By Josie Cox
European stocks rose tentatively Wednesday, though concerns over
Greece's future continued to put pressure on government bonds.
The Stoxx Europe 600, having sold off sharply Tuesday, was
trading around 0.2% higher by midmorning, spurred by some robust
corporate earnings and strong data on eurozone growth from surveys
of purchasing managers.
Germany's DAX index, which had traded lower earlier in the
session and fell sharply Tuesday, hovered around 1% higher. Allianz
SE and BMW AG helped to lead gains on the index after strong
quarterly results.
Stock markets have been erratic in recent days, and on Wednesday
strategists warned that Greece would continue to dominate
sentiment.
The country made a EUR200 million ($224 million) interest
payment to the International Monetary Fund on Wednesday, but still
faces a much chunkier EUR750 million repayment deadline on May 12.
Many commentators are struggling to see where the cash is going to
come from.
Strategists at Nomura wrote in a note that while it looks like
Greece will manage to meet Tuesday's deadline, they remain
skeptical that the country will meet additional obligations later
this month.
Rabobank rates strategists said that equities are still wobbly.
After a reversal over the past few days in many of the most popular
trades of 2015, the market isn't sure yet whether this is a turning
point, they said.
Yields on government bonds in Germany, France, Spain, Italy and
Portugal continued to edge higher on Wednesday--some hitting their
highest levels so far this year--reflecting a fall in prices.
The German 10-year yield rose to above 0.55% in early trade, a
level last seen before the European Central Bank announced its
quantitative-easing program in January, before falling to just
under 0.53% midmorning.
Less than two weeks ago, the 10-year Bund yield hit an all-time
low of 0.05%, spurring predictions of zero or even negative yields
on the benchmark for European credit markets.
In Greece, yields on two-year and 10-year government bonds were
both marginally higher on the day at nearly 21% and just over 11%,
respectively. Trading, however, remains highly illiquid, meaning
that even small moves are magnified.
An inverted yield curve, where bonds due sooner yield more than
those due later, indicates that investors see an elevated chance of
the country defaulting on its debt.
Although the IMF said Tuesday that its officials hadn't pushed
for large-scale debt relief in recent negotiations for emergency
financing for the country, "Greece and its creditors are still
clearly not fully aligned in views," said Jim Reid, a strategist at
Deutsche Bank.
The euro was resilient despite the uncertain political backdrop,
but strategists attributed this more to dollar weakness. After a
rampant start to the year, the buck has weakened in recent days
with some investors fearful that its rally had become overdone.
Recently the euro traded at $1.1226 to the dollar, around 0.4%
higher on the day. The dollar was also slightly weaker against
Japan's yen at around Yen119.81.
Elsewhere in currency markets, sterling was flat against the
dollar, just a day before the U.K. goes to the polls in one of the
country's most uncertain elections in decades.
Later in the day, the ADP employment report is due from the U.S.
The S&P 500 was indicated opening 0.3% higher on the day.
Futures, however, don't always accurately predict moves after the
opening bell.
Write to Josie Cox at josie.cox@wsj.com
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