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Despite Initial Tremors, Markets Shake Off Greek Election Results Despite Initial Tremors, Markets Mostly Shake Off Greek Election Results
(about 1 hour later)
PARIS — Financial markets on Monday took in stride the result of Greek parliamentary elections, which handed a decisive victory to the left-wing Syriza party a day earlier. PARIS — Financial markets on Monday largely took in stride the results of Greek parliamentary elections, which handed a decisive victory to the left-wing Syriza party a day earlier.
Syriza and its outspoken leader, Alexis Tsipras, had campaigned against the austerity measures imposed on Greece by its international creditors. Syriza and its outspoken leader, Alexis Tsipras, who had campaigned against the austerity measures imposed on Greece by its international creditors, formed a coalition government on Monday with a right-wing fringe party, Independent Greeks.
The Euro Stoxx 50 index, a barometer of eurozone blue chips, was up about 0.4 percent in late morning trading on Monday, while the FTSE 100 index in London was down 0.2 percent. The euro rose 0.3 percent to $1.1241. The Euro Stoxx 50 index, a barometer of eurozone blue chips, rose 0.2 percent in afternoon trading, while the FTSE 100 index in London slipped 0.5 percent. The euro rose 0.3 percent to $1.1229.
Markets trembled initially, sending the yield on the 30-year Treasury bond in the United States to a record low in early trading, as investors moved funds to assets perceived as safer. The euro briefly dropped to as low as $1.1098, its lowest levels since 2003. Markets had trembled initially, sending the yield on the 30-year Treasury bond in the United States to a record low in early trading, as investors moved funds to assets perceived as safer. The euro briefly dropped to $1.1098, its lowest level since 2003.
The change in the Greek political landscape comes at a time of unsettling shifts in the world economy that have left policy makers and investors on alert for disruptions in financial markets. Among the most important developments: Crude oil prices have continued to fall this year after dropping around 50 percent in 2014, and the European Central Bank last week announced that it planned to begin buying 60 billion euros, or about $67 billion, worth of bonds each month until inflation rises to its official target of just under 2 percent. Stocks in Athens fell 2.5 percent, having fallen as much as 3.5 percent in morning trading.
Adding to concerns, economists at the International Monetary Fund warned last week that growth prospects were dimming, apart from in the United States, raising the specter of a global slowdown that would further exacerbate the problems of low price pressures and growing inequality. The election result was largely in line with analysts’ predictions, and investors had had weeks to adjust their portfolios to reflect the possibility that a showdown over the future of Greece’s economic direction was near, pitting Athens against Brussels.
The change in the Greek political landscape comes at a time of unsettling shifts in the world economy that have left policy makers and investors on alert for disruptions in financial markets. Crude oil prices continue to fall this year, after having dropped about 50 percent in 2014, and the European Central Bank announced last week that it would buy 60 billion euros, or about $67 billion, worth of bonds each month until inflation in the eurozone rises to its official target of just under 2 percent.
The International Monetary Fund warned last week that the prospects for global growth were dimming — with the notable exception of the United States — raising the specter of a slowdown that would exacerbate the problems of low-price pressures and growing inequality.
Derek Halpenny, the European head of global markets research at Bank of Tokyo-Mitsubishi in London, said in a research note that he did not expect the change in Athens to create “existential risks” to the euro, or for strong euro-selling pressures to emerge in the short term.Derek Halpenny, the European head of global markets research at Bank of Tokyo-Mitsubishi in London, said in a research note that he did not expect the change in Athens to create “existential risks” to the euro, or for strong euro-selling pressures to emerge in the short term.
But Mr. Halpenny said that there were “certainly increased risks, and an error in the negotiating stage could mean this becomes a bigger negative for the market.”But Mr. Halpenny said that there were “certainly increased risks, and an error in the negotiating stage could mean this becomes a bigger negative for the market.”
European bonds, whose prices had been rising for months in anticipation of the European Central Bank’s move last week to stimulate the economy, were mostly stronger on Monday, driving down yields. European bonds, whose prices had been rising for months in anticipation of the European Central Bank’s move last week to stimulate the economy, showed little movement on Monday.
Spanish and Italian bond yields fell to near-record lows, below 1.5 percent. The two countries have been among the biggest beneficiaries of the central bank’s plans. German 10-years bonds were unchanged at 0.36 percent. Greek bond prices fell amid the postelection uncertainty, sending their yields higher, to 8.63 percent — the highest in the eurozone. Yields reached a peak of 10.3 percent on Jan. 7, when pre-election jitters were strongest.
But Greek bonds fell amid the postelection uncertainty, with their yields rising to 8.63 percent, the highest in the eurozone. Yields reached a peak of 10.3 percent on Jan. 7, when pre-election jitters were strongest. Perhaps the biggest question for financial markets is what the Syriza victory will mean for Greek bonds, particularly in light of the plan announced by Mario Draghi, the European Central Bank president, last week. The central bank plans to buy up a significant part of the bonds issued by each of the 19 eurozone governments, something that could bring substantial relief to the Athens government’s borrowing costs.
The main stock index in Athens, which initially fell more than 3.5 percent on Monday, recovered somewhat and was down about 1 percent in late-morning trading. But Mr. Draghi noted at a news conference on Thursday that, “There are obviously some conditions before we can buy Greek bonds,” including that the Greek government honor its bailout program.
Asian stocks were mixed, with major indexes in Tokyo falling about 0.3 percent and Hong Kong shares rising to a similar degree. Trading in Standard & Poor’s 500 index futures indicated that stocks would be little changed at the opening bell in New York. If Athens meets the conditions, the European Central Bank “could buy bonds in, I believe, July,” Mr. Draghi added.
While polls last week showed Syriza was likely to win the elections, investors on Monday still appeared to be unsettled initially by the results. Most markets around the world had rallied on Friday after Mario Draghi, the president of the European Central Bank, announced a new government bond-buying program to stimulate growth in the eurozone. The German daily Frankfurter Allgemeine Zeitung, which often reflects the opinion of the business community, stated in an initial analysis: “Tsipras will not be able to escape one fact: Greece needs more foreign money, whether from the markets or from the European Union. He has a choice between compromises with the troika and a huge state bankruptcy that could lead his country further into the abyss.”
Christine Lagarde, the managing director of the I.M.F., said in an interview posted on the website of the French daily Le Monde on Monday that Greece still had to honor pledges it made as part of a bailout plan.
Athens committed to overhaul government administration and tax collection, and to reduce delays in the legal system, Ms. Lagarde said. “These aren’t austerity measures, these are fundamental reforms that remain to be carried out,” she said.
Asked by Le Monde about Mr. Tsipras’s pledge to restructure Greece’s debt, Ms. Lagarde responded that there were “internal rules of the eurozone to be respected.”
“We can’t make special categories for this or that country,” she said.
Mr. Tsipras, who is positioned to become the next prime minister, has pledged to keep Greece within the eurozone as he seeks to negotiate an easing of austerity measures and to rebuild the economy. The country has the highest unemployment rate in the eurozone, at 25.7 percent as of September, the most recent data available.Mr. Tsipras, who is positioned to become the next prime minister, has pledged to keep Greece within the eurozone as he seeks to negotiate an easing of austerity measures and to rebuild the economy. The country has the highest unemployment rate in the eurozone, at 25.7 percent as of September, the most recent data available.
Asian stocks were mixed, with major indexes in Tokyo falling about 0.3 percent and Hong Kong shares rising 0.2 percent. Trading in Standard & Poor’s 500 index futures indicated that stocks would post modest declines at the opening bell in New York.