Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires

UK 100 called to open +70pts after Greece’s general election suggests the pro bailout centre-right New Democracy (ND) party scraping to victory over the radical leftist Syriza  which had pledged to tear up Greece’s bailout agreement. Asian markets and European Index futures (and euro versus US dollar) sharply higher as might be expected (Greece not going to leave the single currency bloc, immediately anyway), but as we alluded to last week, all is not fixed.

With no party again gaining a majority it falls on ND to try and form a coalition (Syriza has already declined to partake, preferring to remain a valid opposition party). ND’s head Samaras want to do this immediately, but remember the reason elections were held at the weekend – because of an inability to form a coalition six weeks ago.

It is not just the coalition which could be a sticking point. Even ND wants a softening of Greece’s bailout terms. It had been suggested that the EU was preparing to court the winning party with carrots rather than sticks in an attempt to keep the nation in the single currency bloc. It remains to be seen how hard each side bargains.

Agreements are likely to be a drawn out process. Much like the 4yr crisis in general.  This is the danger with the country already in dire straits (putting it mildly), urgently requiring the release of €1bn to pay bills due mid-July. Painful reforms still also need to be adhered to, to help keep the country on track for an eventual recovery (a way off to say the least).

In summary, Greece still has no government; however, the chances of radical action are reduced. This doesn’t mean the winner and his potential coalition are not going to work hard to make things difficult for the troika (EU, IMF, ECB) of bailout lenders. It is unlikely things will be resolved that quickly.  It still involves politicians. And the measures to help the crisis still need much work. G20 to help this week. I hope so, but admit to having little faith.

Looking to the rest of the week, focus back on central bankers with much hope of policy action to kick start economies after China acted but US, Europe and UK held fire, but all three said ready to act if things worsen (coordinated action would be welcomed by markets). You can’t help but assume they were referring to an alternative Greek election outcome (outcome is a mild positive, but as we said, all is far from fixed). However, macro data continually fails to inspire so there are regular opportunities for this to be revisited.

The US Feral Reserve (Fed) meets on Wednesday, with Chairman Bernanke giving a press conference likely reinforcing his prior ‘standing ready’ statement. The Bank of England’s (BoE) vote to leave all unchanged is likely to have been a closer call than last month.

Macro data overnight showed UK house prices rebounding in June, but a contraction in China property prices in May.

Looking to FX and commodities, USD is weaker; less on the prospect of monetary easing (QE) from the Fed, and more from the reaction to the Greek election –Europe seen as less weak, so less need to hold the traditional greenback safe haven. The knock-on effect has seen the price of Gold inch up overnight (weaker dollar means you get more of it for your own currency, meaning you can buy more dollar denominated commodities. Nonetheless, as we said last week, Gold still has to contend with resistance via a 3.5-month falling resistance and the long term broken support.

Macro data very limited today, but EFSF bond auction for the yield, giving indication of confidence in the region amid its sovereign debt crisis woes. The European Central Bank’s (ECB) purchases of sovereign debt (Securities Market Programme, SMP) is expected to have remained at zero, although there are hopes that it is reinstated to help reduce Spain and Italy’s borrowing costs. US housing data could reinforce calls for more monetary easing by the US Federal Reserve (Fed).

Overnight/Weekend Macro Data: (Source: Reuters/DJ Newswires)

• Greece            General Elections                    Pro-bailout party wins
• France            Parliamentary Elections      Socialists get majority
• UK                    Rightmove House Prices     Improved Growth
• Aussie             Motor Vehicle Sales              Growth rebounds
• China               Property Prices                       Contraction
• Japan              Dept Store Sales                      Contraction
• See Live Macro calendar for all details

UK Company Headlines: (Source: Reuters/DJ Newswires)

• Man Group surprises with new finance director
• Tesco to exit Japan in Aeon deal
• Orbis to announce deciding vote on CWW deal
• DS Smith confirms completion date of SCA Packaging deal
• Gem Diamonds sees tunnel collapse delaying diamond production
• Melrose in offer talks with Elster Group
• Majestic Wine FY profit before tax +14.5% to £23.2m

Morning Press Selection:

• Buying European bank shares a risk – FT.com – Front page http://on.ft.com/Mk8ObD
• What happens if Angela Merkel does get her way – FT.com – Columnists http://on.ft.com/LYOWy7
• Greek knife edge could mean long slow cut – FT.com – Europe http://on.ft.com/NCj2Ju
• Policy ‘paralysis’ hits global recovery – FT.com – Global Economy http://on.ft.com/LYbEW0
• Denmark warns over pressure on krone – FT.com – Currencies http://on.ft.com/KM56XM
• Growth demand splits Bank committee – FT.com – UK Economy http://on.ft.com/M5lpyZ
• Spain’s football unity shows regions the way – FT.com – Europe http://on.ft.com/KFdU6m
• Economic outlook: central banks on alert – FT.com – Capital Markets http://on.ft.com/KMYLLM