Greece Casts Shadow Over European Markets -- 4th Update

By Tommy Stubbington 

Greek markets tumbled on Monday after Prime Minister Alexis Tsipras stuck to his commitment that he would refuse to accept an extension of Greece's international bailout, heightening fears that the country could default on its debt, or exit the eurozone.

The turmoil in Greece cast a shadow over markets elsewhere, with European stocks falling sharply.

The moves came after Mr. Tsipras said Greece would seek a bridge loan until June, rather than seek the continuation of the aid program demanded by European partners, ahead of a crunch meeting with European finance ministers on Wednesday.

Greek stocks sank, with Athens's main stock index closing 4.8% lower. Greek banks were once again the worst performers on the pan-European Stoxx 600, with Piraeus Bank, Eurobank Ergasias, National Bank of Greece, and Alpha Bank all down sharply.

Greek government bonds, which have been subject to wild swings in recent days, began to weaken once more. Greece's 10-year yield climbed by over three quarters of a percentage point to above 11%. Shorter-term yields rose more sharply, with the two-year yield soaring above 20%, a sign that investors are worried about default. Yields rise as prices fall.

The country's growing cash crunch prompted Standard & Poor's Ratings Services on Friday to cut Greece's sovereign credit rating one notch further into junk territory.

"It is difficult to argue with the view that the possibility of a Grexit rose with this speech, but at the same time it is still possible that a compromise agreement can be reached," said Gary Jenkins, chief strategist at LNG Capital.

Mr. Jenkins estimates the probability of Greece exiting the currency bloc at 50%, from around 35% before Mr. Tsipras's speech.

While many investors still expect Athens to reach a deal with its lenders, the prospect of Greece leaving the eurozone remains a serious concern for investors.

UBS warned of the broader consequences for the rest of Europe. "The ensuing uncertainty could easily derail a brittle eurozone recovery. Few things are certain except one: 'Grexit' remains by a considerable margin the worst-case scenario for Greece and for the rest of the eurozone," said analysts at the bank in a note to clients.

The Stoxx Europe 600 index fell 0.7% lower. Germany's DAX fell 1.7%, while Spain's IBEX 35 sank 2.0% and Italy's FTSE MIB slipped 1.9%.

The intensifying fears over Greece arrived against an already drab backdrop for market bulls. Chinese shares fell on Monday after data showed a surprise drop in China's exports in January. And in the U.S. stocks fell on Friday after a blockbuster jobs report fueled concerns that the Federal Reserve might raise interest rates sooner than expected. The S&P 500 was down a further 0.1% as European markets closed.

The better-than-expected jobs data had boosted the dollar, but it gave back some of those gains on Monday.

The euro was 0.1% higher against the buck at $1.1330.

In commodities markets, Brent crude oil was up 1.2% at $58.51 a barrel. Gold rose 0.3% to $1,238.30 an ounce.

Write to Tommy Stubbington at [e-mail]

Access Investor Kit for National Bank of Greece SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS003003019

Access Investor Kit for Piraeus Bank SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS014003008

Access Investor Kit for Alpha Bank SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS015013006

Access Investor Kit for Eurobank Ergasias SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS323003004

Access Investor Kit for Alpha Bank SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US02071M1018

Access Investor Kit for Eurobank Ergasias SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US26844B2097

Access Investor Kit for National Bank of Greece SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US6336437057