MW: European stocks under pressure as Greek standoff continues
The impending showdown between Greece and its creditors continued to hang over markets on Tuesday, with European stocks remaining under pressure.
The Stoxx Europe 600 SXXP, +0.16% was 0.1% lower in early trade, after falling 0.7% on Monday. Most European indexes were lower, although the pace of declines slowed. Spanish IBEX, +0.37% and Italian FTSEMIB, +0.44% stocks were steady after sharp falls on Monday, helped by a bounce back in Greek markets.
But with Greece’s new government sticking to its pledge to cancel some debt-reduction measures demanded by creditors, ahead of an end-February deadline to extend its bailout, analysts said investors will remain nervous.
“The prospect of another act in the Greek drama is likely to weigh on markets. We expect a deal to be done, but probably only after a lot of wailing and gnashing of teeth,” said Paul Donovan, an economist at UBS.
Greek markets also settled after yet another sharp selloff on Monday. Government bonds gained, although two-year yields remained close to 20%, a level indicating a high risk of default. The 10-year yield fell 0.3 percentage point to 10.7%. Yields fall as prices rise.
Athens’s main stock index GD, +2.48% was 3.3% higher in early trade.
Despite the recent pressure on Greek assets, the impact on other eurozone countries’ assets has been modest, and the euro EURUSD, -0.27% has steadied after steep early year declines, and actually managed to gain on Monday. The common currency was unchanged against the dollar at $1.1327.
“Spillover effects to the eurozone as a whole” have been limited, said Lee Hardman, a currency analyst at Bank of Tokyo Mitsubishi.
“However, if Greece were to leave the eurozone, it would materially increase downside risks for the euro in the near-term and threaten financial stability within the eurozone,” he said.
