007.

‘More Volatility’

“It is very difficult to stabilize a leveraged market dominated by retail investors,” Paul Chan, the Hong Kong-based chief investment officer for Asia, excluding Japan, at Invesco Ltd., said by phone. “I don’t know how this will pan out but in near term, it’s just going to expand more volatility.”

Industrial metals tumbled to their lowest collective level in almost six years as China’s efforts to arrest the stock-market rout and the Greek anti-austerity vote fueled concern that global demand will ebb. Copper and nickel led the slump.

Concern over the demand outlook also hit oil Monday, with West Texas Intermediate crude sliding 7.7 percent, the most in five months, and Brent below $60 a barrel for the first time since mid April. WTI closed at $52.53 a barrel, its lowest settlement since April 13.

Summer Correction

As well as anxiety over Greece and China, the prospect of Iranian oil flooding an already well-supplied market unnerved crude traders Monday. Iran, the fourth-largest member of the Organization of Petroleum Exporting Countries, has estimated it could double crude exports from about 1 million barrels a day within six months of sanctions being lifted.

“We’re getting our summer correction and I don’t know where it will stop,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “We could soon be looking at $50-a-barrel ceiling for WTI.”

Energy shares tumbled in the U.S., losing 1.3 percent as a group. Transocean Ltd. and Pioneer Natural Resources Co. fell more than 3.5 percent. Energy producers also drove declines in the MSCI All Country World Index, sinking 1.6 percent as the broader gauge of global stocks slipped 1 percent, about half the decline seen a week ago.

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