Business

Published: Monday June 18, 2012 MYT 7:40:00 AM
Updated: Monday June 18, 2012 MYT 4:45:45 PM

GLOBAL MARKETS-Euro, shares jump on relief over Greek vote


LONDON: Investors breathed a sigh of relief on Monday after Greece's election eased fears that Europe's currency bloc would break up, boosting shares and sending the euro to a one-month high.

Greek voters gave a slim majority to parties supporting the country's economic bailout programme but analysts said the rally in financial markets might be limited by concerns about the world economy and problems in Spain and other euro zone members.

U.S. stock index futures and riskier commodities such as crude oil and copper also rose, while safe-haven assets like German bonds and gold fell after rallying last week on fears that the Greek vote could have unleashed financial turmoil.

"Even though the rally in risk may continue for a while, it is no time to get euphoric. The world economy is still in a bad shape and for Greece and others, formidable challenges still lay ahead," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

The euro was up around 0.6 percent at $1.2710, having climbed as far as $1.2748, its highest level in a month. The U.S. dollar index eased 0.3 percent.

A Tokyo Stock Exchange employee looks up at a monitor displaying market indices at the bourse in Tokyo June 18, 2012. Japan's Nikkei share average rose to a one-month high in early trade on Monday after pro-bailout parties won a majority in the Greek election, averting the possibility of the country's imminent and tumultuous exit from the euro zone. - REUTERS/Yuriko Nakao

The FTSE Eurofirst 300 index of top European shares jumped 1.1 percent to 1,004.20 points, while demand for bank shares saw the blue chip Euro STOXX 50 index advance by 1.3 percent. A rally across Asia earlier helped lift the MSCI world equity index 0.7 percent to 307.79.

Germany 10-year bond prices fell sending yields up as much as nine basis points to 1.54 percent, their highest level since mid-May. - Reuters

Ear;ier re[prt

Currency dealers monitor screens in the trading room of the Korea Exchange Bank headquarters in Seoul, South Korea, 18 June 2012. The Korea Composite Stock Price Index (KOSPI) jumped 38.73 points, or 2.08 percent, to 1,898.89 in the morning, as Seoul stocks gathered steam following the victory of pro-bailout parties in the Greek elections, which could allow the country to stay within the eurozone. EPA/YONHAP

SINGAPORE: The euro hit a one-month high, Asian shares rose more than 1.5 percent and European index futures jumped on Monday after Greece's election delivered a slim parliamentary majority to pro-bailout parties, a result seen as crucial to European leaders' efforts to hold the euro together.

Futures for the Euro STOXX 50 opened up 1.6 percent, while Germany's DAX futures rose 1.5 percent and France's CAC-40 futures gained 1.3 percent, signalling a strong start when trading begins. Spreadbetters called London's FTSE 100 to open up 1.2 percent.

U.S. stock index futures and riskier commodities such as crude oil and copper also rose, while gold fell after a rally last week, when investors had looked to bullion as a safe haven amid fears the election could trigger financial turmoil.

But some asset markets began to pull back from the peaks scaled early in the Asian trading day, as market players cautioned there were still plenty of hurdles ahead and the initial positive market reaction could prove to be short-lived.

"I'm not sure the rally is going to last long," said Dominic Schnider, executive director for wealth management research at UBS. "The problems are still there, you still have huge fiscal issues and it's not just Greece, it's Spain and others."

Parties in Greece that broadly support the 130 billion euro EU/IMF bailout will begin talks on forming a government on Monday. The parties, conservative New Democracy and the mainstream socialist PASOK, would have a parliamentary majority.

Financial markets had feared a victory for SYRIZA, the radical leftists opposed to the austerity package of job, wage and pension cuts that are a condition of the bailout, without which Greece would be bankrupt.

"This election result should keep hopes alive that Greece will stay in the euro," said Taisuke Tanaka, chief FX strategist at Deutsche Securities.

NO "DRACHMAGEDDON"

MSCI's broadest index of Asia Pacific shares outside Japan rose 1.6 percent and Tokyo's Nikkei share average finished up 1.8 percent, its best close in nearly a month. U.S. S&P 500 futures were trading around 0.3 percent higher.

