Greek Smiles Short Lived

Concern surrounding Spain, Italy and potential new demands from Greece caused the Eurodollar to drop today as Spanish and Italian bond yields spiked higher.

Spanish bonds jumped to over 7%, a record, and chatter around the financial world indicated that any potential new Greek government was going to be angling for various sorts of relief from already agreed to commitments.

German Chancellor Merkel immediately doused cold water on those ideas, saying that Greece had to step up to its package of austerity and reforms to continue receiving aid from the European Union. Of course she can’t open the Pandora box of renegotiation as Ireland and Portugal would be right behind Greece with similar requests.

For their part, the Greeks want to renegotiate the terms of the deal, with apparent Prime Minister In Waiting, Antonis Samaras already looking for changes to the deal. Rumors are that Greece wants to take its austerity medicine of $11 Billion Eurodollars in a period of four years instead of the agreed upon two years. Of course, time is money and money is time and so this proposal is likely to be met with stiff resistance by Germany which is now widely being called the “paymaster” of Europe.

In the other big weekend election, Francois Hollande gained control of Parliament which will help him advance his Socialist agenda and will put him nose to nose with Chancellor Merkel who has been used to having a strong ally when her friend, Nicholas Sarkozy, was at the helm of France.

The G-20 meets in Cabo San Lucas with the European crisis high on its agenda as they try to figure out ways to promote growth and reduce debt at the same time. Not an easy task, indeed.

In the United States, the Dow Jones Industrial Average (NYSEARCA:DIA) declined 0.2%, the S&P 500 (NYSEARCA:SPY) rose 0.1% while the Nasdaq (NYSEARCA:QQQ) climbed 0.8%.

The Russell 2000 Index (NYSEARCA:IWM) gained o.1% while notable “risk on” sectors, energy and financials, posted declines of 0.9% and 0.6%, respectively.

Natural gas was one of the day’s big winners with a gain of 6.6%.

Bottom line:  Greece, Spain and Italy are ground zero for the crisis that just won’t quit, and intense volatility can be expected going forward. Wednesday’s Federal Reserve announcement takes on added importance as global risks continue at elevated levels.

Disclosure: Wall Street Sector Selector trades a wide range of exchange traded funds and positions can change at any time.