Global markets survived the initial impact of the win in Sunday’s Greek election by the leftwing anti bailout Syriza party, and its alliance in government with its rightwing counterpart.
Our market will open steady this morning, but for how long after spot iron ore prices fell another 4.3% to $US63.30 overnight.
That took the fall this year to 11% and will place extra pressures on the already vulnerable iron ore stocks.
Now for the negotiations where it could get sticky for financial markets, especially as the new government hardens its anti-austerity approach and starts playing brinkmanship with the rest of Europe.
There are sure to be more tensions and pressures on markets from Greece in coming days and weeks.
But after an early slide overnight, the euro rebounded solidly against the US dollar, gold fell as the nervous nellies in the markets were caught out using the metal as a safe haven.
Gold fell around $US12 an ounce to $US1,281 in New York. It was the biggest one day fall this year so far after a string of solid gains.
US sharemarkets were mixed to lower by the close as they took their lead from the swings in Europe and a huge snow storm blanketing New York and forcing people to remain at home for the day.
European sharemarket were hesitant, but then ended the day’s trading strongly and copper, which hit a new five and a half year low of $US2.44 a pound in Asian trading, jumped 10 cents to end the day up 1.5%.
Oil prices also turned and rose, but then sold off in late trading in the US and early dealings in Asia.
The euro briefly dipped below $1.11 on Monday, extending the 11-year low it hit last week, Germany’s 10-year bond yield fell to a new record low of just 0.34%, but the euro traded around $US1.1270 in early Asian trading.
Our dollar eased to 78.55, a new recent low, then rebounded as the euro rose and was above 79 US cents this morning in Asia.
Confusing matters was talk of the Swiss National Bank intervening to try and stop the franc from rising too quickly. This added to the unease about the value of the euro and the dollar. The Russian rouble fell sharply after the country lost its investment grade rating.
The ASX’s futures trading saw modest gains after early losses (a familiar story for many markets overnight) and the market will start around steady to a touch higher.
Being closed yesterday for Australia Day meant the local market was spared another day of traders selling in a panic in reaction to the Greek election result, and then buying back this morning as the market turned higher.
That’s not to say there won’t be further tremors as the new Greek government and the rest of the eurozone shape up. There will be, and signs are already emerging of more problems to come. The relatively placid end to trading Monday might be the last for a while.
But of greater importance for local investors will be the sharp fall in iron ore prices yesterday. The new five year low of $US63.30 a tonne will concentrate a few minds among nervy investors this morning.
They will also have to contend with the downgrading of Vale’s credit rating late last week. The Brazilian iron ore giant saw its rating cut to the third lowest investment grade, BBB plus by Standard & Poor’s.
S&P said in its rating "The downgrade reflects our expectation that Vale’s financial risk profile will weaken in the next two years to levels incompatible with our previous rating. The downgrade also follows our revision of iron ore price assumptions to $65 per ton in 2015 and 2016 and to $70 per ton in 2017.”
Vale’s downgrade means ratings for companies like Fortescue (which reports its important 4th quarter production, costs and sales figures later this week), will be under examination from the likes of S&P.
S&P also slashed Russia’s credit standing to junk level – making the country the first of the so-called BRIC countries (Brazil, Russia, India, China) to lose their investment grade rating. South Africa and Turkey, two other countries with a similar standing, also face possible downgrades this year.
Meanwhile the International Monetary Fund says it is prepared to continue its financial support of Greece, a day after an electionswin by Syriza.
“We stand ready to continue supporting Greece, and look forward to discussions with the new government,” IMF Managing Director Christine Lagarde said in a brief statement overnight.
The IMF has been a partner with the European Union in a multi-billion euro financial rescue of Greece since 2010.
Syriza and its rightwing coalition partner, oppose the austerity program Greece accepted in exchange for the bailout, and plans to renegotiate the deal, including a possible renegotiation of the country’s debt $A450 billion of debt.
