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Yesterday’s announcement that Greek politicians had failed to agree on the formation of a government shouldn’t really have come as too much of a surprise, nevertheless markets sold off aggressively with reports that the next election is likely to be an in or out referendum on euro membership.
Europe’s problems continue to mount up as ratings agency Moody’s pulled the trigger on its long awaited Italian bank downgrades last night, reducing the ratings on 26 of them by between one to four notches, with negative outlooks, citing increased funding stress and prolonged recession.
Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now, starts to permeate mainstream thinking in Europe.
Talks of a unity deal between Pasok, New Democracy and the Democratic Left have been doing the rounds in Greece after Democratic Left leader Kouvelis backed the idea of an ecumenical administration committed to remaining in the euro, but on the condition of the gradual disengagement from the bailout agreement.
Europe continues to keep investors on the back foot today with Spain now vying with Greece in keeping markets nervous.
With little in the way of economic data from Europe or anywhere else for that matter today the markets attention is likely to be on the political machinations unfolding in various parts of Europe.
For quite some time now Europe’s leaders have pretended that the only solution to the Eurozone crisis was more austerity, completely blind to the growing voter discontent in Europe.
Yesterday’s decision by ECB President Mario Draghi that there would be no further help in the near term for the European financial system was a blow to those who thought that in light of this week’s disappointing economic data that the ECB would hint at further help if the economic outlook continued to darken.
Spain will be the focal point of the markets today given that it will not only be hosting the monthly ECB council rate meeting in Barcelona, but will also be holding its first bond auction since being clobbered by a two notch downgrade by ratings agency Standard and Poor's last week, and a host of bank downgrades this week.
Yesterday's rally in UK and US markets which saw the Dow post a new four year high, should translate into a broadly positive open in European markets this morning, as the rest of Europe plays catch up on yesterday's ISM induced move higher.