ECB Move Hits Stocks, Euro

By Josie Cox 

        Greek stocks and bonds tumbled Thursday after the European Central Bank fueled an increasingly tense standoff between the Greek government and its international creditors by declaring that it would stop accepting Greek bonds as collateral for central bank loans.
        "It is currently not possible to assume a successful conclusion" of Greece's current bailout, the ECB said late Wednesday, just hours after its president, Mario Draghi, met with Greece's new finance minister, Yanis Varoufakis in Frankfurt.
        The announcement marked the first time since 2012--when Athens was locked in another round of acrimonious negotiations with its creditors--that the central bank has suspended its waiver for Greece's junk-rated bonds, and stocks, which surged earlier this week on hopes of an imminent resolution to the dispute between Greece and its creditors, fell back on the news.
        In early trade, the main stocks index in Athens plummeted 9%, particularly weighed by hefty losses in Greek lenders Piraeus Bank SA, National Bank of Greece SA, Alpha Bank AE and Eurobank Ergasias SA.
        The Stoxx Europe 600 lost 0.3%, while Germany's DAX and France's CAC sold off 0.4% and 0.6% respectively. London's FTSE 100 index also lost 0.5%, additionally pressured by a fresh slide in the price of oil.
        The euro tumbled close to a fresh 11-year low immediately after the ECB's announcement Wednesday, and remained under pressure Thursday despite clawing back some of those losses. One euro currently buys $1.1365.
        Gary Jenkins, head credit strategist at London-based asset manager LNG Capital termed the ECB's move "aggressive."
        "Whilst the most likely outcome is for some kind of compromise, there still remains the possibility that Greece could end up defaulting and exiting the eurozone, almost by accident as much as design," he added.
        That heightened perceived risk of default was reflected in the Greek bond curve Thursday too.
        The yield on the country's two-year debt rose soared by more than two percentage points in early trade to around 18.2%. The yield on its five- and 10-year debt also climbed sharply to trade around 14.9% and 10.7%, respectively. Yields rise as bond prices fall.
        Frederik Ducrozet, a senior economist at Crédit Agricole said that the ECB had resorted to a "risky, albeit calculated political move."
        "It is bad news in the sense that it goes against Greece's proposal to buy time in the negotiation process. In the end, the decision to pull funding has to be a political one, so even in the extreme case where there is no agreement by early March, we find it hard to imagine the ECB intentionally triggering a bank run," he added.
        Elsewhere in markets Thursday, shares in U.K. telecom company BT Group PLC rose to the top of the FTSE 100 index after it said it had agreed to acquire mobile operator EE from Deutsche Telekom AG and Orange SA for GBP12.5 billion ($18.98 billion).
        EE is a leading mobile network operator in the U.K., with 31 million customers of which 24.5 million are direct mobile customers and 834,000 are fixed broadband customers. It has the largest 4G customer base of any operator in Europe.
        In commodity markets, Brent crude was 1.4% lower on the day at $53.43 per barrel. Gold rose 0.4% to $1,269 per troy ounce.
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        (END) Dow Jones Newswires

        February 05, 2015 03:49 ET (08:49 GMT)

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