Political uncertainty in Greece reignites debt crisis fears: Morning market insights

The New York Stock Exchange was down overnight as investors worry Greek political uncertainty is reigniting the debt crisis in Europe. Bond yields on Spanish debt rose to over 6% again as Reuters reported the Spanish Government could demand a further €35 billion ($AUS45 billion) in provisions against overvalued property loans from its troubled banks.

In New York the Standard & Poor’s 500 Index fell to its lowest level in two months, and the Dow fell for a sixth straight day.

But US corporate profits have been encouraging this earnings season, with about 70% of S&P 500 companies having reported results.

Peter Jankovskis at Oakbrook Investments in Lisle, Illinois told Bloomberg US equities could resume their rally if positive developments start coming out of Europe.

“Corporate earnings have continued to be good,” said Jankovskis, who helps manage $2.9 billion of investments.

“There’s reason to be encouraged about American stocks.”

Richard Bernstein CEO of Richard Bernstein Advisors in New York told Bloomberg the market looks at worst reasonably valued, at best downright cheap.

“People are underestimating the risk outside the US and overestimating the risk inside it,” Bernstein said.

“Over the next several years, there is going to be a re-evaluation of those risks, and we should get higher multiples in the US.”

The S&P500 Index finished down 0.67% to 1354.58.

The Dow Jones Industrial Average was also down 0.75% or 97.03 points to 12835.10.

The NASDAQ Index fell 0.39% or 11.56 points to 2934.71.

Walt Disney (DIS: US) rose 2%, setting a new 52-week high overnight, before closing 1.63% up to $45.02 after it reported revenue of $9.62 billion ($AU9.57 billion). The world’s largest entertainment company said earnings rose 21%.

The biggest gain in the S&P 500 was for MetroPCS Communications (PCS; US) which gained 14%, to $7.50. Deutsche Telekom is discussing a merger of its T-Mobile USA unit with MetroPCS, according to people familiar with the matter.

West Texas Intermediate (WTI) oil price was down 0.21% to $US96.81 a barrel overnight

Gold was down 0.64% to be trading at $US1594.20 an ounce.

The Australian dollar was buying $US1.0041 at 8am AEST.

Europe

European stocks were mostly down overnight, with falls in Paris, London and Switzerland. Only Germany bucked the trend with a small gain as the fractured Greek left parties struggled to form a coalition and new worries surfaced in Spain about banks with overvalued housing loans are surfacing. Spain’s bond yield rose over the danger 6% level again overnight.

The Bank of Spain confirmed overnight the partial nationalisation of Bankia as the 4.47 billion euros ($AUS575 billion) owed to the Government cannot be paid back, and will instead be converted into government owned shares.

The London FTSE 100 closed down overnight 0.44% to 5530.05.

The German DAX was up 0.47% or 30.57 points to 6475.31.

The European Stoxx50 index fell 0.47% to 2225.63.

Alexis Tsipras, leader of the second place radical left Syriza party in Sunday’s Greek election declared the EU bail-out of Greece dead, in a letter to Brussels, according to The Telegraph in London.

He told colleagues “we cannot make true our dream of a Left-wing government” after failing in a bold challenge to the two mainstream parties, Pasok and New Democracy, to renounce the recovery plan they supported last year.

Tsipras is expected to fare even better in an expected second election.

Antonis Samaras, leader of the conservative New Democracy party, who won 18% of the vote, said the pulling out of the loan package would lead to “Greece’s exit from the euro and the country’s bankruptcy”.

With no government in Athens, it is unclear who will decide whether Greece will make a 450 million euro ($AUS580 million) bond payment due on May 15.

Barroso told German broadcaster WDR that Greece must stick to the terms of its bail-out agreement or face “very negative” consequences.

When European Commission head Jose Manuel Barroso was asked whether there could be a renegotiation of the fiscal treaty.

“No.”