Benzinga Market Primer, Monday June 18: Greek Election Recap

Markets are trying to digest the results of the Greek elections this morning, as there is much confusion over whether the conservative New Democracy Party will be able to form a government. The New Democracy won 29.66% of the vote and the radical Syriza Party won 26.89%, with 99.96% reporting. The real dilemma in this Greek tragedy becomes can the New Democracy form a majority coalition with its leftist opponents. The incumbent PASOK Party won 12.28% of the vote, so if the New Democracy and the PASOK formed a coalition, they could form a government. However, a few PASOK MP's have stated that they will not form a coalition that does not include Syriza and Syriza will not enter any coalition. Therein lies the problem...

The lack of a government creates a host of problems. First of all, will the Troika (read Germany) agree to send the next bailout payment to Greece, or will Greece default and leave the European Monetary Union (EMU). Second, can Greece successfully form a government in a third round of elections or will Greece go the way of Belgium and end up without a government. Thus, it is necessary that a coalition is reached, otherwise Greece may be on the fast track out of the EMU. The top three parties listed above each get three days to form a coalition government, and if all fail then the President tries to form a coalition before sending it back to a third round of voting.

Futures do not like these results too much this morning. Futures are trading slightly lower, with S&P futures down about three points this morning to 1334. One would presume that if the market liked these election results, the market reaction would be much less tepid. NASDAQ futures are up one point as well this morning, showing a slight out-performance in the high-beta tech sector.

Overnight, these other news stories broke:

• The Chief Investment Strategist at Prudential, a big fixed income player,
  says that the capital flight intra-Europe is about to change to a complete exodus out of Europe.


• German Foreign Minister Westerwelle says that the Greek bailout is non-negotiable, that Germany is willing to discuss the time frame for the implementation of reforms.


• Greek New Democracy leader Samaras to meet with PASOK leader Venizelos at 10:00 am est.


• Portugal's Economy Minister: economy has a liquidity problem, small and medium sized institutions are in the worst liquidity positions of all.

Foreign equities are a mixed bag this morning. Overnight, Asian shares closed higher on the announcement that the conservatives in Greece had one the election.. European shares are are telling a different story this morning, however. Stocks are up slightly across the core of the continent, but Italian and Spanish markets are tanking, each down almost 1.5%. The market followed the playbook of an election-like event to a tee: there was an initial pop of risk assets with a retracement of gains ensuing the pop.

After last week's possible European Central Bank (ECB) intervention, Spanish bond yields are back at 7%. The yield on the benchmark 10-year Spanish bond has hit 7.14% as of writing, moving 30 bps wider. Since March, the yield has moved from below 5% to a new euro era high. Italy's 10-year debt is also selling off, with yields crossing back above 6%. The yield is at 6.06% this morning. The reality of the European Debt Crisis is that Greece doesn't matter anymore; all focus is on Italy and Spain and Spain's bailout, which may end up being much bigger than 100 billion euros.

Commodities are largely lower, with WTI crude trading down 0.62% to $83.51 per barrel and Brent crude trading 0.25% lower at $97.37 per barrel. Copper is trading flat this morning. Gold is lower by 0.43% and silver is down by about 1%. Commodities are showing a complete reversal of Friday's short-covering rally. Expect more volatility as news out of Athens begins to break.

Currencies are in risk-off mode this morning, with the EUR/USD taking a wild ride. The EUR/USD opened higher and traded as high as 1.2748 in Asian trade but now sits at 1.2633. Across the board, the dollar is stronger, including gains against the yen, the pound, and the Canadian dollar. The dollar index is higher by about 0.1%.

On the economic front, today is a rather bleak day. The only notable economic data point to be released today is the NAHB home price index, set to be released at 10 am. The market is expecting a print of 29, the same as the prior month's reading. The range of estimates is from 26 to 31.

At least Greece qualified for the knockout stage of Euro 2012...

Good trading and good luck.