Risk assets have regained some ground but equities remain deep in the red after a tumultuous weekend in Greece saw it impose capital controls after calling a surprise referendum over creditors' final bailout demands.
Greece’s Friday evening decision to call a referendum for 5 July set in motion a chain of events which culminated with Sunday’s announcement that its banks will remain shut for at least a week in order to prevent capital flight.
The developments make a Greek exit from the eurozone more likely than ever before, analysts suggest, and have prompted sharp moves across a variety of asset classes.
In the UK, the FTSE 100 dropped 2.2% at the open to 6,611, its lowest level since mid-January, before paring those loses to stand 1.6% lower as of 09:15 BST.
Falls were more pronounced in Europe, with Germany’s Dax opening down 4% - though this move only took the index back to levels seen earlier in June.
Safe haven German 10-year bund yields dropped by a giant 20bps to as low as 0.72%. By contrast, Spanish, Italian and Portuguese bond yields rose by around 35bps.
Meanwhile the euro fell 1.5% against the dollar to $1.099.
But a subsequent easing in currency, bond and equity falls suggested global investors are far from terrified by the latest steps in the Greek drama.
Greece's referendum, set for next Sunday, is seen by many as a vote on Greece’s future inside the single currency - though prime minister Alexis Tsipras insists it is simply a vote on whether to agree to creditors’ demands.
But the announcement, coupled with Tspiras’ announcement that his party Syriza would campaign for voters to reject the deal, prompted European finance ministers’ to remove their proposal for a bailout extension beyond tomorrow’s expiry date.
That means Greece is unlikely to be able to pay the €1.5bn due to the IMF tomorrow - and that its populace will now vote on a deal which is effectively no longer on the table.
The Eurogroup decision was followed on Sunday by the European Central Bank opting not to increase the amount of emergency liquidity assistance (ELA) it has been providing to Greek banks.
This in turn led to Greece’s decision to shut banks and impose a daily withdrawal limit of €60 per citizen. The country's stock exchange is also expected to remain closed for at least a week.
A referendum ‘no’ vote will make a Greek eurozone exit likely, while a ‘yes’ vote could mean the formation of a new government of “national unity” in an attempt to find a deal, according to analysts at J.P. Morgan Cazenove.
Reaction to the surprise chain of events was not limited to European assets. Overnight, Japan’s Nikkei fell 2.9%, its largest one-day fall since January, as the safe haven yen strengthened and broader Asian equity indices also slumped.
Chinese stocks continued to tumble despite the central bank announcing on Saturday cuts to both the benchmark rate and reserve ratio requirements - the first such combined measure since 2008.
The Shanghai Composite, which dropped 7.4% on Friday, fell another 3.4% on Monday, having earlier plunged as much as 7.5% during another volatile session. Hong Kong's Hang Seng was 2.8% lower shortly before the close.
The government will set up an infrastructure bank to support investment and to co-invest alongside investors including pension funds.
The Retail Prices Index (RPI) will be reformed and aligned with the housing cost-based version of the Consumer Prices Index, known as CPIH, by 2030, the Treasury has confirmed.
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