A series of events over the weekend left Greece perilously close to defaulting on its debts. If Greeks vote against the proposal, the country could slide into bankruptcy and be forced to leave Europe’s common currency.
The European Union is to decide on Wednesday whether it will grant Greece a last-minute bailout package to avoid pushing it further towards an exit from the eurozone.
IMF’s warning comes as Greece readies for a Sunday referendum on an worldwide bailout deal that Prime Minister Alexis Tsipras has urged voters to reject.
“Deep down there is a sense that some sort of compromise will be reached before the deadline - it’s the eurozone way”, said David Madden, market analyst at IG.
July 2 (Reuters) - US stocks turned negative after the global Monetary Fund warned Greece may need a further large debt writeoff, and weak U.S.jobs data dampened the economic outlook.
Despite the mixed messages, the Dow closed up 138 points (nearly 0.8%), the S&P 500 gained 0.7% and the Nasdaq picked up just over 0.5%.
Despite Monday’s slump, many investors remain confident US financial markets will hold their own.
In addition, month- and quarter-end investment flows on Tuesday, which can involve investors adjusting some of their short bets, aggravated the sudden jumps in price, said Simon Derrick, chief market strategist at BNY Mellon. Separately, USA house prices rose 1.1% in April, supported by the spring sales market, with gains in all the cities tracked by the Case-Shiller 20-city composite index released, however the gain fell short of expectations. Germany’s DAX dropped 1.2%, while the CAC-40 in France fell 1.6%.
In other trading, Willis Group Holdings rose $2.01, or 4.4 percent, to $47.41 after the insurance broker said it will tie up with Towers Watson in an all-stock deal valued at about $18 billion.
Bond insurers, including MBIA and Ambac, fell sharply for a second day as investors followed the debt crisis in Puerto Rico.
“The market has been more reactive than proactive this year, so many effects of a Greek default may not be priced all the way in; I (wouldn’t be) surprised to see a degree of turbulence in the immediate aftermath of any announced default”, Mr. Derrick said.
MBIA dropped 26 cents, or 4%, to $6.11.
Significant strength was also visible among financial stocks, with the NYSE Arca Broker/Dealer Index and the Dow Jones Banks Index climbing by 1.2 percent and 1.1 percent, respectively. “It is not going to derail USA economic growth or the Fed’s liftoff”, Swell said, referring to the Federal Reserve’s intention to raise interest rates this year.
Looking at currencies, the euro fell 0.39% against the US dollar.
Biopharmaceutical company Juno Therapeutics shot up 15.2 percent on its announcement that it struckreached a 10-year partnership with Celgene to commercialize Juno’s oncology and cell therapy product candidates.
Fund managers note that Greece’s economy is only 2% of European GDP; that it has no exports that are vital to industries elsewhere; and that its current account is roughly neutral, meaning it does not have a balance-of-payment problem.
