By Josie Cox
European stocks fell Tuesday as markets took a pause from the
massive rally run up in the first quarter of 2015.
Oil stocks led declines amid a drop in crude prices, while
investors also weighed ongoing concerns surrounding Greece's future
in the eurozone.
The Stoxx Europe 600 closed 0.6% lower. Despite the decline, the
index has climbed 16% since the start of the year as the European
Central Bank's bond-buying stimulus program and a modest
improvement in the eurozone economy pushed a wave of cash into the
region's equity market.
Broader European markets have largely shrugged off worries over
Greece during the period, but reports of a lack of progress in
negotiations between Athens and its international creditors
encouraged a pullback in the final session of the quarter,
investors said.
Officials from Athens were already in Brussels over the weekend
to present proposals to the European Commission, the European
Central Bank and the International Monetary Fund but those
proposals were criticized for lacking detail.
"We do not expect a lasting solution for the Greek problem
anytime soon, " said Markus Allenspach, head fixed income research
at Julius Baer. Alberto Gallo, head of macro credit research at
Royal Bank of Scotland, said that it is probable "creditors will
accept some of the reforms Greece has proposed," but that further
volatility is still highly likely.
Athens main stock exchange rose 0.4% on Tuesday, but trading was
thin, according to analysts and since the start of the year the
index has declined around 6%.
In debt markets, yields on Greek governments bonds edged higher,
indicating a fall in bond prices.
The 2-year bond was yielding more than a percentage point higher
at around 21%, while the 10-year bond was yielding around half a
percentage point higher at 11.5%.
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.
Goldman Sachs in a note also said that the risk of Greece
exiting the eurozone has risen sharply in recent weeks.
"Deposit flight exceeds previous episodes and the resulting
tightening in financial conditions is a severe shock for an
economy," Robin Brooks, a strategist at the U.S. bank said.
Gold, commonly valued by investors during times of stress, was
trading 0.2% higher on the day at $1,187.70 per troy ounce. German
government bonds, also traditional safe assets, were marginally
higher on the day.
In currency markets, concerns weighed particularly on the euro,
which had been falling against the U.S. dollar all day, in
anticipation of stronger U.S. data raising the probability of a
U.S. interest rate raise later this year.
The euro was 0.7% lower against the buck at $1.0749.
Write to Josie Cox at josie.cox@wsj.com
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