Monday July 6

Stocks fall after Greek citizens vote “No” in the referendum. The S&P loses 0.4% to 2,068 and the Dow falls 0.3% to 17,683. 61.3% of Greek citizens voted against the referendum that was for the creditors offer and austerity measures. Following the vote, Francois Hollande and Angela Merkel say they are open for more negotiations. The US 10 year was a haven for safety, falling 11 basis points to 2.28%. The euro fell 0.5% against the dollar to $1.1060. Also contributing to downward movements across markets was oil, which fell $4 to $52.75 as a result of the prospects for a nuclear deal with Iran. This agreement between the US and Iran would open up the possibility for Iranian oil to enter international markets. Yannis Varoufakis unexpectedly declined, which is seen as a positive development for future negotiations. Markets have been relatively calm, which either prices in the idea that investors still believe a deal will be reached, the ECB will prevent contagion, or that Greece will not have a large political or economic effect on the rest of the eurozone. The Grexit is a higher risk than it was before, but it is still not expected by many. Peripheral yields were up only modestly rising 10 basis points in Italy and Portugal.

Tsipras is expected to propose new reforms in the European Union summit on Tuesday. Angela Merkel is telling Tsipras and his team to come up with their own plan. Euclid Tsakalotis replaces Yannis Varoufakis as finance minister. He is still on the political left wing, but he is considered to be far less “abrasive” than Varoufakis. Greek banks remain to be closed as cash shortages get worse each day. The ECB must decide whether or not to provide more Mergency Liquidity Assistance to Greece. Creditors say that Greece is now responsible for keeping itself in the eurozone. Hollande and Merkel are expected to make a formal response to this weekend’s developments later today. Varoufakis was previously seen as a large impediment to negotiations as Tsipras is the more reasonable of the two.

Puerto Rico will be a difficult situation to resolve for investors and lawyers due to the size and complexity of its debt structure. Legal proceedings will take place for many years and a disorderly outcome is unavoidable. Last week the governor said its debt was “unpayable” but has made payments since then. A $415MM payment on PREPA’s debt (the Puerto Rico Electric Power Authority). The territory is now developing a 5 year fiscal and economic plan. There is speculation that the US will allow Puerto Rico to file for Chapter 9 bankruptcy to facilitate the process. $300MM is due on July 10, and another $94MM due on July 15 and $160MM due August 1. Puerto Rico has no access to international financing. Investors may end up suing each other if more senior debt gets paid.

Monday July 6

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