Talking Points

  • PASOK, ND to form new unity government
  • New Greek Prime Minister to be Lucas Papademos, PASOK, agreed by Papandreou and Samras
  • Deputy Premiers to be Evangelos Venizelos, PASOK; Stavros Dimas, New Democracy
  • Unity government suggests new elections on Feb 19th 2012
  • ICE and CME lowers all initial margins to minimize MF Global fallout


After a volatile week with former Greek Prime Minister George Papandreou calling and canceling a referendum concerning further austerity and putting in jeopardy Greece’s membership in the EU-17, a G20 meeting bringing Italian government budget woes in the spotlight and ending with a confidence vote confirming Papandreou, markets once again are nervously anticipating new political developments from the Mediterranean country.

Although first statements made by Opposition Leader Antonis Samaras on Friday showed firm disagreement over forming a coalition government with PASOK and New Democracy, urgency prompted by German and French leaders has resulted in a unity government to be formed between the two parties, with Lucas Papademos, PASOK as the new Prime Minister and deputy premier seats split between Finance Minister and current Deputy PM Venizelos and Stavros Dimas, ND.

With a new unity government formed hours before Asian trading in low liquidity hours, markets have not shown a large reaction to the news. At the time of writing, the Euro is 0.174% lower against the dollar, while the Swiss franc leading losers, shedding 0.652% against the buck. Over the weekend, SNB President Hildebrand warned that the bank was ready to take more action of deflationary pressures continued. Swiss CPI is due to be reported later today at 0815GMT, with expectations of 0.2% dropping from previous 0.5%.

Despite an overall risk-off bias in late Sunday, the new unity government is expected to buoy appetite, as it removes the immediate danger of the Papandreou-caused austerity deadlock that froze payment of the next austerity package in December. However, with the new unity government still having power largely consolidated in the hands of the current PASOK party, the European Debt Crisis in Greece is not expected to be automatically fixed.

In the US futures markets, risk-correlated assets may see moderate bids higher in Monday trading as two of the largest futures exchanges, the Intercontinential Exchange and CME both decided to lower initial margins for speculative accounts. This easing of liquidity was done as a direct response to possible heavy outflows from now defunct MF Global's accounts. Although this change is expected only to be temporary, risk assets may see more buyers in early trading as speculators take advantage of the lower margins needed to enter into a contract.