hammer iron smithWikimedia Commons

Markets are really getting hammered to start the week.

The euro is getting whacked.

US futures are getting hit.

The Aussie dollar is at its lows of the year.

Oil is tanking. It's now below $97/barrel.

So what's up? Greece, basically.

In a note out tonight, Deutsche Bank's George Saravelos explains why the outcome in Greece is, in his words, "a significant market-negative surprise."

Basically, the two big pro-austerity parties got a stunningly low 32% of the vote, meaning that the overwhelming intention of voters was "anti-programme" (against the existing austerity deal). That makes it extremely unlikely that the current cuts-for-bailouts deal can go ahead easily.

Saravelos sees three outcomes.

  • It's not incredibly likely, but it's still possible that a solidly pro-programme coalition can be cobbled together in parliament. We'll know more in the next couple of days.
  • A more likely outcome is that a broader coalition government is built, but with an explicit mandate to renegotiate the bailout, instantly creating Euro-wide uncertainty.
  • And finally, it's possible that new elections will be called for this summer, which would throw the whole bailout deal into question, since those elections would be timed right around the next time the next tranche of bailout aide is coming.

So basically there's now a very slim chance for an easy way out.

Hence: Markets are getting whacked >