The euro and European shares and bonds shook off worries on Monday over Greek election winner Syriza’s pledge to take on international lenders, a strong sign of confidence in the ECB’s new money-printing programme.
Weakness in European shares lasted only for about two hours, although the main Athens index fell and Greek bond yields rose.
The FTSEurofirst 300 .FTEU3 index of top European shares was 0.13 percent higher on the day at 1,481.46, having fallen as low as 1,473.38 earlier. That was close to a seven-year high.
The euro EUR= was up 0.2 percent at $1.1230 after falling to a new 11-year low in Asian trade.
“The QE announced last week has gone some way to prop up the markets,” Accendo Markets senior trader Tom Robertson said, referring to the roughly 1 trillion euro bond-buying programme the European Central Bank launched last week.
But he warned that investors would be on edge for as long as a Greek exit from the eurozone remains a risk.
In the United States, stock futures ESc1 pointed to a weaker open in a week where the focus will be on the Federal Reserve meeting and the signals that come out about a potential rate hike later in the year.
Syriza’s demands for a debt restructuring have raised the prospect of a stand-off between Athens and other European leaders that might lead to a “Grexit” although financial markets were treating that as a marginal risk on Monday.
The potentially disastrous consequences of such a move for Greece and Europe were likely to force policymakers to find an agreement, analysts said.
Syriza leader Alexis Tsipras promised Greeks on Sunday that the five years of austerity imposed under bailout programmes worth 240 billion euros from the European Union and the International Monetary Fund were over.
He later struck a deal with the right-wing, anti-bailout Independent Greeks party to form a government.
Yields on bonds issued by lower-rated European countries such as Spain and Italy were a touch lower and near recent record lows. Portuguese 10-year yields PT10YT=TWEB, seen as the next in line to rise if there were any contagion from Greece, were down 7 basis points at 2.17 percent.
“(German Chancellor Angela) Merkel may prefer to see Greece leave … than allow Mr. Tsipras to dictate the entire economic policy of the euro area, although the most likely outcome remains a compromise which maintains the status quo because the alternatives are potentially so negative,” said Gary Jenkins, chief credit strategist at LNG Capital.
“The unknowns of withdrawing from the eurozone are such that Mr. Tsipras might rather prefer to take his time through negotiation and continue to enjoy the benefit of the QE programme.”
Greek market hurts
Greek markets did not share Europe’s upbeat mood.
Ten-year yields GR10YT=TWEB rose 41 basis points to 9.18 percent, while the main stock index .ATG fell 2 percent, with shares in banks such as Alpha Bank (ACBr.AT) and Piraeus Bank (BOPr.AT) down even more.
“The Greek result is a great paradox in the sense that we are told the Greek people are voting against austerity measures but wish to remain within the euro zone,” said Alan Wilde, global head of fixed income at Baring Asset Management.
Unlike at the height of the euro zone’s debt crisis in 2011-12, European banks have limited exposure to Greece, while policymakers have put in place safety nets to deal with renewed contagion.
“Whilst I would imagine that much will be made of a renewed threat to the euro project as a result of this outcome, I would argue that there are reasons to believe that the impact for European investors and even for economic growth across the region may be more modest than feared,” said Paras Anand, head of European equities at Fidelity Worldwide Investment
German 10-year Bund yields DE10YT=TWEB, which set the standard for euro zone borrowing costs, fell below 0.30 percent for the first time before rebounding.
Oil prices declined, with U.S. crude falling close to a six-year low, as Saudi Arabia’s new King Salman moved to assuage fears of any policy change in the world’s largest oil exporter.
March Brent crude LCOc1 was down 86 cents at $47.93 a barrel, but off an early low of $47.57.[O/R]
Copper dropped to as low as $5,345 per tonne CMCU3, its lowest level in 5-1/2 years.