Europe close: Stocks lower as core bond yields continue higher
European stock markets finished the session sharply lower as the previous week’s rout in sovereign bond markets was reignited.
Market observers were again at a bit of a loss to pinpoint the exact reason behind the selling, with the Eurozone reflation trade, worries over Greece and simple profit-taking all being put forth as possible factors contributing to the selling in bonds.
However, the downwards pressure in the equity space coincided once again with the release of mixed economic data Stateside. A weaker-than-expected reading on the US trade deficit for March could see the country’s rate of economic growth for the first quarter revised into negative territory, to -0.3% from a preliminary estimate of 0.2%.
The Dax-30 finished lower by 2.51% to 11,327.68 points, while the Cac-40 was to be seen down by 2.12% at 4,974.07 points.
To also take note, traders may also have been adjusting their positions ahead of Friday’s all-important monthly US jobs report.
On a more upbeat note, Spanish unemployment dropped at a record pace in April, falling by 119,000 to reach 4.333m.
In its latest Spring forecasts the European Commission revised its projection for growth in the euro area this year higher by two tenths of a percentage point to 1.5%. The projection for Greece's GDP growth in 2015 was cut to 0.5% from 2.5%.
In parallel, at one point in the session the yield on the benchmark 10-year Greek sovereign bond was higher by 39 basis points to 11.08%. The Athens stock-market’s benchmark index finished the session down by 3.9%.
Forecasts for Greek debt unrealistic, analyst says
The Financial Times reported the head of the International Monetary Fund’s European department head, Poul Thomsen, had called again on Greece’s creditors to grant the country debt relief. Otherwise, the Washington-based lender might not disburse its part of the remaining €7.2bn in rescue funds available to Greece under its current bail-out programme.
“We think the IMF’s stance is a positive, at least in the near term, as it could encourage more flexibility,” RBS analyst Alberto Gallo wrote in a research note e-mailed to clients.
However, “in the long run, strong pressure on debt relief may be harder to manage politically with core countries […] it is clear to us (and to the IMF) that official forecasts for Greek debt are not realistic […] a small recession or a growth slowdown would easily bring Greek debt back to unsustainable levels, even after a “soft restructuring,” Gallo added.
Star fund manager very downbeat on long-term prospects for equities
Acting as a backdrop, in his latest investment outlook Bill Gross, the manager of Janus Capital’s global unconstrained bond fund, predicted the current secular 35-year long investment super-cycle was nearing its end.
Gross was also dismissive of the low rates of economic growth, of approximately 2% or less, seen in recent times in the UK, US and Germany despite plenty of “monetary lighter fluid” and despite waning supplies of “credit-based oxygen”.
Defensives lower
The worst performance at the sector level on the DJ Stoxx 600 was to be seen among the following industrial groups: Utilities (-2.20%), Chemicals (-2.10%) and Personal and household goods (-2.02%).
UBS almost doubled its quarterly profits in the first three months of the year, on the back of a strong performance by its fixed income, commodities and currencies business. The Swiss lender was also in advanced discussions with the US Department of Justice to settle allegations of foreign exchange market rigging.
Shares of UBS were trading higher by 3.78% to 19.77 Swiss francs by the end of trading.
German airline Lufthansa posted a smaller than anticipated first-quarter operating loss, on an EBIT basis, of -€167m (consensus: -€172m). Despite that the shares had turned down by the close, finishing with losses of 2.35% to €12.55.
Front month Brent crude futures were up by 2.47% to $68.13 per barrel on the ICE.
The euro/dollar was up by 0.36% lower at 1.1188.
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