As Greece prepares to go for the next round of pools, this weekend, BAML’s credit plan group tackles three possible results of the polls on various asset classes. Although they may have concerns about all potential post-poll scenarios, it does not mean that they are going to cause an exit from the currency union, at least not in the near term. Some analysts argue that some of these results may cause the first market rally that may reinforce the euro. Their study focuses mainly on the short-term (four-week) market insinuation, and Spain and Italy will be dealing with a sovereign disaster over this period. But these concerns are expected to carry on.
The three scenarios are:
- Base case (high likelihood): poll result gives Greece a chance to structure a pro-EU government; restricted European strategy response;
- Bull case (low likelihood): poll result implies that Greece doesn’t create a pro- EU government; considerable ECB and European strategy response.
- Bear case (low to average likelihood): poll result implies that Greece does not succeed to create a pro-EU government; restricted ECB/European strategy response.
The following are details of one-month asset price response for credit, interest rates, forex and commodities.
Background on the polls
For a fresh government to survive, it has to obtain at least 151 parliamentary sees. The main difference between Syriza and New Democracy still remains within margin of error mainly attributed to opinion polls. The party that wins majority votes gets a bonus of about 250 seats. The remaining ones are then shared out proportionally.