NEW YORK, May 8 — Investors sold risk assets like the euro, oil and stocks today as Greece’s commitment to bailout pledges was put into question, adding to concerns over a possible Franco-German split on policies to tackle the region’s debt crisis.
The results of elections in Greece and France, in which voters soundly rejected austerity measures, heightened the uncertainty of the path ahead for the euro zone debt crisis.
Most European equity markets fell and Wall Street, which showed resilience yesterday, dropped in early trading.
Greek voters on Sunday punished the two mainstream parties for supporting the austerity conditions of a bailout. Alexis Tsipras, the leader of the Left Coalition party, said today Greece’s commitment to an EU/IMF rescue deal has become null since the elections.
Tsipras, who was given a mandate today to form a government after his party came in second, said banks should come under state control and called for an international commission to investigate whether Greece‘s debt is legal.
The euro was down 0.4 per cent at US$1.3006 (RM3.96), off the previous day’s low of US$1.2955, but briefly traded below US$1.30 for a second straight day.
“The euro reacted to the Greece headlines, but the move lower has faded a bit because what (Tsipras) said was not so unexpected,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
“The euro remains extremely vulnerable to political risk and if we close below yesterday’s low of US$1.2955, that would potentially shift the technicals into bear territory.”
In New York, the Dow Jones industrial average dropped 88.02 points, or 0.68 per cent, to 12,920.51. The S&P 500 Index fell 9.77 points, or 0.71 per cent, to 1,359.81 and the Nasdaq Composite lost 21.39 points, or 0.72 per cent, to 2,936.37.
The pan-European FTSEurofirst 300 was down 0.6 per cent and the blue-chip Euro STOXX 50 index shed 0.18 per cent. Global stocks as measured by MSCI fell 0.6 per cent.
The Athens General Index was down 4.5 per cent today, for a near 11 per cent slide in two days.
“Greece is basically a zombie state right now,” said Rick Fier, director of trading at Conifer Securities in New York.
It will be very difficult for Greece to raise money to pay off their debt, whether or not they stay in the euro zone, Fier said.
“If the euro zone is mired in recession for a while, that will put a crimp on (the US economy) as we try to expand.”
Financial markets are also concerned that France, where president-elect Francois Hollande has also opposed drastic spending cuts, could derail the German-led push for austerity and trigger a new phase of the bloc’s debt crisis.
Oil prices fell for a fifth straight session on the prospect of weaker growth on both sides of the Atlantic at a time of ample supply from major oil producers.
Brent crude fell 1 per cent below US$112 a barrel, and US crude lost also 1 per cent to trade below US$97. — Reuters