SYDNEY/TOKYO – The euro and stock prices fell sharply in Asia on Monday after the Greeks had overwhelmingly rejected austerity measures demanded in return for bailout money, putting in doubt its continued place in the single currency.
Adding to the anxiety among investors, China’s stock market face a make-or-break week after a 30 percent plunge in the last three weeks forced officials to roll out an unprecedented series of steps at the weekend to prevent a full-blown market crash.
While early price actions have been choppy, dealers emphasised that markets were orderly with no signs of financial strain and expectations were high that the European Central Bank would step in early with a pledge of extra liquidity.
The euro was down 0.8 percent at $1.1015 but off an early low of $1.0967. It had initially dropped around 1.5 percent on the safe-haven yen only to find a big buy order waiting, which pared its losses to 134.53.
Likewise, the dollar recouped its early drop to be only a touch softer at 122.48 yen. The dollar index added 0.3 percent to 96.446.
German Chancellor Angela Merkel and French President Francois Hollande will meet in Paris on Monday afternoon as the European Union’s grand single currency project faces the biggest challenge since its inception.
Stunned European leaders called a summit for Tuesday to discuss their next move as investors fear “Grexit” could encourage anti-euro sentiment in other countries.
“At risk going forward is the possibility of any number of nations seeking to divorce themselves from the euro in order to more easily, in their view, meet the ongoing rush of future obligations tied to pensions etc.”
The ECB, which holds a conference call on Monday morning, is likely to maintain emergency funding for Greek banks at its current restricted level, sources said.
Though Greek government officials have vociferously denied any plans to issue a parallel currency, some investors suspect Athens could have no choice but to do so, effectively taking a first step towards an exit from the euro.
“The ECB has the capacity to limit the spread of contagion … but we might still see a fall of 3 percent on European markets on Monday.”
Demand for highly rated sovereign debt saw the U.S. 10-year Treasury yield falling more than 10 basis points to 2.283 percent.
Fed funds futures also rallied as investors wagered the endless uncertainty in Europe would make the Federal Reserve more wary of raising U.S. interest rates, or at least to go more gradually once it began.
Oil prices took a spill with Brent crude falling 67 cents to $59.65 a barrel.