European shares and bonds tumble amid fresh fears over Greece

Investors take fright as Athens vote prompts snap election with anti-austerity party leading polls

The Greek benchmark gauge plunged 8.4 per cent and as much as 11 per cent, the most among 18 western-European markets.Photograph: Yuya Shino/Reuters

The Greek benchmark gauge plunged 8.4 per cent and as much as 11 per cent, the most among 18 western-European markets.Photograph: Yuya Shino/Reuters


European shares and periphery euro zone bonds tumbled after the Greek parliament rejected the government’s presidential candidate, setting the stage for an election that anti-bailout party Syriza could win.

Greece’s prime minister Antonis Samaras failed to get enough support for his nominee, Stavros Dimas, and will now call a national election for January 25th.

European markets reflected uncertainty about Greece’s future in the euro zone under a possible Syriza government.

Stocks in Athens plunged as much as 11 per cent to a two-year low and yields on government bonds spiked sharply. Italian and Spanish markets also took heavy hits as investors made a dash into ultra-safe German debt

“A Greek accident has become a potent risk. But mostly for Greece itself,” said Holger Schmieding at Berenberg Bank in London.

“Of course, the tail risk of Grexit poses questions for Europe. But if that tail risk were to materialise, we see no significant probability that any other country would want to follow.”

With many in the market still taking a Christmas break, futures markets pointed to a 0.1-0.2 per cent dip from record highs for Wall Street when trading resumes, while in Russia the rouble’s rebound reversed as it dropped as much as 6 per cent.

It had all looked much brighter in Asia overnight. Gains of 1.5 and 1.8 per cent respectively in Australia and Hong Kong had lifted MSCI’s broadest index of Asia-Pacific shares outside Japan 1 per cent.

Tokyo’s Nikkei bucked the trend, sliding 1 per cent as reports of a suspected Ebola case in Japan spooked a market still on track for about an 8 per cent gain this year.

In Malaysia, shares in AirAsia posted their biggest one-day drop in more than three years after one of its aircraft went missing on its way to Singapore from Indonesia.

US markets were readying to open following some robust data from the Midwest region but it was the uncertainty in Athens that dominated sentiment.

Greek 10-year bond yields jumped above 9 per cent and forced up yields on the bonds of other heavily-indebted euro zone governments, such as Italy and Spain.

Syriza wants to wipe out a big part of Greece’s debt and cancel the terms of a bailout from the European Union and International Monetary Fund that Greece needs to pay its bills.

“With the will of our people, in a few days bailouts tied to austerity will be a thing of the past,” Syriza leader Alexis Tsipras said after the vote. “The future has already begun.”

The euro, perhaps surprisingly, was little moved by the result but at $1.2190 it was not far from the $1.2165, post-August 2012 low hit the previous week.

The dollar stood firm at 120.40 yen but lacking momentum to challenge a seven year high of 121.86 hit earlier in the month after rising roughly 15 per cent against the yen this year.

Investors will be concerned about whether the US economy will be strong enough in 2015 to offset signs of slowdown in powerhouse China and the euro zone.

There is also uncertainty about the impact of the 45 percent drop in oil prices over the last six months on many of the larger producers that depend on oil revenues.

After two days of falls, oil prices rose after Libyan officials said a fire caused by fighting at a main export terminal has destroyed 800,000 barrels of crude, more than two days of output.

“Libya, and all the other problems, warrants some kind of risk premium,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.