On a day that Wall Street and most European stocks exchanges were closed for holidays, losses kept piling up for Spain and Greece, seeing political upset in one country after regional elections and a debt crisis in another.
On Monday as trade closed, Spain’s IBEX 35 index’s (IBEX, -2.01%) losses exceeded 2% while Greece’s Athex Composite Share index (GD, -3.11%) plummeted 3 percent. Also, the FTSE MIB Italy index fell 2% while the Portugal’s PSI 20 index (PSI20) dropped about 1.8%. Also on the downside was France’s CAC 40 (PX1) which declined 0.5%. Wall Street was closed for Memorial Day holidays on Monday while the markets in Germany and the U.K were also shut. The banks in Germany, Greece, Spain, Italy and France, bore the brunt of Monday’s losses.
The euro (EUR) also fell to $1.0980 versus $1.1005 on Friday in late New York trading while the U.S. dollar (USD) recorded its 1st weekly increase against the euro in 5 weeks on Friday.
On Sunday in Spain’s regional and municipal elections, the governing Popular Party (PP) got a big surprise with wins from Podemos (We Can) leftists and Ciudadanos (Citizens) center-rightists. There were expectations for upsets in politically important cities, such as Madrid and Barcelona, as voters, tired of corruption and austerity, showed support for those upstart parties. The results for the PP were the worst in 20 years regarding local elections.
Currency strategist from DailyFX.com, Ilya Spivak, said in a note that the Spanish elections outcome has highlighted an increased influence from Podemos. He added that the negative reactions the euro has seen indicates fears that these results could be a taste of November’s general election, possibly seeing Podemos emerging as the kingmaker in negotiating coalitions. This would increase the possibility of a fiasco like we are currently witnessing in Greece in the 4th largest economy in the Eurozone.
Meanwhile, Predrag Dukic, a senior equity sales trader, said in an email that the markets already priced in the November election, which could see not one party obtaining outright majority.
Also, fresh Greece worries showed up in pressuring the euro and the limited European stock exchanges that were open on Monday. On Sunday, the interior minister of Greece, Nikos Voutsis, told Mega, a television station that is privately owned, that his country will not be able to meet the International Monetary Fund payments of €1.54 billion due between June 5 & 19. He said that the money does not exist and that it will most likely not be given.
Société Générale’s global economist head, Michala Marcussen, said that the Greece situation is not likely to get extremely ugly before July as a grace period still applies to making this payment. She further added in a note on Sunday that the short-term key risks are the talks of late payments which causes Greece to further panic and it triggers bank runs as well as forces capital control.