GREECE RALLY FIZZLES

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World markets start higher in an initial positive reaction to Greek elections that left the main pro-bailout party on top but needing to form a coalition government.

World markets start higher in an initial positive reaction to Greek elections that left the main pro-bailout party on top but needing to form a coalition government.

NEW YORK (CNNMoney) — World markets started the week mostly higher Monday in an initial positive reaction to Greek elections that put the main pro-bailout party on top. But there were indications in both Europe and the United States that any positive sentiment could be short-lived.

In Asia, Japan’s Nikkei (N225) rose nearly 2% in the first minutes of trading and finished up 1.8%. The Hang Seng (HSI) in Hong Kong rose 1.8% at the start of trading before pulling back a bit, ending with a 1% gain. The Shanghai Composite (SHCOMP) gained 0.4%.

European markets opened with solid gains, but pulled back. London’s FTSE 100 (UKX) turned 0.1% lower after initial gains, while Paris CAC 40 (CAC40) swung between slight gains and slight losses and was unchanged in morning trading. Only Frankfurt’s DAX (DAX) remained in positive territory, up 0.6%.

Spain’s IBEX 35 index plunged 1.6%, a sign that investors’ focus was shifting from the diminished threat that Greece could pull out of the eurozone to the still unresovled problems in Spain and its banking sector.

Yields on bond debt across the continent rose, led by Spain’s 10-year yield hitting a euro-era record high of 7.13%, up 0.25 percentage point. Any reading above 7% is seen as a warning sign that a nation will need a bailout by other countries in the eurozone.

While Spain has requested help with a €100 billion bank bailout of its banking sector, it has yet to request a bailout for its own sovereign debt. But the higher yields could raise its borrowing costs so high that it could be forced to do so.

U.S.futures were mixed, with the SP 500 (SPX) and Nasdaq (COMP) slightly lower, while the Dow Jones industrials (INDU) remained up slightly. Futures provide an indication of market direction before trading starts .

Investors had been bracing for the possibility that the anti-bailout leftist party would win Sunday’s Greek elections. So the win by New Democracy, which backs the tough cost cutting measures that are a bailout requirement, offered some measure of relief.

But Greece is only one of the problems facing Europe and investors.

The relief is “temporary because it’s not the final verdict on Europe,” Tsutomu Yamada, a trader at online brokerage kabu.com, told CNN.

Sunday’s vote didn’t resolve many key questions about Greece’s economic future. For starters, New Democracy will have to try to form a coalition to lead.

And Europe’s broader problems remain — unsustainable public debt levels, a broad economic slowdown and in some countries deep recession and uncertainty about eurozone governance.

On Friday, European Central Bank President Mario Draghi said that the bank would “continue to supply liquidity to solvent banks where needed.”

He said strengthening European economies is crucial, and that it’s time to implement plans to spur long-term growth. To top of page

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