"Spain's leftist and right-center parties punished the ruling Popular Party in the regional and municipal elections," scream newspaper headlines today. Indeed, the PP suffered its worst result in 20 years with regards to local elections.
Although it gathered the most votes nationwide, the Popular Party could be heavily pressured to form functional governments in many former strongholds, including the city of Madrid, without support from smaller parties.
Predrag Dukic, senior equity sales trader, said “The market is already pricing in a November election, in which no party will have an outright majority.”
While most Europe's bourses are shut down for Whit Monday, those few open suffered losses.
Today, losses for the Spain IBEX 35 index were up to
2.2%, bringing the index down to 11,294 in Madrid during the afternoon trade, while
Greece’s Athex Composite Share index tumbled 2%.
The FTSE MIB Italy index dropped close to 2% and the Portugal PSI 20 index fell around 1.5%
The French CAC 40, one of the few other open stock exchanges, with U.K. and Germany shut, fell 0.8%.
Banks were the first to get into the red, with Banco Popular Español SA dropping 4.6% and Greece’s Alpha Bank AE losing 3.2%. Italy’s UniCredit SpA fell 3%, while BNP Paribas SA dipped 2% in Paris.
The euro was further pressured against the dollar, dropping to 1.0977 in comparison with 1.1005 in late New York trading on Friday.
The negative reaction seen for the euro reflects fears that the results could be a foretaste of the general election expected in November, which could see Podemos emerging as a “kingmaker in coalition negotiation. That would raise the possibility of a Greece-like fiasco in the Eurozone’s fourth-largest economy,” said Ilya Spivak, strategist at DailyFX.com.
On Friday the greenback logged its first weekly gain against the euro in five weeks.
However, the currency, along with few European bourses open today, was also pressured by fresh Greece worries.
Michala Marcussen, global head of economist at Société Générale, said on Sunday that before July the situation for Greece is unlikely to get really ugly as the country would still have a grace period to make that payment.
The main danger in the very short term is that all the talk of late payments causes further panic in Greece triggering bank runs and forcing capital controls, she noted.
