World stocks fall on Greek, French votes, euro wavers

World stocks fall on Greek, French votes, euro wavers

World stocks fell and the euro wavered on Monday on renewed uncertainties in the eurozone after voters in Greece and France turned against German-led austerity.

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By (AFP)

Published: Mon 7 May 2012, 6:14 PM

Last updated: Tue 7 Apr 2015, 12:25 PM

Germany stood firm and ruled out any renegotiations to hard won agreements to fight the eurozone debt crisis and the EU insisted it expected Greece to stand by its engagements no matter how difficult.

The eurozone bond market showed signs of some tension initially but overall was little changed by mid-day.

Adding to the bearish atmosphere was weak jobs data from the United States at the end of last week, which had fuelled concerns about recovery in the US economy and pushed Wall Street shares down sharply.

The Paris stock exchange’s CAC 40 index opened down 1.52 percent, amid concerns that European Union voters are hardening their opposition to deficit-cutting austerity programmes but later recovered to a 0.34 percent fall.

Stocks in Athens plunged 7.9 percent after Greece’s mainstream parties fell short of a governing majority, putting hard won agreements to save the country’s economy and membership of the eurozone back into question.

In Frankfurt the DAX 30 slid 0.96 percent while Madrid’s IBEX 35 index lost 0.37 percent. Milan however gained 0.57 percent. London’s exchange was closed for a holiday.

In Asia, stocks led the trend with Tokyo diving 2.78 percent and Hong Kong down 2.61 percent.

The euro fell to $1.2954, the lowest level since late January, but then rallied to $1.3036 at 1000 GMT, but still below $1.3082 in New York late on Friday.

As trading opened, the interest rate on France’s benchmark 10-year bonds rose and the difference between interest rates on French and German debt, a critical measure of tension in the eurozone, widened slightly.

But the trend reversed later with the French yield dipping to 2.78 percent at around 1030 GMT below Friday’s closing rate of 2.809 percent.

The benchmark yield on Greek debt rose to 22.883 percent, up from 20.225 percent on Friday.

In France, Hollande had campaigned on a platform of boosting growth instead of the emphasis on spending cuts to overcome the country’s deficit.

But the German government on Monday ruled out reworking the European Union’s fiscal pact despite the calls by Hollande.

“It is not possible to renegotiate the fiscal pact,” government spokesman Steffen Seibert told a regular news conference.

Seibert insisted growth was “not a new issue but rather the second pillar of our fiscal policy, and not just since yesterday” and that it would come through structural reforms.

Incumbent Nicolas Sarkozy and German Chancellor Angela Merkel had led a strident drive for budget cuts across Europe as the key for the region region to emerge from the debt crisis.

Ratings agency Standard and Poor’s, which had stripped France of its top triple-A rating in January, said Hollande’s victory would have no immediate impact on its rating or outlook.

“We will analyse the policy choices of France’s president elect and the new government, taking into account the outcome of the parliamentary elections in June,” the agency said.

Some observers said the markets had already factored in Hollande’s victory, but others warned that the French result combined with renewed turmoil in Greece could renew pressure on eurozone debt.

In Brussels meanwhile the European Commission said it “hopes and expects” that any future government of Greece will respect engagements it entered in return for two rounds of international rescues.

Kintai Cheung, analyst at Credit Agricole, said that the ballot box outcomes in France and Greece meant “a wave of renegotiations for bail-out programmes may be sparked”.

At Capital Spreads in London, trader Nam Truong said the votes “brought eurozone fears back to the fore.”

He said: “The strong bond formed between Merkel and Sarkozy has been broken and investors are concerned that austerity talks between Merkel and Hollande will collide.”

He noted that: “Hollande told supporters in Tulle in central France ‘austerity is not an inevitability’.”

Chris Weston, of IG Markets, said Greece and international creditors could be on a collision course after the International Monetary Fund suggested it might withhold aid if the new austerity measures were not enacted.

Weston said that it might not matter who formed the new Greek government “as long as the $3 billion (2.3 billion euros) in initial spending cuts and $11 billion in cuts to be identified for 2013/14 are realised.”

Global economic anxiety was already high after US data on Friday showing that the US economy created only 115,000 jobs last month.

The report also suggested tens of thousands of Americans had dropped out of the job market, a bad sign for household incomes.

On Wall Street on Friday the Dow Jones Industrial Average fell 1.27 percent, the S&P 500 lost 1.61 percent and the Nasdaq plunged 2.25 percent.

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