As the week progressed, there seemed to be a notable pickup in optimism surrounding the opportunity for a deal to get done – especially after Greek officials had submitted a new round of reforms mid-week. However, the enthusiasm proved fleeting as the country’s creditors quickly expressed concern about the details of the proposed changes and pushed back on the idea that a deal was close at hand. At the same time, the Greek government continued to pound the table against any cuts to pensions and reiterated that any deal had to include another reduction in its overall debt. The ongoing rhetoric and the lack of progress late in the week then put the focus on the Eurogroup meeting scheduled for Saturday with both sides calling the meeting a make-or-break situation.
But before the big showdown could even take place, Greek Prime Minister Alexis Tsipras threw a monkey wrench into the proceedings by calling for a snap referendum on the bailout proposal from European creditors. Tsipras said that while he is opposed to the deal and is urging a “no” vote, he would accept it if supported by Greek voters.
The bottom line is that the surprise vote killed any chance for a last-minute deal on an extension of the current bailout program. And despite the increase in rhetoric late in the week, a majority of analysts still believed that at a last-minute deal would have been reached at Saturday’s Eurogroup meeting.
The national vote will take place next Sunday, July 5th and as such, appears to be the final deadline for the current chapter in the ongoing Greek drama. However, creditors have so far refused to provide an extension of the current bailout program, which expires on Tuesday, to accommodate the referendum. Therefore, at least a “technical default” on Greek debt looks to occur on Tuesday.
It also worth noting that the current bailout program for Greece expires on June 30th. And with the latest surprise move by Tsipras, EU leaders have made it clear on Monday that the current program will not be extended.
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In response to the referendum news, the ECB decided on Sunday to keep the ceiling on emergency liquidity assistance (ELA) for Greek banks unchanged and said that it would be monitoring the situation closely.
This is probably a good idea because, not surprisingly, the recent developments have created a scramble for cash in Greece. ATM lines have become extreme with many banks having already run out of funds. In response, banks and the Athens Stock Exchange will be closed until the vote takes place on Sunday. The Greek government has also put capital controls in place, meaning that the withdrawal limit at Greek bank ATMs is &euor;60 per day.
Don’t Forget About China
Oh, and in case anybody is watching anything other than the drama in Greece, we should note that the People’s Bank of China cut its benchmark lending rate by 0.25% to a record low on Saturday and the RRR by 0.50%. The move was the fourth such reduction in rates since November. On its website, the bank said the one-year lending rate will be reduced by 25 basis points to 4.85% effective June 28.
It should be noted that the surprise cut in rates comes on the heels of a precipitous dive in stock prices. In fact, the Shanghai index has experienced the biggest two-week plunge since December 1996. The composite index sank 7.4% on Friday alone and has plunged 19% since the June 12 high.
So, while Greece will likely remain the focal point during this holiday-shortened week, traders will likely be keeping an eye on China – as well as the upcoming U.S. Jobs report.
What all of this has meant for the stock market is that the current trading range remains solidly in place. As you can see from the chart below, 2130 is the area that needs to be soundly broken if the bulls expect to get anything going on the upside while the 2070 area is the near-term line in the sand the bears would need to breach in order to swing momentum their way. At this stage, the S&P appears to be stuck in the middle of the range, waiting and watching for the next important input.
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