Sandbag prices sharply higher in Euroland

- Spanish and Greek elections go as expected
- Bailout for Spanish bank

Good morning. Bloomberg reported yesterday how Greeks "flocked to anti-bailout parties" at the weekend. The exact nature of these gatherings was not detailed but it is fair to assume that the kleftiko and retsina enjoyed by revellers came from the Budget range.

What is certain is that most of the parties were small affairs, at least if Sunday's Greek election results are anything to go by. None of them achieved anything like a majority. The first crack at forming a coalition has already failed and subsequent efforts could well go the same way, leading to a new election. The French presidential race went according to the polls and François Hollande will step into Nicolas Sarkozy's tiny but brilliantly polished shoes.

Investors were not enamoured of either result, even though both were in line with expectations. As Far East markets opened on Monday morning the euro gapped lower, as did equity and commodity prices and the antipodean commodity dollars.

It was not a walkover for the bears though. Against the US dollar, the euro's low point was less than half a cent below its position at the end of Friday's New York session. The Swiss National Bank's 1.20 floor for EUR/CHF came under no serious pressure. Sterling moved about half a euro cent higher but was unable to make further progress.

The economic data played a peripheral part on Friday and Monday but had little lasting impact, overshadowed as they were by the politics of Euroland. Friday's eurozone retail sales were better than forecast, rising by a monthly 0.3% and down by only -0.2% on the year. US non-farm payrolls rose by 115k, 50k fewer than forecast, but the shortfall was largely offset by a 43k upward revision to the previous month's figure. The Canadian dollar took a knock when the Ivey purchasing managers' index slumped from 65.0 to 52.2.

Yesterday Switzerland reported an incremental fall in unemployment to 3.1% and continued deflation with prices falling by -1.0% in the year to April. German factory orders and Canadian building permits both exceeded expectations with monthly increases of 2.2% and 4.7%. Last night the RICS UK housing price balance fell from -11% to -19% and Australia's trade deficit doubled to -A$1.6bn.

Due for release today are German industrial production and Canadian housing starts. Neither of those is likely to be much of a distraction from eurozone politics. Nor will they divert attention from developments at Bankia. The Spanish bank arose from a shotgun marriage 18 months ago between seven regional caja institutions, after the government had relieved them of their most toxic assets. Now it transpires that a significant level of toxicity remains and that the government will have to inject another €10bn of assistance, more than twice the bank's existing €4.9bn capital and its €4.7bn market capitalisation. Investors will watch this process and think of Ireland. It will not make them look with more confidence on the euro.

As for sterling, it has at last achieved the goal for which it has striven since early January, breaking above the high of late June 2010 against the euro. Whilst there are no guarantees in this business, it would be a surprise if sterling/euro were not to advance further.