|Investors fret after Greek, French elections|
|Monday, 07 May 2012 08:31|
Greek and French election results rattled investors on Monday by undermining confidence in the region's plans to cut spending and tackle its debt crisis, sending the euro to a three-month low.
European shares also traded lower, with Greek stocks down 6.4 percent .ATG, but reaction was muted with the UK market closed for a holiday.
Investors sold the bonds of other weaker euro zone members after the two pro-bailout parties in Greece failed to win a parliamentary majority, rekindling fears over the country's future in the single currency.
"With the new political situation in Greece, a (euro) exit has become much more possible than before," said Carsten Brzeski, senior economist at ING.
In a more widely expected result, French Socialist candidate Francois Hollande claimed the presidential seat from Nicolas Sarkozy, increasing concerns that his government may try to weaken a German-led austerity drive across the region.
The signs of a renewed political crisis in Europe came just as Friday's U.S. nonfarm payrolls report dealt a heavy blow to hopes of recovery for the world's largest economy, sparking a widespread selloff on Wall Street and on Asian markets.
"The election results at the weekend are not helpful to calming the worries already in the market after disappointing (U.S.) payrolls report on Friday," said Gerhard Schwarz, head of equity strategy at Baader Bank.
The euro zone's blue chip index, the Euro STOXX 50 .STOXX50E, opened down 1.1 percent, to 2,222.37, its lowest level all year but later recovered to be off 0.45 percent.
The euro hit a low of $1.2955 in Asian trading as the election results become clear but with the key UK market closed, it climbed back to trade around $1.3035, at the bottom of its $1.30-$1.35 trading band seen since February.
PERIPHERAL BONDS HIT
Europe's sovereign debt markets were most affected by fears over the future of the region's fiscal austerity policies, with investors fleeing to safe-haven German government bonds.
German Bund futures hit record highs of 142.44, up 14 ticks, while investors sold Spanish and Italian bonds.
Cash 10-year German yields were 2 basis points lower at 1.56 percent, within a whisker of the record low.
Bond investors were expected to keep away from other peripheral euro zone markets in the coming days as they watch efforts to form a ruling coalition in Athens.
Spain has become the recent focus of the debt crisis and industrial output for March confirmed the economy's weakness. The government is expected to announce a rescue plan for ailing bank Bankia as part of a wider reform of the banking system, sources said on Monday.
The Spanish 10-year government yield was up six basis points at 5.84 percent but analysts expected it to re-test the psychologically important 6 percent.
World equities reflected the sharp falls on Wall Street in the wake of the latest payrolls report and further selling in Asia after the European election results became clear.
The MSCI world equity index .MIWD00000PUS fell 0.8 percent to 14-week lows at 319.01 points after Wall Street posted its worst week of the year last week when new jobs data showed U.S. hiring slowed for the second month in a row.
U.S. stock index futures pointed to further falls on Monday.
The surprisingly weak non-farm payrolls report for April fueled fears of a drop in energy demand helping send Brent crude oil below $113 a barrel, its lowest level since late January.