Greek election signals green light for risk

Greek election signals green light for risk

By Tim Waterer (Senior Trader, CMC Markets)
18 June 2012

The Greek election result signalled a Green light for the resumption of buying in higher yielding assets. Traders took great comfort in the knowledge that a win for the New Democracy party at the ballot box would provide a degree of stability regarding Greece’s relationship with the powers that be in the EU. A messy Greek exit is just something that financial markets do not want to deal with right now, so traders had no hesitation in rejoicing the pro-bailout party win.

As a result, the market was in an exuberant buying mode to start the week, with safe haven assets taking a pronounced back seat to those providing greater yields.

While the market has navigated past one hurdle, another potential obstacle awaits with the FOMC statement later in the week. Any reluctance from the FOMC to embark on further QE could ruffle the feathers of the market and create a pullback.

Crude oil pushed higher now that the demand picture is looking slightly more settled after the Greek vote. With an FOMC statement still to come which could see US Dollar buying curtailed further, upside risk on crude is starting to strike a more even balance with the downside risks which have dominated the landscape since the start of May.

Share markets across Asia gave a resounding tick of approval to the poll results in Greece, with traders back in buying-mode to start the week. The ASX200 waltzed through the 4100 level, with the particularly growth-sensitive materials and energy stocks being the prime drivers of the substantial move higher by the index. Mining giants BHP and RIO certainly looked to be back in favour with traders now that a significant potential stumbling block in Europe has been overcome with the Greek vote. How long this burst of enthusiasm on equities will last for remains to be seen, however it does look like equity markets are poised to reclaim a significant portion of the ground lost during the May sell-off provided the FOMC does not pull the rug from under the market later in the week.

www.cmcmarkets.com

ENDS

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