Uncertainty tends to be a breeding ground for inaction, and this remains the case with the market and the lack of visibility on Greece.
The referendum yielded a ‘No’ and Greek FinMin Varoufakis has resigned but these in no way suggest that any resumption of negotiations between Greece and creditors will be any easier.
If meeting Greek demands had been easy for the creditors, especially northern countries, then it would have been on the table a long time ago.
The lack of a market reaction today, despite the higher probability of a Grexit will help the EU stand their ground and maintain red lines. Yielding to Greece would be seen by the creditors as:
1) setting a bad precedent for future bailouts, and
2) reneging on promises that were made to their own electorates when Greece was given the bailout funds.
Whether it’s the price action on FX (EUR/USD) or EZ bonds, what is clear is that beyond the kneejerk reaction, we have once again seen limited fallout which is more contained than last week.
Grexit is now seen by many banks as a base case, with probabilities ranging 55-80%.
