By Josie Cox
European equities shrugged off uncertainty over Greece's
financial future on Monday, still spurred by accommodative central
bank monetary policy, coupled with a revival in corporate appetite
for mergers and acquisitions.
The Stoxx Europe 600, having ended Friday 0.3% higher, added
1.1% on the day, taking gains so far this year to close to 17%.
Germany's DAX 30, which has particularly benefited from a weak
euro in recent weeks, rose 1.8%, while France's CAC and London's
FTSE added 1% and 0.5% respectively.
Strategists said that the persistent appetite for equities was
chiefly being triggered by central banks in both Europe and China
reiterating their commitment to stimulus measures.
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%.
A cheaper currency generally makes exports from Europe more
appealing to non-European consumers and the program has sent the
euro down 10% against the dollar to date. Monday, it was 0.3% lower
against the buck at $1.0827.
In China, meanwhile, policy makers signaled Monday 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.
Separately, the People's Bank of China announced Monday 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 Friday
that Intel Corp. is in advanced talks to buy chip partner Altera
Corp. Shares in Intel surged more than 6% on Friday, also helping
push the European subindex of technology stocks up by almost 2%
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 late 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 but others said that the situation still has
plenty of scope to deteriorate. "Greece remains at risk of
insolvency," said Peter Chatwell, a senior rates strategist at
Mizuho International.
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."
In commodities markets, Brent crude fell 1.2% on Monday to
$55.72 per barrel. Gold lost around 1.1% to $1,185.50 per troy
ounce.
Write to Josie Cox at josie.cox@wsj.com
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