After The Greek Elections June 17, 2012 Attention May Go Back To Spain, Italy, Portugal, Ireland……
The European debt crisis won’t end on Monday.
The Greek elections tomorrow have received massive press and are currently the major headline risk reducing the global demand for equities. This is evidenced by the outrageous yields on bonds around the globe with the U.S. 10 year note at historic lows.
Investors are focused on the possibility Greek citizens will take to the streets and Grecians may decide to leave the euro rather than endure more years of harsh austerity measures. Austerity has largely been rejected by European citizens and the focus on growth in the region has been ignored. We proclaimed austerity was dead after Sarkozy was soundly defeated in May. The Greek elections tomorrow could start a tidal wave of nations willing to reject austerity and go it alone- exiting the euro.
Spain and Italy may regain the attention of investors next week after the dust settles from the Greek elections. Spanish banks have recently been downgraded and the nations debt has skyrocketed. Italy hasn’t been in the news as much as Spain so expect more concern about the next shoe to drop- could it be Portugal, Ireland – again?
Regardless of the outcome of the Greek elections tomorrow – the Euro debt crisis will be far from over. Monday won’t be the end of the crisis – it could be the beginning of a new one.
What We’re Watching
If U.S. equities can resist downward pressures after the Greek elections it could be the beginning of an extended rally for the next few weeks. The dollar/euro will be important for monitoring global risk appetites. The sectors we’ve been watching, namely the financials, tech and small caps have hit a short term bottom and we will watch carefully to see if support levels hold after the headline risk created by tomorrow’s elections. We expect Spain, Italy, Portugal and/or Ireland to be back in the news again soon as the European debt crisis morphs.