Stocks Slip as Sentiment Slides as Draghi Continues Dovish Tone

European stock markets are lower, as risk aversion picks up again. Misleading headlines on Greece, Italian election rumors and Draghi’s dovish comments on the Eurozone economy have all undermined confidence in the Eurozone and weighed on the EUR, as well as stock and bond markets. Today it is the CAC 40 that is leading Eurozone stock markets lower, with nearly a 1% decline, while the DAX lost -0.23%. The 10-year Bund yield is up 0.7 basis points, despite dovish comments from Draghi.

French Q1 GDP revised up, as April consumption disappoints. French Q1 GDP growth was revised up to 0.4% quarter over quarter from 0.3% quarter over quarter reported initially, which lifted the annual rate to 1.0% year over year, from 0.8% year over year in the advanced reading. This still leaves the quarterly growth rate down from 0.5% quarter over quarter in Q4 last year, but is nevertheless encouraging and backs the ECB’s view that the recovery is also broadening across countries.

The breakdown showed a sharp improvement in gross fixed capital formation, but the slowdown in consumption and the drop-in exports in Q1 is disappointing. Looking ahead, consumer spending data for April also disappointed and continued to contract in an annual comparison. The labor market has started to improve, also in France, but especially the still high rate of youth unemployment highlights the need for structural reforms and Macron will have to hope for a large backing in the general election next months to be able to put his reform agenda into practice.

Greece Bailout Rumor Denied

Greece dismisses report that country may opt out of bailout agreement and reject the pay-out of the next bailout tranche without a final agreement on debt relief. Germany’s Bild reported that with a deal on debt relief, which officials continue to fight about, Greece may reject the pay-out of the next bailout tranche worth EUR 7 billion. Finance Minister Tsakalotos dismissed that “Greece would not repay debt in July”, and stressed that he only said the disbursement was not an issue “because all sides agreed that we have kept to our commitments”. He stressed though that the “Greek government feels that a disbursement without clarity on debt is not enough to turn the Greek economy around”. The latter is something the IMF has suggested as well, and while markets are reacting to reports that Greek may not repay its debt next month, this seems to be partly a case of misunderstood reports and comments.