Singapore: The euro jumped to a one-month high and Asian shares rose nearly 2% on Monday after Greece’s election delivered a slim parliamentary majority to pro-bailout parties, a result seen as crucial to European leaders’ efforts to hold the euro together.
US stock index futures and riskier commodities such as crude oil and copper also rose, while gold fell after a rally last week, when investors had looked to bullion as a safe haven amid fears the election could trigger financial turmoil.
But analysts cautioned there were still plenty of hurdles ahead and the initial positive market reaction could prove to be short-lived.
“The question is whether there will be a sustained rebound as there’s still so many things to sort out - the euro zone’s fiscal problems and Spanish banks,” said Masayuki Doshida, senior market analyst at Rakuten Securities in Tokyo.
Parties in Greece that broadly support the 130 billion euro EU/IMF bailout will begin forging a government on Monday. The parties, New Democracy and PASOK, would have a parliamentary majority.
Financial markets had feared a victory for SYRIZA, the radical leftists opposed to the austerity package of job, wage and pension cuts that are a condition of the bailout, without which Greece would be bankrupt.
MSCI’s broadest index of Asia Pacific shares outside Japan rose 1.7% and Tokyo’s Nikkei share average jumped 1.8%. US S&P 500 futures were trading around 0.4% higher.
“It’s a temporary rally but we’re seeing broad gains because the global situation has changed now that the prospect of a ‘Drachmageddon´ has disappeared,” said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities in Tokyo.
The euro was up around 0.4% at about $1.2685, having climbed as far as $1.2748, its highest level in a month. The US dollar index eased 0.2%.
US crude rose 1% to around $84.90 a barrel, Brent crude gained nearly $1 to above $98.50 and copper was 0.6% higher around $7,556 a tonne.
Safe-haven assets retreated, with gold down 0.3% around $1,623 an ounce and benchmark US Treasury 10-year yields rising to around 1.65% from about 1.58% in last US trade on Friday.
CRISIS NOT OVER
As well as cheering investors, the Greek election result should also come as a relief for world leaders who are due to kick off a G-20 meeting in Mexico on Monday.
A statement from the Group of Seven major industrialised nations said it was in “all our interests” for Greece to remain in the euro zone while respecting its international bailout commitments.
But amid the relief, investors’ focus was already returning to the many unresolved elements of Europe’s deep-seated debt crisis, not to mention concerns over a faltering US recovery and China’s transition to a lower growth trajectory.
“We are back to guessing whether or not we will see a growth pact and eurobonds,” said Westpac Bank foreign exchange strategists Robert Rennie and Sean Callow in a note. “We are back to guessing when China will come up with a fiscal package to help stabilise a sharply slowing Chinese economy.”
Greece’s economy remains in deep crisis after five years of recession, Spain has been pushed into seeking €100 billion from Europe to rescue its banks and Italy’s poor growth prospects and high debt have put it in the bond markets’ sights.
After reaching a euro-era high above 7% on Thursday, Spain’s 10-year bond yield eased 6 basis points from its closing level to 6.90% on Friday, while Italian yields fell 15 bps to 6.01%.
“Short-covering is well and good but will long-term investors decide that the crisis is over and move back into peripheral countries’ debt, or equities? We fear that is highly unlikely,” said Sebastian Galy, strategist at Societe Generale in New York.
Galy said more political and structural change was needed to shore up the euro zone’s financial system, and a growth plan was urgently required as well.
“The bottom line is that Europe still needs to agree on something that smells and feels a lot more like joint funding than anything that has been suggested so far.”