Markets in Europe were trading cautiously on Friday as the continent heads toward a referendum in Greece that will decide the future of the single currency, at least in the short term. On Sunday Greeks will head to the polls to decide whether to accept a new bailout agreement from the EU and other lenders.
If Greeks vote Yes, talks on getting a deal done may start again on Monday. If a No vote prevails, Greece will not be able to secure such a deal and the country, which defaulted on a debt owed to the IMF on Tuesday, in not likely to be able to pay any of its obligations to lenders in the months ahead in euro.
Europe markets get bogged down
Bond markets showed a flight to safety on Friday as investors headed away from debt seen as less safe in the event of a Greek No vote. Yields on German 10-year notes fell as demand for them increased.
In the short term German debt is seen as the safest in Europe, but rising inflation has set their rates on a higher course in the months since the Greek crisis began. Markus Allenspach, head fixed income research at Julius Baer, told Reuters, “The European market is frozen ahead of the Greek referendum.”
The Eurostoxx 50, ESTX 50 PR.EUR (INDEXSTOXX:SX5E) was down by a fraction at time of writing after losing more than 4% in trading over the last five days. After pricing in the risks, most traders seem to be waiting to see the result of the vote before making any big moves.
Markets in the United States are closed on Friday as a result of the July 3rd market holiday, celebrated in lieu of July 4th which falls on a Saturday this year.
Greece heads to the polls
The polling data ahead of the vote on Sunday shows a small advantage for the Yes side, but polls are tight and the short time leading into the vote means that the data is not well-backed by historical numbers. It’s not clear which way Greece will vote this weekend, and that’s having a restraining effect on markets in Europe on Friday.
With Greece nothing is certain. Even if there is a no vote on Sunday, the nation might be able to figure out some way to keep the Euro without moving beyond the bounds set by the vote.
On the other hand, a Yes vote could result in a new election in the country, setting the process toward an end to the crisis back by months. Finance Minister Yanis Varoufakis has said that he will resign on the back of a Yes vote.
His Prime Minister Alexis Tsirpas may have no choice but to leave power if Greece votes against him on Sunday.