Us Stocks Follow European Selloff
There have been sharp declines in European stock prices on Tuesday as anxiety over Greece’s future has cranked up a notch.
Tuesday, May 12, 2015 - 00:00
Eurozone Finance ministers met yesterday but reached no deal to alleviate Greece’s liquidity problems, and Greek finance minister Yanis Varoufakis has warned his country may run out of cash in the coming weeks. The German DAX slid 1.73% to 11,472 and the French CAC40 fell 1.1% to 4971. Stock market sentiment has also been hit by rising bond yields. There has been a steep fall in bond prices, pushing yields on 10-year Treasury bonds, seen as a global benchmark for borrowing, to a five-month high.
Rising borrowing costs could impact the stock market in a variety of ways, making it harder for companies to raise capital and possibly discouraging M&A activity. At the moment though, we are still seeing some big acquisition moves, with Verizon today announcing it will purchase AOL this summer in a deal worth around $4.4 billion. Verizon CEO Lowell McADam said, ‘This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience.’
Shares in Verizon ($VZ) were down 1.2% in early trading, while shares in AOL surged 17.7%.
The US stock market as a whole has taken its cue this morning from the trend of European stock indices and opened in the red. Shortly after the market open in New York, the Dow Jones was down 103 points or 0.57% at 18,002, while the broader stock market gauge of the S&P 500 Index fell even more sharply, dropping 0.66% to 2091.5.
Those declines came despite signs of an improving outlook amongst small business owners: the National Federation of Independent Business (NFIB) said that its small business optimism index increased to 96.9 in April, exceeding market expectations. More business owners said they plan to make capital outlays and increase employment and there was also a large improvement in profit trends, though there was some weakness in expectations for future sales.
Data released for the UK economy this morning was encouraging: UK industrial production grew 0.5% in March, far exceeding the consensus estimate which had pointed to a flat reading, showing a solid bounce back from February’s 18-month low performance of +0.1%. Year-on-year industrial production was up 0.7% in March, while manufacturing showed an annual increase of 1.1%. The pound has enjoyed further gains on Tuesday, rising 0.51% against the dollar. After the steep gains made as a result of the Conservative-party win in the UK election, the problem for UK output could now be the strength of the pound, which is likely to hit exporters.
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