Monday saw a rocky start for Europe with euro seeing broad declines against the dollar and market sentiment from Hollande’s victory weighing on the US equity markets.  However, the losses were quickly paired with positive manufacturing news coming out of Germany and Warren Buffets comments on the state of the US banks.

Even though the market seemed to have priced in the French and the Greek elections, the uncertainty from Europe has been the highest since the beginning of the year and rally that some thought was unsustainable. The current view of the market seems to suggest a bearish approach with Spain reported to be looking for another bailout. The next few months would be a test not just for the equity markets but also for the new found governments and how far they are willing to go with Germanys expectations.

A busy long weekend in the news saw (old) French President Sarkozy being short on votes (no pun intended) and French President-elect Francois Hollande voted in.  President Hollande's promises on reviewing the fiscal treaty with Germany were met with firm words from German Chancellor Merkel as she said that "We in Germany, and me personally, are of the opinion that the fiscal pact is non-negotiable."  So the first move of the new President-elect was to upset Europe's biggest lenders, perhaps not the best first move.

Greek elections have backed them (further) into a corner where they need to lay out plans and austerity measures for a 7% of GDP cut by June, yet elections have left the country with no clear leading party and a refusal to construct a coalition government is going to ensure that this summer the Euro is going to have a bumpy ride, and bumpy is only if France and Germany don't lock horns.

Posted by Khurram Ali (kali@valbury.co.uk)