Europe close: Stocks led lower by peripheral markets after Greece 'no' vote
European stocks fell on Monday, with peripheral markets pacing the decline after Greece overwhelmingly rejected its latest bailout terms, although there were no signs of all-out panic.
The benchmark Stoxx Europe 600 index ended down 1.2%, Germany’s DAX closed down 1.5% and France’s CAC finished 2% weaker.
Losses in the periphery were much more pronounced, with Italy’s FTSE Mib ending down 4% and Spain’s IBEX 35 closing 2.2% weaker.
Greek stocks markets have been closed since last week and are not due to reopen until Tuesday at the earliest.
The euro, meanwhile, was off just 0.1% against the greenback at $1.1100, holding up pretty well given the backdrop.
Despite the downbeat tone, losses in core European equity markets were nowhere near as heavy as expected, with analysts pointing out that a degree of pessimism over the Greek vote had been priced in.
In addition, the surprise resignation of Greek Finance Minister Yanis Varoufakis – a staunch opponent of spending cuts and tax increases – fuelled hopes that a deal might be reached, while confidence that the European Central Bank would intervene to limit the fallout also kept a lid on losses.
“So far, stock market reaction has been negative but not disastrous,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
“Things could well get worse for stocks in the coming days and weeks, but the market is significantly cheaper than it was a month ago, and on a long-term view still looks attractive compared to bonds and cash,” he added.
On Sunday, more than 60% of Greeks voted to reject the terms of the Eurozone bailout
Early on Monday, Varoufakis announced his resignation at the request of Prime Minister Alexis Tsipras, in an attempt to clear the way for a deal to be made with Greece’s creditors.
His resignation came as a surprise, as he had said last week that he would step down in the event of a ‘yes’ vote.
Varoufakis said in a blog post that he had been made aware that certain members of the Eurozone would prefer him to be absent from meetings, “an idea that the prime minister judged to be potentially helpful to him in reaching an agreement”.
HSBC said that once the dust settles on Greece, there are five key factors that will help to support European equities.
It said a Greek exit from the Eurozone is still by no means a certainty, while a policy response from the ECB is a distinct possibility. The bank also said that a weaker euro will boost earnings prospects, adding that earnings and margins are depressed and could rise strongly over the next three to five if the Greek crisis does not derail global economic growth.
Finally, it noted that valuations for European equities are by no means stretched.
Going forward, the response of the ECB will be key in determining the level of contagion to other parts of the Eurozone, while the willingness to compromise by both Greece and its creditors will also be crucial.
An emergency Eurozone summit will be held on Tuesday to discuss the next step for Greece.
Corporate news was fairly scarce on Monday, but in London, shares in Rolls-Royce fell sharply after the company warned on profits and said it was stopping its share buyback programme.