"It's a temporary rally but we're seeing broad gains because the global situation has changed now that the prospect of a 'Drachmageddon' has disappeared," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities in Tokyo.

The euro was up around 0.6 percent at $1.2710, having climbed as far as $1.2748, its highest level in a month. The U.S. dollar index eased 0.3 percent.

U.S. crude rose 0.9 percent to around $84.80 a barrel, Brent crude gained around $1 to about $98.60 and copper was 0.8 percent higher around $7,572 a tonne.

Safe-haven assets retreated, with gold down 0.4 percent around $1,622 an ounce and benchmark U.S. Treasury 10-year yields rising to around 1.65 percent from about 1.58 percent in last U.S. trade on Friday.

As well as cheering investors, the Greek election result should also come as a relief for world leaders who are due to kick off a G20 meeting in Mexico on Monday.

A statement from the Group of Seven major industrialised nations said it was in "all our interests" for Greece to remain in the euro zone while respecting its international bailout commitments.

CRISIS NOT OVER

But amid the relief, investors' focus was already returning to the many unresolved elements of Europe's deep-seated debt crisis, not to mention concerns over a faltering U.S. recovery and China's transition to a lower growth trajectory.

"We are back to guessing whether or not we will see a growth pact and eurobonds," said Westpac Bank foreign exchange strategists Robert Rennie and Sean Callow in a note. "We are back to guessing when China will come up with a fiscal package to help stabilise a sharply slowing Chinese economy."

Greece's economy remains in deep crisis after five years of recession, Spain has been pushed into seeking 100 billion euros from Europe to rescue its banks and Italy's poor growth prospects and high debt have put it in the bond markets' sights.

After reaching a euro-era high above 7 percent on Thursday, Spain's 10-year bond yield eased 6 basis points from its closing level to 6.90 percent on Friday, while Italian yields fell 15 bps to 6.01 percent.

"Eyes now fall on the opening of the credit-default swap (CDS) and bond market, where a pullback in yields across the sovereigns could push risk up another leg," said Chris Weston, a dealer at IG Markets in Melbourne. - Reuters

Earlier report

SINGAPORE: The euro jumped to a one-month high and Asian shares rose nearly 2 percent on Monday after Greece's election delivered a slim parliamentary majority to pro-bailout parties, a result seen as crucial to European leaders' efforts to hold the euro together.

U.S. stock index futures and riskier commodities such as crude oil and copper also rose, while gold fell after a rally last week, when investors had looked to bullion as a safe haven amid fears the election could trigger financial turmoil.

But analysts cautioned there were still plenty of hurdles ahead and the initial positive market reaction could prove to be short-lived.

"The question is whether there will be a sustained rebound as there's still so many things to sort out - the euro zone's fiscal problems and Spanish banks," said Masayuki Doshida, senior market analyst at Rakuten Securities in Tokyo.

Parties in Greece that broadly support the 130 billion euro EU/IMF bailout will begin forging a government on Monday. The parties, New Democracy and PASOK, would have a parliamentary majority.

Financial markets had feared a victory for SYRIZA, the radical leftists opposed to the austerity package of job, wage and pension cuts that are a condition of the bailout, without which Greece would be bankrupt.

MSCI's broadest index of Asia Pacific shares outside Japan rose 1.7 percent and Tokyo's Nikkei share average jumped 1.8 percent. U.S. S&P 500 futures were trading around 0.4 percent higher.

"It's a temporary rally but we're seeing broad gains because the global situation has changed now that the prospect of a 'Drachmageddon' has disappeared," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities in Tokyo.

The euro was up around 0.4 percent at about $1.2685, having climbed as far as $1.2748, its highest level in a month. The U.S. dollar index eased 0.2 percent.

U.S. crude rose 1 percent to around $84.90 a barrel, Brent crude gained nearly $1 to above $98.50 and copper was 0.6 percent higher around $7,556 a tonne.

Safe-haven assets retreated, with gold down 0.3 percent around $1,623 an ounce and benchmark U.S. Treasury 10-year yields rising to around 1.65 percent from about 1.58 percent in last U.S. trade on Friday.

