The shockwaves from Greece's failure to form a coalition government continued to reverberate around markets on Wednesday, with investors concerned that the country was
heading for the euro exit door, thereby
fracturing Europe's single currency.
Greece is headed for another general election next month after nine days of unsuccessful talks since the May 6 poll yielded a split vote with no one party able to govern on its own.
Wall Street was poised for a subdued opening, with both Dow futures and the S&P 500 futures down 0.1 per cent.
Earlier, Asian benchmarks recorded sharp losses earlier in the day.
Japan's Nikkei 225 index dropped 1.1 per cent to close at 8,801.17, its lowest close since January 30, amid
discouraging economic news. Core private-sector machinery orders fell 2.8 per cent in March, the first drop in three months, Japan's Cabinet Office said.
Hong Kong's Hang Seng plummeted 3.2 per cent to 19,259.83 and South Korea's Kospi fell 3.1 per cent to 1,840.53.
Mainland Chinese shares also lost ground, with the benchmark Shanghai Composite Index falling 1.2 per cent to 2,346.19. The Shenzhen Composite Index dropped 1.4 per cent to 942.04.
The next election could well become a referendum over Greece's place in the euro - which could mean the established Greek political parties that took a hammering in the first poll might do better.
However, markets are still worried that Syriza, the radical left coalition that came a surprise second in the first election, may actually emerge as the biggest party in the next time round. Led by Alexis Tsipras, Syriza has steadfastly stood to its anti-austerity, anti-bailout position.
"The fear is that the anti-austerity vote will grow," said Fawad Razaqzada, market strategist at GFT Markets. "The big issue is how this squares with the Greeks' desire to keep the euro as their currency."
Without agreeing to another round of austerity measures, it's conceivable that Greece's partners in the eurozone will withhold the next round of bailout cash that's keeping it afloat. An exit from the euro could then become inevitable.
In Greece, that prospect has led to further outflows of Greek deposits, with some Euro 800 million thought to have made their way out of Greek banks since the election. Those deposits may have found their way into safe-haven alternatives, such as German and British ten-year bonds, which have risen to record highs in the secondary markets.
The
dollar has also mustered a lot of support through its perceived-status as a safe haven asset, especially against the euro, which has sunk to near four-month lows of around $1.27.
"Equity markets remain under pressure as investors fret about the consequences of a Greek exit from monetary union," said Neil MacKinnon, global macro strategist at VTB Capital. "The likelihood of this happening, in our view, is high but the crisis will not stop with a Greek exit."
Stocks, widely viewed as riskier assets, have taken a battering amid the political uncertainty in Greece, not least in Athens when the main market is trading at near 20-year lows.
Elsewhere in Europe, the FTSE 100 index of leading British shares was down 1 per cent at 5,381 while Germany's DAX fell the same rate to 6,338. The CAC-40 in France was 0.1 per cent lower at 3,037.
The bonds of Spain and Italy were under pressure too as investors worried about contagion from the Greek crisis. If Greece leaves the euro, then a precedent would've been set that could be taken up by other countries burdened by high debt levels. The yield on Spain's ten-year bond, a gauge of investor concerns, was up at 6.33 per cent, while Italy's rose to 5.85 per cent. Though down on the levels they hit last November, the two rates are uncomfortably near the 7 per cent level, widely-considered to be unsustainable in the long-run.
Oil prices tracked equities lower amid the economic uncertainty - the main New York rate was down $1.54 at $92.50 a barrel.
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