Group Economics
Daily Insight
Macro & Financial Markets Research
Greek crash
Nick Kounis & Maritza Cabezas
+31 20 343 5616
4 August 2015
Greek equity market slumps on return, as economy nose-dives and Grexit risks remain China PMI adds to pressure on commodity markets, though other data more encouraging Fed still looks set to kick-off a slow rate hike cycle in September
Greek equity market posts spectacular drop on re-open
Greek economy literally nose-dives
The Greek equity market re-opened on Monday follow a five-
% qoq
week enforced break following the crisis that has engulfed the
Index
4
60
banking stocks hitting the -30% maximum threshold allowed by
2
55
the exchange. The equity market regained some traction later,
0
country. The ASE index fell as much as 23%, with several
50
but was still down 16%.
45 -2
Slump reflects Grexit risks and deepening recession The Greek crisis deepened during the period the market was closed. Although an agreement with creditors has followed, the
40
-4
35 30
-6 07
08
market reaction reflects that Grexit risks remain elevated.
to lead to recovery. In the meantime, the economy has fallen
10
11
GDP (lhs)
There are still a lot of hurdles to overcome before Greece is on a viable long-term programme that can eventually be expected
09
12
13
14
15
Manufacturing PMI (rhs)
Source: ABN AMRO Group Economics, Markit
off a cliff. The manufacturing PMI fell to an all-time low in July and is consistent with a deep recession (see chart). We expect
Fed likely to raise target in September…
the Greek economy to contract on average by 3% this year
Meanwhile, we maintain our current call that the Federal
and 5% in 2016.
Reserve will start a slow rate hike cycle in September, despite the mixed data released in the past days. Although US
China PMI fuels commodity worries
economic growth is lower than in previous cycles, it is growing
On a more global level, investor worries continue to surround
at above-trend rates, suggesting that slack is diminishing.
China’s economic outlook and the related impact on
Indeed the global financial crisis claimed its toll with a loss in
commodity markets. Indeed, commodity prices saw broad-
output and slower potential growth in the US. Average trend
based declines on Monday, partly reflecting the confirmation
growth was around 3.1%, but potential growth is now around
that China’s manufacturing PMI was weak on Monday.
2%. Strong job growth and falling unemployment are in line
Although China risks have increased over the last few months,
with this picture.
other high frequency data have shown signs of stabilising momentum recently. Nevertheless, a number of commodities
…despite weak wage growth
are also being undermined by over-supply, not least oil, while
Wage growth remains subdued, but it should not be a barrier
precious metals are being hurt by the prospect of Fed hikes.
for the Fed to raise rates. The employment cost index increased by only 0.2% sa in the second quarter, the softest
Global manufacturing growing moderately
gain since 1982. On a year on year basis, the ECI increased
More broadly, the global manufacturing PMI was stable at 51
2% in the second quarter. However, Chair Yellen has
in July, leaving the index on a sideways trend consistent with
repeatedly stressed this is not a necessary condition. She
moderate growth. Although China’s index fell, it was broadly
recently noted that “we have not seen wage growth pick up…
stable in the eurozone (down 0.1 pp to 52.4) and US (steady at
we may not see wage growth pick up, I wouldn’t say either that
53.8) and it rose in the UK and India. Global manufacturing is
is a precondition to raising rates…” Nevertheless, the next two
currently growing moderately, but we expect it to gain some
job reports and other incoming data will be crucial for the
pace as domestic demand in advanced economies firms and
September rate decision.
stimulus help China’s economy to regain traction.