Shanghai Base Metals to Rebound on Positive Greek Election Results

SHANGHAI, Jun. 18 (SMM) – The latest Greek vote results turned markets positive. With 98% of ballots counted, the New Democracy Party had 29.7% of the vote, 129 seats in the Greek parliament, while the radical left anti-bailout Syriza Party had 26.9% of the vote, 71 seats in the parliament. The socialist Pasok Party won 12.3% and 33 seats in the Greek parliament. This means that the New Democracy Party will win the Greek election and will likely form a coalition government with the pro-austerity socialist Pasok Party. Leaders of the two parties said Monday that they have begun the informal negotiations about the establishment of the coalition government. In this context, the possibility of Greece withdrawing from the Euro zone has fallen greatly.   
 
The New Democracy Party leader Antonis Samaras said they would honor the previous EUR 173 billion bailout deal with the European Union (EU) and International Monetary Fund (IMF), and urged all parties that support Greece to stay in the euro zone to participate in the coalition government. Markets expect that Greece can form a coalition government and calm the country's turmoil, although the radical left anti-bailout Syriza Party stated they would continue to reject austerity measures and would not join in the coalition government. Market worries over a Greek exit from the currency bloc and a Greek default alleviated as a result.  

Besides, investor fears over the euro zone also eased in the capital market. According to reports released by the Commodity Futures Trading Commission (CFTC) last Friday, net short positions for the euro were USD 30.5 billion at the Chicago Mercantile Exchange as of June 12, down 9% from the previous week's historical high and equal to 195,187 contracts. In contrast, net long positions from speculators were USD 39 billion, down 3% from the prior week. Net short positions for the euro have fallen after the New Democracy Party won the vote, an indication that market fears have eased. Furthermore, the euro rebounded rapidly Monday, while the US dollar index dipped swiftly.

With the Greek election results almost settled, investors are also eyeing on the G20 summit in Mexico Monday. Should G20 leaders' statements trigger market upheaval, investors will act radically. The slowing global economic growth and the European debt crisis will become the hot topics at the G2 summit, and investors will watch responses from Spanish and Italian government bond markets during the European trading session. The latest Federal Reserve meeting to be held this Thursday Beijing time will also be one of market focuses. Nevertheless, generally speaking, the positive news about the Greek election should turn investors to high yielding assets. As such, SMM holds the view that Shanghai base metals are likely to rebound continuously for the foreseeable future after stabilizing last Friday.