Monday, June 29, 2015

There Appears To Be A Problem In Greece: Analysts React

And from the all-Greece, all-the-time station formerly known as FT Alphaville we're groovin' and behoovin with this morning's "Greece: Analyst views on capital controls, bank holidays":
We’ll be slamming up the best of our collective inbox on matters Greece as and when the good stuff pours in.
Catching up on the last few hours, here’s JP Morgan’s Greg Fuzesi:
In light of the deepening crisis in Greece, a key question is how the ECB will respond to any signs of contagion to the rest of the Euro area. At the end of today’s policy statement about the ELA decision, the ECB said that “the Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area.” The ECB added that “the Governing Council is determined to use all the instruments available within its mandate.” 
We would make three points about the ECB’s likely response. First, the ECB’s tolerance of deteriorating financial market conditions in the Euro area, that are driven by developments in Greece, is likely to be very limited. Hence, it could move very quickly from today’s verbal warning to announcing a policy response.
Second, which tool the ECB will use in the event of contagion will depend on the severity and the form of such contagion. Hence, it will matter whether any contagion occurs via bond markets or via banks, and how it is distributed across countries. The ECB is likely keeping an open mind until it sees how financial markets respond.
Third, as we noted recently, the ECB pledge today to use all instruments available “within its mandate” has been greatly expanded by the recent ruling of the European Court of Justice (ECJ), opening the door to targeted interventions that could be described as an Anti-Contagion Purchase Programme, or ACPP. Hence, the ECB has options other than simply expanding QE or activating OMT....MORE
Steven Englander at Citi, meanwhile, reinforces the point that a monetary union is not a fixed exchange mechanism, which means doomsayers might get spooked yet:
I would estimate that about 40% of the clients I meet think that Greek exit would irrevocably lead to a breakup of the euro zone down the road and we are getting a lot of apocalyptic comments today in the aftermath of recent events. This misses the major difference between a monetary union and fixed exchange rates that the ECB has powers to remedy the situation for other peripherals that simply do not exist in any fixed rate, peg or ERM regime. If the ECB is involved aggressively we may get a risk-on EUR sell-off which would be good the euro zone, the ECB and peripheral assets, even if the EUR is sold…