By Josie Cox
European stocks shrugged off uncertainty over Greece's financial
future on Monday, still spurred by accommodative monetary policy
from central banks around the world, as well as a revival in
corporate appetite for mergers and acquisitions.
The Stoxx Europe 600, having ended Friday's session 0.3% higher,
was up 0.8% by early afternoon, while Germany's DAX rose 1.3%,
France's CAC 0.9% and London's FTSE 0.3%.
Strategists said that the persistent appetite for equities was
supported by a reiteration of the accommodative stance from central
banks in both Europe and China.
Last week, European Central Bank President Mario Draghi
underscored the central bank's commitment to purchase large amounts
of public and private debt for at least 18 months and until it is
convinced that inflation will stabilize near annual rates of
2%.
In China, meanwhile, policy makers signaled on Monday that the
country has room to ease monetary policy further, in a bid to boost
sluggish growth spurring stocks across the region. "We can clearly
expect more stimulus there," Rabobank rates strategists wrote in a
note.
Later in the day, the People's Bank of China announced that it
had lowered down payments for buyers of second homes, a further
drive to support the flagging housing market.
Technology stocks were particularly in focus on news late on
Friday that Intel Corp. is in advanced talks to buy chip partner
Altera Corp. Shares in Intel surged more than 6% on the news on
Friday also helping the European subindex of technology stocks up
1.6% Monday.
Swiss airport retailer Dufry AG, however, was one of the biggest
risers on the pan-European index, on confirmation that it will pay
EUR1.3 billion ($1.4 billion) to acquire more than half of Italy's
World Duty Free Group, a deal that will boost its position in the
global travel industry.
That helped to offset any risk aversion that may have resulted
from jitters surrounding the financial future of Greece.
Ahead of a Monday deadline, officials from Athens were in
Brussels over the weekend to present proposals to the European
Commission, the European Central Bank and the International
Monetary Fund. Approval is crucial for Greece to regain access to
bailout funds and restore normal lending from the ECB, but eurozone
officials said that up until now, plans had lacked the necessary
detail.
Greek government bonds weakened somewhat on Monday, though
trading volume was thin. The yield on the country's two-year bonds
was around 0.29 percentage point higher by early afternoon at
around 20.1% while the yield on 10-year bonds inched up to around
10.87%.
A so-called inverted curve, where longer-dated bonds have a
lower yield than shorter dated, generally signals that investors
see a heightened risk of the country defaulting.
Many market participants said that they expect Greece to strike
a last-minute deal. Still, Peter Chatwell, a senior rates
strategist at Mizuho International said that "Greece remains at
risk of insolvency."
"Amidst the whirlwind of letters, high-profile political
meetings and a daily batch of fresh comments from various policy
makers, it can be hard to gauge precisely where the disagreements
between Greece and its creditors reside," said Michala Marcussen,
global head of economics at Société Générale. "We nonetheless
maintain the view that a worst case outcome would have significant
market implications," she added.
Compounding jitters, Fitch Ratings slashed its credit ratings on
Greece deeper into junk territory on Friday , citing the country's
precarious finances as it negotiates a bailout extension.
The rating firm said that it expects the government to survive
the latest "liquidity squeeze" without defaulting on its debt but
pointed to damage to investor, consumer, and depositor confidence
that "has almost certainly derailed Greece's incipient economic
recovery."
Athens main stock index was a little over 0.5% lower by early
afternoon with banks under particular pressure.
In currency markets, the U.S. dollar started the week on a
firmer footing, rising around 0.5% and 0.4% against the euro and
the British pound respectively. The euro is now 10% lower against
the buck so far this year as a result of the very different paths
of monetary policy in the U.S. and the euro area. It traded at
around $1.0840.
Write to Josie Cox at josie.cox@wsj.com
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