European Indices reverse gains on EU debt concerns

European stock indices reversed strong gains of 1% in afternoon trading to finish lower on Friday by as much as 1.3% over investor concerns about the clouded situation of Greece’s ability to meet its debt obligations.

The day started very brightly, with the FTSE 100 charging higher by as much as 1% in early trading, tracked by similar gains in the DAX and CAC indices, all seemingly on course to register a third straight day of gains. Supporting those gains was buyer strength in the energy sector, which had been turbo charged in the morning session by a $1.1 billion settlement between BP and partner Mitsui & Co to help cover BP’s oil spill liabilities.

Fitch downgrade of Greece triggers profit-taking
However, the afternoon saw a vicious swing in short term sentiment, with traders unwilling to hold buy positions over the weekend on continued instability in sentiment over Greece. This instability was helped no end by a move by ratings agency Fitch who cut Greece’s credit rating to B+ from BB+ and applied a negative rating watch.

In fact the sentiment echoed by Fitch merely emphasises the same voice of concern emanating out of market players; that Greece is facing some severe headwinds and the seemingly to-ing and fro-ing between the IMF, Greece and EU over available options convinces that there remains some distance between what may be finally agreed to help give Greece ‘liability’ breathing space.

The cut and subsequent language used by Fitch was pretty damning of the whole situation Greece finds itself in and merely convinced those traders already nervous about the situation to cash in their gains after two-and-a-half days of strong equity gains.

The negative sentiment from Greece was not felt in equity markets alone. The euro suffered heavily too, falling some 1% against the dollar and 0.8% against the pound sterling.

Investors and market participants want to see a resolution to the whole Greece situation. It is clear that Greece is facing a significant challenge and that any agreement with either private bondholders, the EU or the IMF will carry some strict obligations that is likely to be met with fierce resistance on the streets of Athens. In that sense it is understandable why all parties are struggling to come to an agreement but nevertheless the markets patience on this matter is running out with each new trading day.