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Market Comment
Markets fall on Greek political concerns
09 May 2012
Conall Mac Coille
Stocks markets fell sharply yesterday as concern about political developments in Greece mounted. The Euro Stoxx 50 Pr index fell by 2%, the FTSE100 by 1.8% and the S&P 500 by 0.8%. Greek stock prices fell to a 20-year low. The yield on US 10-year treasury bonds fell to a three-month low of 1.83% as risk aversion increased demand from investors.
On Monday, markets had given a relatively muted reaction to the political developments in Greece, perhaps concentrating on the election of Francois Hollande, and with UK markets closed for a public holiday. However, comments from Syriza leader, Alexis Tsipras, yesterday served to underline the political uncertainties in Greece, concentrating minds on the potentially hugely destabilising outcomes should Greece not pass the next EU/IMF review of its funding programme, scheduled for the end of the month.
Yesterday, Tsipras said that he would not implement agreed cuts in expenditure and revenue-raising measures, but would implement a moratorium on debt repayments, row back on labour market reforms and nationalise the banking system. Suffice to say, talk of nationalisation has not been good news for Greek banks' share prices. Of the two largest lenders, National Bank of Greece fell 8.3% and Alpha Bank was down 14% yesterday. In Spain, the share price of Bankia fell 4.8% following rumours that the government is planning to recapitalise the bank.
In a slow day for macroeconomic data, the market's focus is likely to remain on political developments in Greece. That said, overnight the British Retail Consortium (BRC) measure of like-for-like sales indicated that volumes contracted by 3.3% in the year to April, down from 1.3% growth in March. This suggests that the puzzle of robust retail sales volumes through the winter months despite the double-dip UK recession, is likely to be temporary. So the weak reading in the BRC measure could indicate that the four-quarter contraction in UK consumer spending through Q4 2010-Q3 2011, is set to resume in the second quarter of 2012.