A woman passes in front of chart with the stock prices at the Greek Stock Exchange in Athens on Monday, May 7. In reaction to the election, Greek bonds tumbled more than €3, considered a huge move in the fixed-income market, and yields soared to a punishing 21.87 per cent, up nearly two full percentage points on the session.Thanassis Stavrakis
Even though stock markets stayed steady on Monday after the upheaval from the European elections, risk is back and investors should brace for volatility.
The yield on 10-year U.S. Treasuries has dipped to 1.84 per cent, which is back in February's territory. The bears have got hold of the euro, which is declining against most major currencies. And oil and other commodities are feeling significant selling pressure.
In Greece, the conservative New Democracy party, which advocates austerity, has failed to form a coalition government following Sunday's parliamentary elections. That has given a coalition of anti-austerity parties an opportunity to take control.
In France, the new president, Socialist François Hollande, is set on a collision course with his predecessor's ally, German Chancellor Angela Merkel. Mr. Hollande wants to boost spending to spur growth and delay further austerity measures, while the German leader remains steadfast against further stimulus.
The conflict calls into question the fate of European fiscal compact reached in March, which still needs to be ratified.
Regardless how the politics plays out in the coming weeks, investors are almost certainly guaranteed greater uncertainty. Greek debt default grows more likely by the day. Many money mangers around the globe are speculating that Greece will leave the Euro zone, possibly within the next few months.
In the next few days, there are few U.S. economic reports scheduled and U.S. earnings season is winding down, leaving overseas events to set the market tone.