By Josie Cox
European stocks dropped Wednesday, as optimism stemming from
upbeat data out of Asia and robust corporate earnings failed to
offset swelling fears over the future of Greece in the
eurozone.
Having opened the session higher, the Stoxx Europe 600 slipped
into negative territory just an hour into trading, and was down
0.4% by midmorning, lead by a near 1% decline on Athens' mains
stock index.
Already on Tuesday, the Greek index tumbled nearly 3%, while
bonds yield surged to multiyear highs. On Wednesday, the yield on
the country's two-year debt stood at just under 29%, while the
yield on the 10-year hovered around 13.3%.
Yield rise as bond prices fall and a so-called inverted curve,
where longer dated bonds yield less than those that are due for
repayment sooner, indicated that investors are factoring in a
severely heightened probability of default.
Greek Prime Minister Alexis Tsipras is expected to meet with
German Chancellor Angela Merkel at a summit in Brussels on
Thursday, before eurozone finance ministers meet in Riga, Latvia,
on Friday.
A deal on fresh aid, however, is unlikely to be agreed before
the Eurogroup meeting on May 11, a day before Greece must pay
EUR780 million ($838 million) due to the International Monetary
Fund.
"Given no discernible reform progress at technical or political
levels, we expect both of these occasions to be nonevents that mark
another missed opportunity for Greece to avoid a descent into
financial oblivion, " said Emily Nicol, economist at Daiwa Capital
Markets.
European Central Bank executive board member Benoît Coeuré told
a Greek newspaper Wednesday that the ECB would continue to fund
Greek banks as long as they stay solvent, but that the current
situation in Greece is "clearly not sustainable" and that "quick
and decisive action" was necessary.
"Investors are growing tired with talk but no action,"
economists at Sberbank wrote in a note, adding that "a failure at
Friday's eurozone summit to deliver any substantial breakthrough
might prove a tipping point."
Investors attributed early gains in Europe at least partially to
a strong session in Asia, where Japan's Nikkei Stock Average closed
above 20,000 for the first time in 15 years Wednesday after the
country registered a trade surplus in March for the first time in
nearly three years.
The earnings season also offered some early support.
Roche Holding AG was one of the top climbers after the Swiss
drug giant said strong growth of its core cancer franchise pushed
sales 3% higher in the first quarter of the year. It confirmed its
guidance for the year and suggested it will raise its dividend.
Shares in Rolls-Royce Holdings also climbed sharply on news of a
leadership change.
Even shares in Tesco PLC were able to cling on to gains in early
trade despite the retailer reporting a huge full-year loss amid a
raft of charges, capping the most tumultuous year in the grocer's
96-year history.
"Consensus forecasts for this European corporate reporting
season look pretty demanding, but investors appear relaxed that
their expectations will be met," said Ian Williams, economist and
strategist at brokerage Peel Hunt.
Fears over Greece, though, are proving hard to quell, and recent
jitters have triggered a fresh rush into assets considered to be
safest during times of stress, predominantly German government
bonds.
The yield on the 10-year German government bond was at just
under 0.1% in early trade Wednesday, having hit an all-time low of
below 0.05% last week.
Gold was 0.4% lower on the day at $1,198 per troy ounce, while
Brent crude was 0.7% lower at $61.70 per barrel.
Later in the day, investors will be eyeing preliminary eurozone
consumer confidence data for April.
Write to Josie Cox at josie.cox@wsj.com
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