Stock futures slipped on Monday as initial enthusiasm for a victory for pro-bailout parties in Greek elections was overshadowed by rising Spanish and Italian bond yields.
Futures had advanced earlier on news Greece’s center-right New Democracy party will try to form a coalition with other parties and Germany indicated it may be willing to grant the fiscally troubled nation more time to meet fiscal targets needed to avoid a euro exit. Shares traded on the İstanbul Stock Exchange (İMKB) gained 0.3 percent in value on Monday’s first session. The benchmark closed the first session at 58,653 points. The positive atmosphere also reflected on an ever-depreciating lira while one Turkish Lira was traded below 1.8 level against the US dollar on Monday for the first time in weeks. The lira can be expected gain, albeit modestly, against the greenback should markets maintain optimism in the days to follow, observers argued.
But the election results offered little reprieve from contagion concerns as yields on both Italian and Spanish bonds rose, with Spain’s 10-year bond yield climbing above the 7 percent level viewed as unsustainable by many analysts.The rising yields prompted Spain’s treasury minister to urge the European Central Bank to make a firm response to market pressures. “It’s looking more and more like plugging the dam,” said Andre Bakhos, director of market analytics at Lek Securities in New York. “We may have the backing of Greece to stay in the euro zone, but that is only one aspect and as the short-term euphoria wears off investors realize the problem hasn’t gone away.”
Banking shares, seen as particularly sensitive to euro zone troubles, edged lower. Bank of America Corp was off 0.6 percent to $7.85 and Citigroup Inc was down 0.3 percent at $28.22 in premarket trade.European shares erased early gains and briefly turned negative before stabilizing, with the FTSEurofirst 300 index up 0.3 percent. S&P 500 futures fell 3.3 points and were slightly below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures dipped 34 points, and Nasdaq 100 futures lost 0.25 point. Asian shares rose more than 1.5 percent on the Greek election results.
Leaders of Italy and Spain, two countries at the centre of contagion fears in the euro zone debt crisis, on Monday welcomed the Greek election result as good news for Europe. Italian Prime Minister Mario Monti said the poll outcome, a narrow win for the pro-bailout New Democracy party, augured well for the future of the European Union and euro zone countries but added that Athens must move quickly to form a new government.
Monti, whose comments were aired on Italian television, said he was very pleased with the victory of the New Democracy party.” We hope that a strong government can be formed which confirms the commitments made with the EU,” he said. Monti said Greeks had understood the importance of the EU, even if under difficult circumstances.
Speaking on his arrival at Los Cabos for the G-20 talks, Spanish Prime Minister Mariano Rajoy greeted the election outcome as “good news for Greece, very good news for the European Union, for the euro and also for Spain.” Both Spain and Italy saw their borrowing costs rise to near unsustainable levels as investor jitters about a possible Greek exit from the euro zone intensified the currency bloc’s debt crisis in the weeks leading up to the rerun Greek election. Rajoy said he was in favor of European fiscal integration and a banking union.
Greek vote pulls Greek Cyprus from precipice for now
Greece’s election has pulled Greek Cyprus back from the precipice -- for now -- but Nicosia still has urgent work to do to rescue its banking sector if it is to avoid becoming the next casualty of the euro zone crisis. The relief of Greek Cypriot officials was palpable on Sunday night as results came in from Athens showing conservative Antonis Samaras had won Sunday’s vote promising to stick to a European bailout, although the government did not immediately comment.
Greek Cyprus, which has a big offshore financial industry, still faces a European bank regulator deadline in just two weeks to find 1.8 billion euros -- around a 10th of its GDP -- to bail out its second largest lender. But that is just a fraction of the damage that would have been done to Greek Cypriot banks if Samaras had lost to leftist Alexis Tsipras, who threatened to toss out the bailout, and European leaders had responded by cutting off Greece’s funding.