Buckle up for a wild week on global financial markets


Globe and Mail Update
Published Monday, May. 28, 2012 7:24AM EDT

Testing nerves
It’s going to be a tense week in global financial markets.


Europe’s underbelly isn’t Greece


Investors are watching closely for the latest poll results from Athens, the amount of money being pulled out of Greek and Spanish banks, and signs for a referendum in Ireland Thursday will play out. Add to that the key U.S. jobs report on Friday, and all the ingredients are there for a crazy few days.

U.S. markets are closed today for Memorial Day, but, already, Greek polls are moving markets, and shares of Spain’s Bankia are plunging.

“With pro-bailout parties gaining in Greek opinion polls, the [Swiss central bank] threatening capital controls, Spain talking of injecting bonds into Bankia, and U.S. non-farm payrolls due on Friday, we are starting the week with a ‘risk bounce,’ said Kit Juckes, the chief of foreign exchange at Société Générale.

Investors were buoyed somewhat today by these opinion polls that show the pro-bailout forces slightly ahead of those that want to rip up the rescue agreements in the run-up to a June 17 election. But borrowing costs in Spain surged again.

Those who want to change the harsh austerity terms of the bailout made surprising inroads in the last vote, leaving a political make-up too fractured to form a coalition government.

“The reaction to poll results may be seen as a little fickle and we have got used to any positive news quickly getting swamped by the next tranche of disappointment, but it has lifted the London index back to its best levels for nearly a week,” said David Jones, chief market strategist at IG Index in London.

Then, as mentioned, there’s the Irish referendum.

“Polls have shown a clear lead for the ‘Yes’ camp by about 60 per cent to 40 per cent, but the actual result may be a lot closer,” said observers at RBC Dominion Securities.

“Although the fiscal compact does not require Irish ratification to come into effect, EU leaders have tied future bailout disbursements to Ireland to a positive outcome on the referendum.”

Then there’s Friday’s U.S. employment report, one of the most widely watched measures and one that frequently moves markets.

Economists generally expect to see job creation of about 150,000 and an unemployment rate of 8.1 per cent.

“A slight improvement in May’s payrolls will do little to alter the impression that hiring in the U.S. economy has slowed noticeably since the winter,” said Andrew Grantham of CIBC World Markets.

“Job gains of this magnitude are consistent with the more moderate GDP growth of Q1, rather than the strong advance of [the fourth quarter of last year].”



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