World markets recover from stumble over Europe elections

Stock markets recovered around the world following an early stumble caused by election results in France and Greece that appeared to jeopardise Europe’s plans for fighting its debt crisis. Greek voters over the weekend punished mainstream politicians who had backed cost-cutting plans demanded by the country’s international lenders, leaving the country without clear leadership. In France, President Nicolas Sarkozy was thrown out in favor of Socialist Francois Hollande, who pledged “to finish with austerity.” Investors on yesterday worried that the shifting political landscape in Europe could undermine the region’s long battle to keep its shared currency intact and restore the faith of global investors.

European markets slumped early on, but closed higher after worries about the political changes dissipated and investors focused on Hollande’s pledges to encourage economic growth. Investors were also relieved after Spain announced a plan to present measures this week to support the country’s ailing banks. Prime Minister Mariano Rajoy said he would not rule out lending or injecting public money into the country’s financial system.

Stocks rose sharply in Spain, ending up 2.7 per cent. France’s main index gained 1.7 per cent. The euro also recovered ground it lost against the dollar. In the US, the Dow Jones industrial average fell as much as 68 points in early trading, but recouped its losses and even gained ten points by the afternoon. The Dow finished the day down 29.74 points, or 0.2 per cent, at 13,008.53. The Standard & Poor’s 500 also started the day lower but ended up 0.48 points at 1,369.58. The Nasdaq composite index rose 1.4 points to 2,957.76. The election results in Europe showed that voters were rejecting the extreme belt-tightening required by international bailouts and favored by Germany’s leadership.Investors are waiting hear the newly-elected leaders articulate their visions for how to deal with the euro zone’s debt crisis, which is why there is a muted reaction from stock markets, according Kim Caughey-Forrest, equity research analyst at investment firm Fox Pitt Capital Group. “There is no reason to cry until you get hurt,” said Caughey-Forrest.

Initially, traders also bought up ultra-safe US Treasurys overnight when stock markets in Europe were falling. That pushed the yield on the ten-year note as low as 1.83 per cent early yesterday morning, a level it hadn’t reached since early February. However, the yield rebounded to 1.88 per cent in late trading, the same level it was at late Friday. Earlier in Asia, Japan’s Nikkei index plunged 2.8 per cent to its lowest finish in three months. In addition to Europe’s elections, it was also the first time for investors in Asia to reacted to a weak jobs report Friday in the US. Hong Kong’s benchmark Hang Seng index slid 2.6 per cent. 

(AP)