Stocks fall heading into the weekend on lingering concerns over Greece’s uncertain outlook. The S&P falls 0.5% to 2,109 and the Dow loses 0.6% 18,014. In spite of these declines the S&P still gained 0.7% this week. Markets are bracing for the potential outcomes for Greece early next week when the situation will likely reach its peak either for better or for worse. The euro remained steady and the U.S. Treasury bond served as a haven asset falling 7 basis points to 2.26%. Greek stocks were resilient rising 0.6% but still down 16.5% over the last 6 trading days. EU leaders will meet on Monday in a last effort to get Greece funding before €1.5bn is due at the end of June. They are optimistic a deal will be reached. Nevertheless the bund yield falls 4 basis points to 0.76%.
The euro stays firm as investors seem to be optimistic for the outlook of the currency. One analyst considers a political problem as opposed to a financial problem, and therefore the situation will not have a negative impact on assets denominated in euros. Ireland, Spain, and Portugal are in better economic conditions than they were in the previous Greek crisis and they will not fall because of Greece. In this way contagion risk is severely reduced from the previous Greek crisis. Yields in the region have inched higher but the currency has stayed supported. The euro currently trades around $1.13 its strongest level since January. Investors are currently skeptical to take on risk in the euro on the direction outcome with Greece being in or out of the euro. It is possible the euro has been supported by investors using the regions low yields as a destination for the carry trade borrowing cheaply in euros and investing in higher yielding countries.
Greek savers take out €1.5bn deposits on Friday, the largest one day withdrawal as a result of this crisis. Over €5bn left Greece’s banking system this week, leaving the sector at the brink of collapse. The ECB raised emergency liquidity assistance to the country by €1.75bn to €85.9bn. The Greek central bank originally asked for €3.5bn, however the ECB only gave enough assistance to last through the end of Monday.
Ukraine offers to issue securities that are linked to the future growth of the country’s economy if creditors accept a debt write down. For now the country will continue to make payments on its debt, even to Russia. The IMF and Ukraine will continue to push for a debt write down. Ukraine wants to offer creditors GDP linked securities that pay out of growth is faster than the IMF projects and uses in its debt negotiations. In this way it protects the creditors if the IMF and Ukraine were to give itself lower projections in order to get debt write downs which would disadvantage creditors.