Greece plunges global markets into turmoil

The chase by Marty Cej:

Asian and European stocks are tumbling, the cost of insuring against default on European bonds is surging and commodities are slumping after Greek Prime Minister George Papandreou said thanks for the bailout money but I think I’m gonna ask the people of Greece what they think about the deal first. In what BMO Capital Market’s economists are calling one of “your all-time bonehead moves,”

Papandreou shocked global financial markets with his call for a referendum on the most recent austerity measures required by the EU, IMF and ECB for the disbursement of funds necessary for Greece to avoid a disorderly default. Fitch Ratings told clients a few moments ago that a rejection of the measures would “increase the risk of a forced and disorderly sovereign default and - whilst not Fitch's central rating case - potentially a Greek exit from the euro.”

In short, Greece may have collapsed Plan A – a generous description if there ever was one – without the benefit of having a Plan B in place. The announcement has likely thrown the agenda for this weekend’s G20 summit into disarray and will turn the market’s conversation to the question of what happens when Greece defaults and exits the euro-zone. Will it mean the end of the euro currency? Is Italy next? Spain? Credit default swaps on Italian debt have soared 32 basis points this morning and jumped 28 points on Spanish bonds.

The broad Markit iTraxx index of Western European CDS surged 25 basis points. Gavin Nolan, director of credit research at Markit in London will join us at 10:20 am Eastern to walk us through the implications. Silvio Peruzzo, Euro-area economist at RBS will join the conversation a few minutes later.

The Reserve Bank of Australia cut interest rates this morning for the first time since 2009, saying Europe’s debt crisis was undermining Asia’s export-dominated economies. The rate cut came as a purchasing managers’ index for China fell to 50.4, its lowest level since February of 2009. South Korea, meanwhile, reported its smallest gain in exports in two years. It won’t be hard to connect the dots all the way back to the Canadian economy, earnings growth and the outlook for stocks.

I almost forgot! It’s Mario Draghi’s first day on the job as the new president of the ECB! Congratulations, Mario, and good luck.

It is also the first day of a two-day meeting for the U.S. Federal Reserve’s policy-setting Open Market Committee. The conversation is likely to have changed a bit this morning. How will the increased political and financial risk in Europe affect the discussions? Will there be fewer dissenters this time around? How unconventional can unconventional get?

MF Global became a much more compelling story late yesterday after the Commodity Futures Trading Commission and Securities and Exchange Commission revealed that a last-minute sale of some of the assets to avoid a bankruptcy was scuppered after “deficiencies in customer futures segregated accounts held at the firm” were found.

Unnamed sources are telling Bloomberg and The New York Times that hundreds of millions of dollars in customer accounts may have been funneled into MF Global’s proprietary accounts to back up a losing trade. We need to talk more about the kind of trade that MF Global made, the risk the company took on through its proprietary book and what could happen next. Of course, at the middle of it all, is Jon Corzine, one of the best-known names on Wall Street.

Commodities, currencies, bonds and stocks, they’re all reflecting the sudden increase in financial, political and economic risk emanating from Europe but in different ways. Let’s be specific and accurate. “Commodities falling on European woes” does not help anyone understand anything any better.

And still the earnings parade marches on. We have numbers today from Bell Aliant, Pfizer, Anadarko, Valero, CME Group, Archer Daniels Midland, TransCanada, Baker Hughes, Dollar Thrifty, Dunkin Brands and Westport Innovations.