Europe: QE, Greece cast shadow

[LONDON] Eurozone stocks tumbled Tuesday on fears of an early end to the ECB's QE stimulus programme and a spike in tensions over the Greek crisis.

Frankfurt's DAX 30 index tumbled 2.51 per cent to 11,327.68 points, while the CAC 40 in Paris fell 2.2 per cent to 4,974.07 points.

Madrid fell 2.74 per cent and Milan by 2.76 per cent.

Meanwhile, London's benchmark FTSE 100 index shed 0.84 per cent at 6,927.58 points, with less than 48 hours to go until Britons head to the polls on Thursday.

"Having failed to sustain early higher prices, European stocks erased all of Monday's gains on Tuesday as a spike in the euro and European bond yields unnerved a stock market rally that has been built on both being lower," said analyst Jasper Lawler at CMC Market UK.

The euro fell from US$1.1146 late in New York on Monday in early European trading, dropping below US$1.11, but then rebounded and was trading at US$1.1177 at 1600 GMT.

"With inflation in Europe rising alongside the price of crude oil, as well as service and manufacturing picking up, there is an increasing threat that the European Central Bank will finish its quantitative easing programme early," added Mr Lawler.

The ECB launched in March a 60-billion-euro per month bond buying, or quantitative easing (QE) programme to avert the risk of dangerous deflation and kick start growth in the eurozone. It is supposed to last through September 2016.

But with prices now rising again in the eurozone, and a rebound in oil prices ensuring they will likely continue to do so, investors see a possibility for the ECB to let up on the stimulus, which has weakened the euro.

Yields on eurozone government bonds have also jumped in the past week on expectations that the ECB may cut its purchases.

The dollar has also weakened as investors see it more likely that the US Federal Reserve will begin hiking interest rates in the coming months as the US economy hit the buffers in the first quarter of the year.

Meanwhile, with time quickly running out to unlock bailout funds needed to repay its debts, the Greek government said Tuesday that differences between the EU and IMF were blocking an agreement.

Greek Finance Minister Yanis Varoufakis also said he does not expect to reach a deal with his counterparts at a May 11 meeting in Brussels to unlock 7.2 billion euros (US$8.1 billion) from Greece's current bailout programme.

There are growing concerns about the Greek government's ability to repay the one billion euros it owes to the IMF in two payments this week and next, meaning the threat of a Greek default and a catastrophic exit from the euro remains a dangerous reality.

HSBC's share price initially rallied as investors welcomed news that first-quarter pretax profits advanced 4.4 per cent to US$7.1 billion on a solid performance at its investment banking division.

"Even a better than expected first quarter performance from HSBC couldn't spark much excitement..." said Spreadex analyst Connor Campbell.

"Comments complaining about the difficulties of having a 'progressive' dividend policy, and a lack of news on its relocation tempered the buzz around HSBC, with the bank falling by around 2 per cent as the day went on." Its shares ended the day down 3.16 per cent at 625.90 pence at 1342 GMT.

In Frankfurt, Lufthansa shares sank 2.21 per cent to 12.39 euros, despite news that it flew back into the black in the first three months of the year.

Lufthansa said in a statement it booked a net profit of 425 million euros in the period from January to March, compared with a loss of 252 million euros a year earlier.

Earnings were powered partly by the good performance of its Swiss and Lufthansa Cargo subsidiaries.

In the United States, stocks moved lower Tuesday after the US trade deficit surged more than 40 per cent in March to a six-year high.

The Dow Jones Industrial Average shed 0.31 per cent to stand at 18,014.89 points in midday trading.

The broad-based S&P 500 gave up 0.65 per cent to 2,100.74, while the tech-rich Nasdaq Composite Index fell 1.14 per cent to 4,959.51.

The US trade gap was US$51.4 billion in March, jumping from a slightly upwardly revised US$35.9 billion in February, the Commerce Department said.

The increase reflected the impact of the strong dollar and a surge in imports after the West Coast port strike ended in late February.

Briefing.com analyst Patrick O'Hare said the weak trade data will take the estimate for first-quarter gross domestic product lower, perhaps into negative territory.

AFP