Global markets staged a short-lived relief rally on Monday morning in response to Greece’s pro-bailout New Democracy party winning the country’s general elections. The election results mean that, at least for now, Greece will remain in the eurozone.
“Pragmatism seems to have won the day in Greece as the electorate voted for the lesser of two evils and returned a win for the pro-bailout New Democracy party in Sunday’s general election,” said Darren Sinden, senior sales trader at Silverwind Securities. “There was an initial rally in the FTSE today as the market tried desperately to believe that things would change as a result. [The FTSE 100 index] printed up to 5555.32 before a sense of realism set in. Spanish bond yields have risen above 7% today and despite its election victory New Democracy will still need to form a coalition to govern Greece and will then be thrust almost immediately into bailout negotiations with the Troika. So there are plenty of hurdles still to be overcome.”
The FTSE 100 index is now closed at 5,491, after locking in a minor gain of 12 points. The FTSE 250 index edged down by 8 points to close the trading day at 10,721.
Referring to Monday morning’s relief rally and the short-lived rally last week after the Spanish bailout was announced, Sinden adds: “If the [FTSE 100] index can’t sustain rallies on two consecutive days that started with the catalyst of supposedly positive macro data, then one wonders whether it can sustain any gains at all right now.”
The two biggest losers on the FTSE 100 were the Royal Bank of Scotland (RBS) and Lloyds Banking Group (LLOY). The two biggest gainers on the large-cap index were Ashmore Group (ASHM) and Burberry Group (BRBY). Shares in both of these companies popped up by 3%.
Greece’s election results and the soaring yields on Spanish and Italian bonds captured investors’ attention on Monday, but there are other events to look ahead to this week. For one, G20 leaders began meetings in Mexico on Monday that will run until Tuesday, June 19th. Investors will be expecting a communiqué from the leaders that will likely discuss eurozone developments. Furthermore, the Bank of England will be releasing minutes from its latest policy meeting this week; UK unemployment numbers will be released on Wednesday; and the US Federal Open Market Committee (FOMC) will be releasing its interest rate decision on Wednesday.