The markets rsspond

Euro down after weekend elections

The euro fell against the dollar and the pound on Monday following weekend election results, which cast doubt on European austerity plans.

Radio New Zealand,

8 May, 2012

Pro-bailout parties in Greece performed poorly, while Francois Hollande won the presidency of France, promising to focus more on growth.

The euro fell as low as $US1.295, its lowest since January, later recovering to $US1.305.

It also dropped to three-year lows against the pound.

Main European stock markets fell early before recovering. In Frankfurt, the DAX fell by more than 2%, but closed up 0.1%. In Paris, the CAC-40 recovered to trade up by 1.65%.

Athens shares fell by as much as 8.3%. In London, markets were closed for a bank holiday.

In New York, the Dow Jones opened down by 0.3%.

Asian markets also fell, with the Nikkei in Tokyo dropping 2.8%. The Kospi in Seoul shed 1.8% and the Hang Seng in Hong Kong dropped 2.4%.

The BBC reports there is concern whether new France President Francois Hollande will be able to work as closely with German Chancellor Angela Merkel as his predecessor Nicolas Sarkozy did.

The two were the driving force behind the eurozone's fiscal compact.

Mr Hollande stood on a platform of promoting growth rather than concentrating on austerity.

Mrs Merkel said on Monday the European Union's fiscal pact is not up for renegotiation. Mr Hollande wants to reopen the debate

US Equities Ignoring US Sovereign Risk Warning

US equities are happy to ignore these events, still drawn in their Pavlovian-educated manner to US equities for their nominal enrichment

Zero Hedge,

7 May, 2012

We have been warning of the pending fiscal cliff in the US and the somewhat inevitable debt ceiling debacle, election uncertainty, and the question of Fed independence in an election year as potential catalysts for risk flares in the US and abroad.

For now, US equities are happy to ignore these events, still drawn in their Pavlovian-educated manner to US equities for their nominal enrichment.

The trouble is - there are clear warning signs from some particularly noteworthy markets that all is not well (that appear more capable of comprehending fundamentals).

Forget for a moment the overnight plunge and recovery in futures as this will bring only anchoring bias; a step back to 30,000 feet and we note that the spread on USA Sovereign CDS has risen by over 30% in the last month (now back at 40bps or 3-month wides) flashing a worrying warning signal for US equities if the past is any guide.

Remember that US CDS are denominated in EUR and do not simply reflect the 'default' risk of the fiat-issuing USA but the devaluation or restructuring risks - and it appears market participants are getting nervous once again of the profligacy of the US government and the ineptitude of the central banks with their one-trick-pony experimentation.

At the same time, central banks' broad repression has crushed volatility in every asset class - except, as Morgan Stanley notes - credit which is inferring considerably higher chance of a risk flare in the short-term. So while this week will bring cheers of growthiness and cooperation and decoupling, the all-seeing eye of credit markets remain far less sanguine.

US Sovereign CDS is flashing a warning signal for stocks...

and credit markets are gearing up for more volatility ahead (even as the rest of the retail-driven global markets remain as sanguine as can be)...

...just what do these other markets think will happen when Twist's end is discounted? Deja-Vu all over again.

GREECE IS IN CHAOS AND STOCKS GO NOWHERE: Here's What You Need To Know

Sunday's eurozone elections end with a couple neo-Nazis in Greek parliament.

Business Insider,

7 May, 2012

First the scoreboard:

Dow: 13,008, -29.7, -0.2%

S&P 500: 1,369, +0.5, +0.0%

NASDAQ: 2,957, +1.4, +0.0%

And now the top stories:

• As expected, France voted socialist party leader Francois Hollande to the presidency, replacing incumbent Nicolas Sarkozy. Hollande is opposed to the eurozone's existing fiscal compact. Rather, he favors more ECB involvement and higher domestic taxes.

• The Greek elections, on the other hand, were much more interesting. Incumbent parties PASOK and New Democracy won only around 35 percent of voter support. Seats were split among five other parties including the KKE (communists) and Golden Dawn (neo-Nazis). That's right, neo-Nazis. And their symbol resembles the swastika. This Is What You Need To Know About The Crisis In Greece >

• Analysts were quick to sound off on all of the elections. Deutsche Bank's George Saravelos called it a "significant market-negative surprise." With anti-austerity parties in parliament, current planned cuts are less likely to go through, which puts future bailout funds at risk. Goldman's Themistoklis Fiotakis shared Saravelos' sentiment. Citi economists have boosted the odds of a "Grexit," or Greek exit from the eurozone, to a range of 50 to 75 percent. Here's What Comes Next For Greece >

• Surprisingly, markets were showed remarkable resilience. Barclays' Barry Knapp attributed the optimism to upcoming U.S. presidential election. "Elections breed optimism, and the idea that we might get a new CEO of the country really could trigger a fair bit of resiliency in the markets and perhaps even a rally as we get closer to the elections," Knapp told Bloomberg.

• The markets ended the day on a strong economic note. According to the Federal Reserve, consumer credit expanded by $21.3 billion in March, crushing expectations of $9.8 billio