WSJ: Greek markets take a hit after election result

Greek markets took a hit after Greece’s voters handed power to anti-austerity party Syriza in Sunday’s election, but a dip in the euro proved fleeting, and stocks across Europe broadly shrugged off the news.

Athens’ main stock index slumped by more than 3.5%, with banks leading the decline. Piraeus Bank SA shares were hit hardest, falling by more than 10%. Eurobank Ergasias SA and Alpha Bank AE shares also fell. Greece’s 10-year bond yield climbed around a third of a percentage point to 8.70%, reflecting a decline in prices.

But the weakness in the euro–which has already chalked up big losses this year–proved short-lived, with the currency ticking up slightly against the dollar and the yen in European trade. Investors had anticipated a victory for Syriza given the party’s lead in the polls, but the size of the margin was something of a surprise.

Wider equity markets in Europe largely shrugged off the news, with stocks dipping only slightly from recent seven-year highs. The Stoxx Europe 600 index was 0.1% lower.

Investors appear confident that the bond-buying stimulus program known as quantitative easing announced last week by the European Central Bank leaves markets much less vulnerable to fears of a eurozone breakup than they were during previous episodes of the Greek crisis.

“We expect that [ECB] backstops have effectively firewalled Greek developments and should limit contagion or re-emergence of [eurozone] existential anxiety. As such we do not expect developments to translate into substantial further euro weakness beyond what is already justified by QE,” said currency strategists at BNP Paribas.

Investors and analysts aren’t playing down the potential impact of this election result, however. The victory for antiausterity party Syriza could set Athens on a collision cause with its creditors and embolden radical parties elsewhere to challenge Europe’s economic orthodoxy.

In Asian trading hours, the euro dipped to a fresh 11-year low to the dollar of just below $1.11. Ultrasafe German debt rallied to new all-time highs while bonds in fiscally weak eurozone countries declined.

The result gives the party “a strong mandate” to push through major changes to the Greek adjustment program, said Jan von Gerich, chief strategist at Nordea.

“The ensuing negotiations will be tough and contribute to market volatility in the coming months,” he said.

Syriza’s decision to strike a deal with the small Independent Greeks party could lead to more strained negotiations with Greece’s creditors–given the two parties share little except a rejection of the austerity measures imposed on Greece by its creditors.

But yields–which rise as prices fall–remain below last week’s highs.

Wider pressure on bond markets in the eurozone was modest Monday.

Italian and Spanish 10-year yields rose slightly to 1.54% and 1.39%. Still, both countries’ yields quickly fell back and remain within touching distance of the all-time lows hit in the wake of last Thursday’s ECB meeting.

German yields, which typically fall in times of stress, touched a new record low of below 0.3% on the 10-year bond before rising again to trade little-changed on the day.