The prospects for Europe after election uncertainty clears

Three key national elections

The European agenda is heating up with elections in the Netherlands, France and Italy approaching. The Greek bailout is also going through a new round of uncertainty, writes Jean-Baptiste Berthon, senior strategist at Lyxor Asset Management.

Unsurprisingly, market stress has been steadily strengthening. The 10-year sovereign spread over bunds for these countries rose by 30bps-40bps year-to-date, with the exception of the Greek spread which rose 70bps.  We expect a tail-risk will increasingly be factored in until clarity is regained, keeping European assets under pressure in the coming weeks. In the Netherlands, the far-right party is leading in the polls. Yet, even if it was to control a quarter of the seats in parliaments, it would not be in a position to form a government.  Instead, a coalition involving the mainstre...