- Greek election gives relief as New Democracy wins.
- Equities and euro rally, bonds sell-off.
- Socialists in France gain absolute majority.
- Focus on forming of Greek government, G20-summit and Fed meeting on Wednesday
There was a sigh of relief in financial markets as the conservative New Democracy became the biggest party in the Greek election where it got 29.7% of the votes. New Democracy thus won the neck-on-neck race with the left-wing coalition Syriza (26.9%) that wants to go against EU and IMF with the risk of pushing Greece out of the euro. The result means that New Democracy will get 50 bonus mandates and likely form a government with left-wing parties Pasok and Dimar. The threat of a euro exit has thus been reduced significantly in the short-term.
There was also relief among global leaders. The euro finance ministers last night issued a statement and welcomed the result and said the Troika of EU, IMF, and ECB would return to Greece as soon as there was a new government in place.
Equity markets already rallied on Friday on expectations of a positive outcome and have rallied further in Asia. The S&P future is adding 0.4% to the 1% gain seen on Wall Street Friday. All Asian stock markets are also trading higher.
In FX markets EUR/USD rallied towards 127.5 overnight but has fallen back slightly to 127 later in the session. SEK is trading broadly stable from Friday, whereas NOK is slightly weaker against the euro. Oil prices got a lift to USD 98.5, a rise of USD 1 per barrel. US bond yields have traded a bit higher as safe-haven flows faded. The move has been limited, though, as the Federal Reserve is still expected to ease policy at Wednesday’s meeting.
The second election round in France resulted in an absolute majority to the Socialist Party – see WSJ. Together with its allies it got 314 out of 577 seats in the parliament and can thus push its growth agenda within EU with stronger force while it still sticks to the path of reducing the deficit to 3% next year.
Global Daily
Focus today: The government formation in Greece will be watched closely following yesterday’s election. It looks like the right wing pro-euro/pro-austerity party New Democracy will become the largest party, thereby obtaining the 50 bonus mandates. It is likely to form a government with either PASOK alone or a three-party government including left-wing party DIMAR as well. This significantly reduces the risk of Greece leaving the euro and the result is likely to support market optimism today. The G20-meeting in Mexico kicks off today and while it is clear that the European debt crisis will
be on the top of the agenda, it is just as clear that no specific proposals will be presented just yet. The eurozone countries are instead focusing on having specific proposals ready for the EU-summit on 28 June. It terms of data the only release worth keeping an eye on today is the US NAHB index. Despite the loss of growth momentum in the US economy lately, the housing market has shown improvement over the past months and it will be interesting to see if this continued in June.
Fixed income markets: With a positive election result in Greece risky assets are set for a relief rally. The big questions today are how much investors were positioned for a negative result and how long the positive sentiment will last. We have to be relatively cautious here as markets experienced one of the shortest relief rallies last Monday following the announcement of the EUR 100bn aid package to the Spanish banking sector. This is however more fundamental and we expect to see a sell-off in Bunds, gilts and treasuries today while peripheral bonds are set to perform well. We published revised
yield forecasts on Friday, see euro crisis intensifying.
FX markets: The euro rebounded strongly on what is seen as a market-positive election result in Greece and EUR/USD continues to trade around 1.27 this morning after having reached a 1.2748 high overnight. Greek exit risks still persist but have been reduced and the market should at least price fewer near-term risks. It will be interesting to see over the coming days how much of the stretched short EUR positions will be unwound on the back of this. We do not see this as a trend reversal in EUR/USD, however, as EMU risks remain significant and as especially the US slowdown is likely to see markets more worried over the global economic outlook.
Scandi Daily
No major data releases in Scandinavia today. 
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