Apart from Greece, earnings reports may move market this week

WHEN the people of Greece voted on Sunday, they decided the fate of their nation - and of world stock markets.

A "no" vote will almost certainly lead to a "Grexit", a credit shock and a crash on worldwide stock markets. A "yes" vote should lead to compromise between Athens and its international creditors and a relief rally on the stock market.

Hours before the referendum, the polls could hardly be closer: an almost even split between the "yes" and "no" camps. At a rally in Athens on Friday, tens of thousands of supporters listened to Greek Prime Minister Alexis Tsipras speak of the nation's creditors as tyrants and chanted "oxi", Greek for "no".

Some observers believe Mr Tsipras's bold gamble will backfire, however. The "yes" vote has gained momentum throughout an anarchic week in Greece. By calling a referendum, Mr Tsipras put the Greek economy in limbo, somewhere between the euro and the drachma, the currency to which the nation would have to revert in the event of a "Grexit". This meant that all banks and financial markets were shut, and Greeks could not withdraw more than 60 euros (S$90) a day from automated-teller machines.

An article in TheNew York Times compared the eurozone's effort to pressure Greece into accepting the alliance and the financial burdens that come with it to the "Melian dialog", the famous opening to Thucydides's Peloponnesian War. The comparison hardly augurs well for the eurozone or Greece. The Athenians ended up slaughtering the intransigent Melians and the Peloponnesian War eventually ended the Athenian empire.

Many economists say the long- term project of the eurozone has been weakened by the obvious antipathy in Greece and elsewhere to Brussels - the hub of European Union - and Berlin - the seat of the most powerful European government. In the short term, however, the euro crisis looks set to subside - as it has several times in the last half-decade - as Greece votes "yes".

Outside Greece, the most important data point of the week is likely Alcoa's earnings report on Wednesday, which will officially kick off the second-quarter earnings season. Investors are hoping the marked deceleration in earnings growth for Standard & Poor's 500 companies in the first quarter was a one-off for most companies.

"Four themes that we will be focused on during earnings season are Greece, the strong US dollar, buybacks, and consumer spending," said analysts at brokerage Barclays, in a note to clients. "We estimate exposure to Greece is minimal, but Europe is likely to be a prominent theme during conference calls. Given the strength of the dollar, we believe the translation adjustment required in second quarter 2015 could be the largest ever."

Commodities companies such as aluminium processor Alcoa are most exposed to the negative effects of dollar strength. The price of aluminium is measured worldwide in local currencies but translated back to dollars. When the currency strengthens, Alcoa has to provide more aluminium for the same amount of dollars.

Already, some commodity companies, such as Peabody Energy, the coal miner, have flagged weak demand. Energy companies are likely to do slightly better than they did in the first quarter when oil price plunged, as oil prices have stabilised at around US$60 a barrel; but that's still far lower than in the second quarter a year ago.

If earnings reports outside the commodities and energy sectors hold up, it may suggest that the US economy is ready for a rate hike, even though the stock market has been in a holding pattern all year, waiting for a decision on Greece and the timeline on the Fed's rate plans.

On Monday, the market will have an answer on at least one of these questions. "The S&P 500 moved in just a 4.2 per cent range last quarter, the second smallest range for a quarter since 1950," said Ryan Detrick, senior technical strategist for See It Market. "I like to use the beachball-effect (analogy) in this case. You can hold the ball under the water for a while, but once it starts moving, it is tough to stop. After such a dull quarter, any little nudge could be all it takes to get things moving."

The only thing outside earnings reports that could light a fire under the stock market this week is a continuation of the deal craze.

In a sign of how hectic the merger-and-acquisition craze has become, the US$28 billion merger between property-and-casualty insurers ACE and Chubb was unseated as the largest merger in the history of the insurance industry a few days later when Aetna agreed to buy Humana for a staggering US$37 billion.

Humana generates most of its revenue from state-supported insurance programmes, including the Medicare retiree system, the Medicaid system for poor Americans and the newly created health-insurance exchanges. Scale is important in all of those businesses, but particularly for the exchanges where consumers see a menu of plans, listed by the cost of the monthly premium.