SHANGHAI, Jun. 19 (SMM) – The positive impact of the Greek election result on base metals lasted for less than one day, and base metals retreated anew overnight. Although the victory of the New Democracy Party in Greece avoided a immediate risk of the country exiting the Euro zone, Greece will face the severe task of cutting expenditures required by its international creditors in the future. In the meanwhile, the Spanish debt crisis is escalating. As market optimism from the Greek election result abated, base metals in European markets trended lower after starting higher Monday, failing to extend Asian markets' strong gains.
With almost 100% of ballots counted officially Monday, the New Democracy Party had 29.7% of the vote, higher than the left Syriza Party's 26.9%. According to statistics, the New Democracy Party will have 129 seats in the 300-seat Greek parliament, while the socialist Pasok Party, which won the third in the vote, will have 33 seats. This means once the two parties join hands, they could establish the coalition government with more than 50% of the seats, greatly mitigating the risk of Greece exiting the Euro zone immediately. This can provide some space for European leaders to deal with the Spanish debt crisis and win more time for Greece and other countries in the region as well. From this perspective, markets should make positive responses. Nevertheless, favorable result from the Greek election failed to excite investors too long, as the again climbing Spanish government bond yields claimed market spotlight Monday. Market worries over the Spanish debt crisis have continued unabated following its earlier EUR 100 billion bailout deal with the European Union.
Affected by soaring government bond yields in Spain, base metals and crude oil reversed earlier gains in European markets Monday. The US Federal Reserve will hold its monetary policy meeting June 20, and markets expectation over a new round of quantitative easing has also weakened. As such, SMM holds the view that base metals will continue to fluctuate weakly for the foreseeable future.