Euro Finds A Floor
The euro sold off from the Asia open after Greece’s weekend election produced a parliament which is even less supportive of the EU/IMF bailout agreement than opinion polls had predicted. At the time of writing over 99.6% of votes have been counted and it is clear that the two pro-agreement parties New Democracy and PASOK no longer hold enough seats to command a majority. Fringe political parties polled extremely well, and SYRIZA (The Coalition of the Radical Left) took second place. New Democracy Leader Samaras now has three days to cobble together a coalition before the right to do so is passed to SYRIZA. The euro steadied shortly after Europe came in, although the UK was on holiday. Eurozone equity markets and bond markets on the periphery showed signs of strain from the open though, before eventually steadying later. Reuters reported that Greek bank stocks were down -19% at one point. Yields on French, Italian and Spanish sovereign debt increased before eventually settling back down again. We see the immediate challenge for any new coalition government as deciding how to implement the spending cuts of €3bn already detailed by the previous administration, as well as identifying fresh spending cuts for 2013 and 2014. We think the new political landscape raises the risk that the EU/IMF may temporarily suspend future aid tranches. Indeed Reuters quoted an unnamed IMF official overnight saying that “if there is no agreement on the new cost-cutting, the payments for Greece will be withheld until there is a satisfactory understanding”. Swiss unemployment data produced no surprises, but CPI inflation was fractionally weaken than expected. Consumer credit is arguably the only data point of note in Monday’s US session.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank