Markets are moving their attention from Spain to Greece ahead of the country’s landmark elections this weekend. With two party’s and potentially two outcomes possible, markets are in for some what of a D-Day come Monday. The two scenarios we face can be summed up simply and involve Greek voters either electing the pro-bailout New Democracy party lead by Antonis Samaras or the anti-austerity party Syriza whom market commentators suggest would see Greece thrown out of the Euro. Either way markets, particularly the EURO are in for a wild ride this weekend with some suggestions that if New Democracy get voted in EUR/USD could jump as high as 1.3000+, while <1.2000 could be on the cards if Tsipras’ Syriza party is elected.
Tim Geithner even weighed in on the topic overnight noting that European leaders certainly “recognize they must do more”, however as the Wall Street Journal put it, “the only certainty in markets right now is complete uncertainty” and of course that doesn’t bode well for bond yields, with Spanish debt hitting a new high of 6.75%, up from 5.1% at the end of last year. For equities and exchange rates expect more volatility; last night AUD/USD again had a crack at parity only to fail for a third time in less than a week falling back to 0.9947. A positive election result in Greece will see AUD/USD break parity, but expect the low’s .90s should Syriza get elected.
In the U.S retail sales disappointed with core retail sales – stripping out automobile sales – down -0.4%; the producer price index or PPI was equally disappointing down -1.0% and below estimates. U.S equities dropped around 0.6%-0.8%. The week has seen markets up, down, up and then down again – not exactly confidence boosting stuff and perhaps an indication that markets are really just waiting for Bernanke to either confirm or deny another round of stimulus.
European equities were mixed, while oil and gold fell. EUR/USD is holding above 1.2550 but remains in a holding pattern ahead of the aforementioned Greek elections. U.S CPI and weekly unemployment claims are due tonight while in the U.K Bank of England Governer King speaks – stay tuned for his comments/views on the unfolding European debt crisis.