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Greeks have killed our rally

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by Peter Switzer

OK, I expected a sell-off and prophesised it but I was always hoping we would avoid this kind of dumping, however, when uncertainty is linked to what the Greeks might do at the next election, it’s in the lap of the gods!

And the stock market slide took the gloss off Facebook’s debut but in reality this is nothing but a sideshow to the main game — will Greece leave the eurozone and what will it means for financial markets?

UBS’s George Boubouras, who is of Greek parentage, thinks the next election will see a lot of the protest votes weeded out of the result and a coalition government will eventuate. He says 80 per cent of Greeks want to keep the euro but nearly the same number don’t want German-style austerity. Mind you there aren’t too many European countries that are big fans of fiscal toughness, and given unemployment levels, I reckon it could be eased off to ensure growth happens. After all you can’t raise taxes to pay back debts if you aren’t earning income.

US stocks lower

Let’s take stock of what has happened thanks to our Greek buddies. The Dow which lost 0.59 per cent last Friday is now at 12,369.38 and is now up only 1.24 per cent for the calendar year. The Nasdaq is up 6.67 per cent and the S&P 500 finished at 1295.22, off 0.74 per cent and is up only 2.99 per cent for the year. Our S&P/ASX 200 index lost 5.6% for the week to end at 4056.5, which means we are down 10 points for the year!

The Euro-drama hasn’t been helped by the ratings agencies downgrading Spanish banks and have also downgraded Greece’s overall credit rating to a CCC.

Our big hope to cling onto is the G8 meeting in the USA where Europe will be the big issue. Remember, Obama doesn’t need a beaten up stock market going into an election in November. All stops will be out to minimize the financial fallout from the Greek election.

Out this week

Another big issue will be the pace of the US economic recovery, which has thrown out some conflicting signals of late. I will be watching the Chicago Fed National Activity index, a number of key housing figures, durable goods orders and consumer sentiment.

On the local front there are no big data releases and so we will be watching for anything out of Europe that could turn around this negativity but worst of all we have four more weeks of waiting before the Greek election happens! This could be an agonising wait.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, May 21, 2012

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