Member Article

New Greek Election overshadows eurozone GDP data

Markets stabilised this morning following their heavy falls yesterday, Europe and the UK opening up around 0.5% better off. Sentiment was helped by a number of factors, with investors picking up of hints from the EU officials that concessions may be given to Greece. Luxembourg Prime Minister Jean-Claude Juncker suggested that a fully functioning coalition government committed to austerity may be entitled to tinker with the conditions attached to the bailout.

There was also relatively good news on the economic front, with first quarter GDP for the eurozone and its main constituents released this morning. The main upside surprise was Germany, that grew 0.5% in the first three months of the year, ahead of expectations of a 0.1% rise and largely driven by exports. France was in line with expectations with growth coming in flat, although Italy was a disappointment with a 0.8% contraction, below forecasts for a 0.6% fall. Given Germany’s economic dominance in Europe, the aggregate figure for the eurozone as a whole also came in at 0%, above expectations which anticipated a 0.2% contraction. The strength of Germany ensured that, unlike the UK, the eurozone ever so narrowly avoided dipping into a technical recession. The figures would also pose some questions of the UK’s governing coalition, who have blamed our first quarter 0.3% contraction on a weak export market in Europe.

Macro concerns were however still evident, with the safe appeal of German Government debt ensuring its yields hovered just off their record lows. Moody’s also downgrades 26 Italian banks, and in the afternoon we officially learnt that the Greek government had failed to form a coalition, paving the way for new election and adding to the uncertainty in what is genuinely a messy situation in Southern Europe. The market’s reaction (a 1% fall on the FTSE 100) did appear excessive given that this outcome surely can’t have come as a surprise.

Financials and miners were once again subject to most of the selling, the latter in response to commodities which as an asset class had another weak day. International Consolidated Airlines Group, the owners of British Airways and Iberia, was bottom of the index following a downgrade from overweight to neutral citing significant outperforming its peer’s year-to-date. The shares finished down 6.0% to 150p. The FTSE 100 lost 28 points, or 0.6%, finishing at 5438.

This was posted in Bdaily's Members' News section by James .