Europe close: Stocks drop on Greek worries

European stocks fell on Friday, with investors heading for the exits ahead of Sunday’s Greek referendum.

Ahead of the vote, polls suggested that Greeks were split down the middle about whether to accept the creditors’ bailout terms.

Amidst the uncertainty over Greece, the benchmark Stoxx Europe 600 index ended down 0.53%, Germany’s DAX closed 0.37% lower and France’s CAC 40 ended 0.57% weaker.

In the periphery, Spain’s IBEX 35 dropped 0.61%, while Italy’s FTSE Mib surrendered 0.48%.

In currency markets, the euro was just a touch firmer against the greenback at $1.1100.

“The suspense surrounding Greece’s fate in the Eurozone ahead of Sunday’s referendum has compressed the trading range of EUR/USD to a four-month low,” said Societe Generale.

On Wednesday, Greek Prime Minister Alexis Tsipras urged the nation to reject the terms of an international bailout deal when they go to the polls on Sunday, saying that he believes a ‘no’ vote will lead to better terms from the European Central Bank, the International Monetary Fund and the European Commission.

On Thursday, the International Monetary Fund warned that Greece’s debt are unsustainable and require a haircut.

Meanwhile, Tsipras said on Friday that the nation’s debt will need to be cut by 30%, with a 20-year grace period for payment, in order to be sustainable.

Mulling over the potential impact of the referendum, Goldman Sachs said that whatever the outcome, its base case is for Greece to remain in the Eurozone.

In terms of the potential impact on equities, the bank said its best estimate for the worst-case downside in Europe on a ‘no’ vote is a move to around 3150 on the Eurostox 50. However, “although this would be short-lived as ECB intervention would kick in, prompting investors to focus on improving fundamentals,” it said.

“A ‘yes’ vote followed by an accommodation between the Greek authorities and the institutions would likely see equities up around 10%, back to April highs of around 3830,” added Goldman.

Sticking with Greece, investors digested news that the cash reserves of banks there have dropped to €500m, while the limit for cash withdrawals has reportedly fallen to €50 from €60, as €20 bills were running out.

In corporate news, K+S rallied after Potash Corp said it can address the company’s concerns about its takeover proposals.

In London, Anglo American lost ground amid media reports that the miner was cutting as much as 20% of its workforce at head offices around the world.
Royal Bank of Scotland was also under the cosh following media reports that it may need to pay $13bn to settle a US case arguing that it misled purchasers of mortgage-backed securities.

In terms of overall sectors, banks were in the spotlight on news that Brazil’s antitrust agency, CADE, is investigating 15 global institutions over rigging over the Brazilian currency.

On the economic front, figures released by Eurostat on Friday showed Eurozone retail sales rose 0.2% in May following a 0.7% increase in April, a touch ahead of expectations. The year-on-year increase of 2.4% was also a little ahead of estimates.

Data released by Markit earlier showed the final Eurozone PMI composite output came in at 54.2 in June, up from 53.6 and in line with expectations.
US markets were closed on Friday for the Independence Day holiday.