By Danny Jasper, Senior Vice President, Capital Markets, Castle & Cooke Mortgage, LLC

Fears of a Greek exit from the European Union (EU), which have dominated global headlines for the past month, appeared to come closer to fruition over the weekend. Sunday’s vote on whether Greece should accept the most recent offering from Greek creditors was a surprising “NO,” with 61.3% of voters refusing to acquiesce to the austerity demands.

While many economists had expected this vote to pass, it really isn’t much of a surprise that Greek voters said they’ve had enough, as their economy has been in shambles — even with EU assistance — since 2007. Since that time, their economy has contracted 25%, the unemployment rate is over 25% and acceptance of the most recent offering of more funding for continued austerity was seen as just more of the same.

This puts the EU in an interesting predicament, as there are two options, neither of which is going to cool volatility in the region.  Option number 1 is that Greek creditors can revise their terms, potentially by lowering austerity requirements and forgiving a portion of current Greek debt.  This would lessen the depression on the Greek economy, but wouldn’t really solve the underlying structural problems making the Greek economy completely uncompetitive with neighboring countries while continuing to use the Euro.  Also, if the IMF and ECB cave and revise terms in Greece’s favor, there will be some contagion risk in that other countries facing problems (Ireland, Spain, Portugal, in particular) would then seem to have some leverage to demand renegotiation of their own bailout terms.

Option number 2 would be to not extend revised terms, which would likely cause Greek banks to run out of money in the next 10 days, forcing them to issue a parallel currency to the Euro in order to pay its bills.  This would ultimately be the de facto exit of Greece from the European Union, as members of the EU are not allowed to issue their own currency. Furthermore, the option would enhance Greece’s current economic depression, but the devaluation of the parallel currency would eventually help improve their economy in the long run, as tourism, in particular, would pick up considerably.

There is no way to tell which option is best at this point, especially considering the significant exposure level European banks have to Greece, but it is clear from Sunday’s vote  hat the Greek people are sick of being bullied by the ECB and IMF.  The next big date on the calendar is July 20th, when the next payment is due to the ECB.  Without a deal, the Greeks will default on this payment and the creation of the parallel currency will happen more quickly.

Top Economic Indicators and Events for the Upcoming Week

Moving to the United States, upcoming data is relatively light for the next five days after last week’s weak payroll report. Highlights for this week’s scheduled data include PMI and ISM reports earlier today (both which came in just below expectations), FOMC minutes from last month’s meeting to be released on Wednesday and wholesale inventories and trade sales for May coming out on Friday.

The U.S. Treasury is selling $24 billion in 3-year notes tomorrow, $21 billion in 10-year notes Wednesday, and $13 billion in 30-year notes Thursday.

Economic calendar for the week of 7/6-7/10/15 below:

Economic Calendar:

Date Time Event   Survey Actual Prior Revised
07/06/2015 09:45 Markit US Composite PMI Jun F 54.6 54.6
07/06/2015 09:45 Markit US Services PMI Jun F 54.9 54.8 54.8
07/06/2015 10:00 ISM Non-Manf. Composite Jun 56.4 56.0 55.7
07/06/2015 10:00 Labor Market Conditions Index Change Jun 2 0.8 1.3
07/07/2015 08:30 Trade Balance May -$42.75B -$40.90B
07/07/2015 10:00 JOLTS Job Openings May 5300 5376
07/07/2015 10:00 IBD/TIPP Economic Optimism Jul 48.8 48.1
07/08/2015 07:00 MBA Mortgage Applications 3-Jul -4.70%
07/08/2015 14:00 U.S. Fed Releases Minutes from June 16-17 FOMC Meeting
07/08/2015 15:00 Consumer Credit May $18.500B $20.541B
07/09/2015 08:30 Initial Jobless Claims 4-Jul 277K 281K
07/09/2015 08:30 Continuing Claims 27-Jun 2264K
07/09/2015 08:45 Bloomberg July United States Economic Survey
07/09/2015 09:45 Bloomberg Consumer Comfort 5-Jul 44
07/10/2015 10:00 Wholesale Inventories MoM May 0.30% 0.40%
07/10/2015 10:00 Wholesale Trade Sales MoM May 0.90% 1.60%