By Tommy Stubbington
European markets shrugged off a victory for antiausterity party
Syriza in Sunday's Greek election, with a dip in the euro proving
fleeting, and Greek stocks bouncing back from an early slump.
Athens' main stock index slumped by nearly 5%, but recovered to
trade 1% lower by midmorning. Bank shares remained sharply lower,
with Piraeus Bank SA and Eurobank Ergasias SA both down more than
5%.
Weakness in the euro--which has already chalked up big losses
this year--was short-lived, with the currency ticking up slightly
against the dollar and the yen in European trade. Investors had
anticipated a victory for Syriza given the party's lead in the
polls, but the size of the margin was something of a surprise.
Wider equity markets in Europe were unruffled by the news, with
stocks closing in on recent seven-year highs after a small early
wobble. The Stoxx Europe 600 index was 0.2% higher.
Investors appear confident that the bond-buying stimulus program
known as quantitative easing, announced last week by the European
Central Bank leaves markets much less vulnerable to fears of a
eurozone breakup than they were during previous episodes of the
Greek crisis.
"Political risk is back on the radar in Europe, but markets are
still under the influence of the ECB's liquidity injection," said
François Savary, who oversees about $10 billion of assets as chief
investment officer at Swiss bank Reyl.
"We expect that [ECB] backstops have effectively firewalled
Greek developments and should limit contagion or re-emergence of
[eurozone] existential anxiety. As such we don't expect
developments to translate into substantial further euro weakness
beyond what is already justified by QE," said currency strategists
at BNP Paribas.
Investors and analysts aren't playing down the potential impact
of this election result, however. The victory for antiausterity
party Syriza could set Athens on a collision cause with its
creditors and embolden radical parties elsewhere to challenge
Europe's economic orthodoxy.
In Asian trading hours, the euro dipped to a fresh 11-year low
to the dollar of just below $1.11. Ultrasafe German debt rallied to
new all-time highs while bonds in fiscally weak eurozone countries
declined.
The result gives the party "a strong mandate" to push through
major changes to the Greek adjustment program, said Jan von Gerich,
chief strategist at Nordea.
"The ensuing negotiations will be tough and contribute to market
volatility in the coming months," he said.
Syriza's decision to strike a deal with the small Independent
Greeks party could lead to more strained negotiations with Greece's
creditors--given the two parties share little except a rejection of
the austerity measures imposed on Greece by its creditors.
But yields--which rise as prices fall--remain below last week's
highs.
Wider pressure on bond markets in the eurozone was modest on
Monday.
Italian and Spanish 10-year yields rose slightly to 1.54% and
1.39%. Still, both countries' yields quickly fell back and remain
within touching distance of the all-time lows hit in the wake of
last Thursday's ECB meeting.
German yields, which typically fall in times of stress, touched
a record low of below 0.3% on the 10-year bond before rising again
to trade little-changed on the day.
Write to Tommy Stubbington at tommy.stubbington@wsj.com
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