Greece says 'No' to austerity: Stocks, euro, oil and gold take a hit

Asian stocks hit a six-month trough and the euro stumbled on Monday after a Greek vote against austerity measures endangered its future in the single currency and raised the risk of a full-blown crisis in the euro zone.

Oil prices too fell sharply after Greece rejected bailout terms and as China rolled out emergency measures to prevent a full-blown stock market crash, adding to worries about poor demand growth amid global oversupply.

Precious metals including gold gave up early gains on Monday as a robust dollar outweighed safe-haven demand after Greeks rejected terms of a bailout package in a referendum. The failure to sustain the rally shows gold’s struggle amidst prospects of higher US interest rates despite the uncertainty over Athens’ financial situation and its future in the euro zone, a situation that would typically garner safety bids for bullion.

A rush from risk took MSCI’s broadest index of Asia-Pacific shares outside Japan down 2.8 per cent in the steepest daily drop in two years.

Japan’s Nikkei shed 2.4 per cent, while US equity futures dropped 1.3 per cent. Early signs were the major European bourses would open down at least 2 per cent.

The result of the Greek referendum put in doubt its membership in the single currency, pulling down the euro on Monday against the dollar.

A strong greenback pressures oil markets as it makes dollar-traded fuel more expensive for holders of other currencies.

Asian commodities were sucked into market turmoil that has seen Chinese shares fall by as much as 30 per cent since June due to an economy that is growing at its slowest pace in a generation, although China's stock indexes bounced on Monday followed the emergency measures announced at the weekend.

China's stock market tried to buck the trend following a salvo of rapid-fire support measures from Beijing over the weekend.

Yet after an early surge stocks soon flagged and the CSI300 index of the largest listed companies in Shanghai and Shenzhen was up just 0.5 per cent. The Shanghai Composite Index was flat having been up over 7 per cent at one stage.

Oil remained bearish. “Uncertainty over Greece is bearish for oil. It adds an extra negative factor on top of the turmoil in Chinese financial markets, the recent rise in US drilling rigs, and a potential increase in Iranian oil supply," said Olivier Jakob, senior energy analyst at Petromatrix in Zug, Switzerland.

"The main implication is for euro/dollar and I think it will put additional pressure on the euro," he added.

The Japanese government said it was ready to respond as needed in markets and was in close touch with other nations.

"A lot depends now on what the ECB does with liquidity support for the Greek banks," said Antonin Jullier, head of equity trading strategy at Citi. "The ECB has the capacity to limit the spread of contagion."

The euro was down 0.8 per cent at $1.1027 but above an early low of $1.0967. It lost more ground to the safe-haven yen, reaching 134.76 yen from Friday's 136.18.

The dollar faded modestly to 122.26 yen but its index was still up 0.3 per cent at 96.394.

Demand for highly rated sovereign debt saw the US 10-year Treasury yield fall 11 basis points to 2.28 percent.

The latest reports from Greece said around 61 per cent of those voting in the referendum had backed the government and rejected the bailout conditions.

Following the outcome, calls mounted in Berlin to cut Athens loose from the currency union, raising the risk of a full-blown crisis in the euro zone.

German Chancellor Angela Merkel and French President Francois Hollande will meet in Paris on Monday afternoon as the European Union's grand single currency project faces the biggest challenge since its inception.

Stunned European leaders called a summit for Tuesday to discuss their next move as investors fear "Grexit" could encourage anti-euro sentiment in other countries.

The ECB, which holds a conference call on Monday morning, is likely to maintain emergency funding for Greek banks at its current restricted level, sources said.

Though Greek government officials have vociferously denied any plans to issue a parallel currency, some investors suspect Athens could have no choice in the matter.

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