THE EURO reached a three-month low yesterday before regaining ground after election results in France and Greece rattled markets and expectation of an imminent bailout for Spanish bank Bankia mounted.
Europe’s single currency fell below $1.30 for the first time since January – falling more than 1 per cent, as low as $1.2964 – though it strengthened towards the end of the day as German chancellor Angela Merkel said she would receive the incoming French president “with open arms”.
Nonetheless, Mr Hollande’s victory in the French election, and the failure of any of the Greek pro-austerity parties to make gains in the election, was interpreted by many as a sign of public frustration with the European authorities’ approach to the euro zone crisis, casting serious doubt on Europe’s austerity plans.
European equity markets fell initially in early trade before recovering by the end of the session.
Banking stocks led the falls. However, French and Italian banks ended yesterday’s session in positive territory.
While most stock markets appeared to weather the election storm, the Greek stock market was badly hit.
Greek stocks tumbled the most in six months following the weekend election in which the country’s two main political parties failed to achieve a combined majority.
National Bank of Greece, the country’s largest lender, plunged 8.3 per cent, while Greece’s biggest electricity producer, Public Power, fell by 14 per cent.
The benchmark ASE Index slid 6.7 per cent to 643.87 at the close of trading in Athens, with 53 of 59 stocks declining. The gauge had earlier dropped as much as 8.3 per cent, the largest decline since October 2008.
Meanwhile, expectation mounted that a rescue plan for ailing Spanish bank Bankia is imminent following the resignation of Bankia’s president, Rodrigo Rato yesterday.
The reform of Bankia is expected to include cash injections and a management shakeout, with some reports suggesting that Bankia could need as much as €10 billion in capital.
There were also some jitters on the bond markets yesterday. Greece’s 2 per cent bond maturing in February 2023 jumped 273 basis points, or 2.73 percentage points to 23.30 per cent yesterday evening. Yields on Irish nine-year bonds rose from 6.81 per cent to 6.94 per cent, before falling back to 6.88 per cent.
Spain’s 10-year yield increased one basis point to 5.75 per cent. The yield on similar-maturity Italian bonds was four basis points lower at 5.40 per cent after jumping as much as 14 basis points to 5.57 per cent.
France’s 10-year yield decreased three basis points to 2.80 per cent after rising as much as six basis points.
The ramifications of the elections were also felt on oil markets. The price of oil fell to the lowest level this year, falling as much as 3.2 per cent after the election results suggested that austerity efforts could be derailed, a move which could escalate the debt crisis and dampen demand for oil.
While the euro did pare most of the steep losses against the dollar, it remained at a three-week low against the US currency yesterday evening, trading at $1.3052.
