Hollande President, Greek coalition fails to win majority
Markets are expected to set out with a negative tone towards risk today after the uncertain Greek election outcome and the very soft US employment report Friday. There are no key figures on today’s calendar with potential to change the sour sentiment. Only German industrial orders may attract some attention.
Hollande won the French Presidential election. This outcome is in line with general expectations and should not lead to any significant market reaction. Markets will now listen for signals whether Hollande will pursue all campaign promises including lowering the pension age and renegotiate the EU fiscal compact. Hollande has limited room to manoeuvre on the budget, as we would expect a significant market reaction if the promised fiscal discipline is abandoned.
Greek elections turned out slightly worse than hoped for as the two “big” parties – with 95% of the votes counted – only got 150 seats out of the 300. That means that the expected coalition between New Democracy and PASOK backing agreed austerity with EU/IMF is short one seat. New Democracy got most votes, which means that Samaras now has three days to see if he can manage to build a coalition. The big test will be to approve the EUR 11bn spending cuts agreed with the IMF.
The April employment report was very soft as employers pulled backed on hiring for the second straight month. The report is likely to keep fears alive that the US economy is losing momentum and dampens hopes that a stretch of strong winter hiring signaled a turning point for the recovery. However, while the soft employment numbers leave the door open for further monetary easing the report isn’t bad enough to force the Fed to announce QE3 at the 19-20 June FOMC meeting, in Johnny’s view.