CRISIS NOT OVER

As well as cheering investors, the Greek election result should also come as a relief for world leaders who are due to kick off a G20 meeting in Mexico on Monday.

A statement from the Group of Seven major industrialised nations said it was in "all our interests" for Greece to remain in the euro zone while respecting its international bailout commitments.

But amid the relief, investors' focus was already returning to the many unresolved elements of Europe's deep-seated debt crisis, not to mention concerns over a faltering U.S. recovery and China's transition to a lower growth trajectory.

"We are back to guessing whether or not we will see a growth pact and eurobonds," said Westpac Bank foreign exchange strategists Robert Rennie and Sean Callow in a note. "We are back to guessing when China will come up with a fiscal package to help stabilise a sharply slowing Chinese economy."

Greece's economy remains in deep crisis after five years of recession, Spain has been pushed into seeking 100 billion euros from Europe to rescue its banks and Italy's poor growth prospects and high debt have put it in the bond markets' sights.

After reaching a euro-era high above 7 percent on Thursday, Spain's 10-year bond yield eased 6 basis points from its closing level to 6.90 percent on Friday, while Italian yields fell 15 bps to 6.01 percent.

"Short-covering is well and good but will long-term investors decide that the crisis is over and move back into peripheral countries' debt, or equities? We fear that is highly unlikely," said Sebastian Galy, strategist at Societe Generale in New York.

Galy said more political and structural change was needed to shore up the euro zone's financial system, and a growth plan was urgently required as well.

"The bottom line is that Europe still needs to agree on something that smells and feels a lot more like joint funding than anything that has been suggested so far." - Reuters

Earlier report

SYDNEY: The euro and risk currencies jumped on Monday and global shares were poised to open higher as the risk of a Greek exit from the euro zone faded after political parties committed to a Greek bailout deal looked set to win a cliffhanger election.

The euro climbed as high as $1.2748, from around $1.2655 late in New York on Friday, while the Australian dollar, often sold in times of market stress, popped above $1.0100 for the first time in over five weeks.

U.S. stock index futures pointed to a firmer start for Wall Street later in the day, with S&P 500 index futures 0.7 percent higher. Investors likewise trimmed positions in safe-haven bonds with U.S. Treasury futures off more than a point at the open in New York.

U.S. crude and Brent crude both gained more than $1 a barrel to $85.35 and $99.23 respectively.

"The markets should stabilize in the short term, as can be seen already from the euro moving above $1.27," said Ion-Marc Valahu, a fund manager at Clairinvest in Geneva.

The Greek election looked likely to yield a coalition government led by conservative New Democracy, which with 80 percent of votes counted was set to narrowly beat the radical leftist SYRIZA, which rejects the terms of the bailout package.

Because of a 50-seat bonus given to the party which comes first, that result would give New Democracy and PASOK 163 seats in the 300-seat parliament, in an alliance broadly committed to the 130 billion euros ($164 billion) bailout.

The outcome should also come as a relief for world leaders, who are due to kick off a G20 meeting in Mexico on Monday.

Mexican President Felipe Calderon said on Saturday the world's biggest economies must commit to a strong Europe and could agree to further bolster the International Monetary Fund's ability to contain fallout from Europe's debt crisis.

HURDLES AHEAD

Analysts warned there are still plenty of hurdles ahead and the initial positive market reaction could prove to be short-lived.

"Even on the optimistic scenario of New Democracy forming a workable coalition in the coming days, there are tough times ahead," warned Simon Smith, chief economist at FxPro.

"Greece has been without a fully functioning government for over two months now, so there is much to catch-up on. Furthermore, the New Democracy leader Samaras has made clear his intention to gain further concessions from the troika on the current bailout deal, such as securing measures to support growth."

Sebastian Galy, strategist at Societe Generale in New York agreed, saying the vote still left the Greek economy in crisis, with Spain not far behind it.

"Short-covering is well and good but will long-term investors decide that the crisis is over and move back into peripheral countries' debt, or equities? We fear that is highly unlikely."

Galy said more political and structural change was needed to shore up the euro zone's financial system, and a growth plan was urgently required as well.

"The bottom line is that Europe still needs to agree on something that smells and feels a lot more like joint funding than anything that has been suggested so far." - Reuters

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