Member Article

Greek euro exit fears intensify

It was by all accounts a dreadful start to the week for financial markets, with the “risk-off” trade firmly in flow from the opening bell.

Finance ministers from the 17 eurozone nations were gathering in Brussels today, and despite denying that plans for a Greek eurozone exit were being discussed, the topic was clearly on the agenda. It follows a week that failed to deliver a collation government as Greek political parties couldn’t cooperate, with a fresh round of election now likely in June. There is a very real chance that the populous, who have already rejected austerity, may grant the anti-bailout left wing Syriza a majority. This would put the ball in court of those currently paying for an overextended Greece, i.e. the EU, IMF and ECB, with the uncertainty as to whether they will grant concessions causing investors to flee for the safer assets of government bonds. The yield investors demanded to hold the German bund fell to another record low today, the desire for a return of capital, as opposed to a return on capital, clearly preferable in this period of turmoil. The opposite side of this trade saw the Spanish 10 year yield break through the 6% mark. Gold and Oil were lower by more than 1.5%.

It comes as economists and hedge fund manager upgrade the chances for a Greek exit, with Nouriel Roubini posting on Twitter the path for such an outcome. Declining support for Angela Merkel’s Christian Democrats also added to concerns, her party suffering a shock defeat in Germany’s most populous state of North Rhine Westphalia yesterday.

European equity markets opened lower by more than 1.5%, although the selling grew heavier throughout the day with the major indices falling around 2%. The FTSE 100 finished the day off its lows, although the 2% fall took the index down to the 5463. On a stock specific basis the price screens once again looked ugly, a handful of financial institutions falling more than 5%, with Barclays at the bottom of the with its 6.4% loss.

This was posted in Bdaily's Members' News section by James .