European markets largely flat as traders await EU Summit

European markets traded largely flat on Wednesday as traders held firm, awaiting developments from today’s EU Summit in Brussels and a vote in the German Bundestag over Angela Merkel’s proposals to power up the EFSF, which is expected to pass.

The FTSE 100, DAX and CAC all swung between small gains and losses within the first hour of trading as a result, with little movement seen by most traders who seem happy to sit on their hands for now. Undoubtedly however, trading is likely to be fairly choppy as investors react to speculation or statements from any of the EU leaders or officials attending today’s summit.

For too long have investors been hearing rhetoric and declarations of determination to resolve the eurozone debt crisis, but now we are facing crunch time, where those declarations must be transcribed into detailed plans and methodologies, without which such declarations will continue to be highlighted as merely hot air. There is every chance that failure to agree plans today may simply see Europe’s leaders kick the can further down to the road to the previously self confessed deadline of the G20 meeting at the start of next month in Cannes.

The top three heavyweight sectors; the miners, oil and banks, have lost 0.2% despite a 2% rise in copper prices and a dovish pledge by China’s Premier Wen Jiabao to potentially look at stimulating small businesses after the recent bouts of monetary tightening. The pledge itself is one of the first sincere signs that China is potentially looking to reverse its previous hawkish monetary policy, which in turn could increase demand for metals and resources.

The fact that mining and oil firms have failed to rally on the back of this tells a tale that investors do not want to add risk to their portfolios today ahead of so much uncertainty over what may come from today’s EU Summit.

Retail firms have largely underperformed today, with the sector itself losing 1% after Next shares fell 2.4% on the back of a downgrade in stance from Deutsche Bank. Deutsche cut its rating on the UK high street retailer to ‘hold’ from a ‘buy’ on valuation grounds considering Next shares has largely outperformed the FTSE 100 over the last two months. A cut in rating from ING for Reckitt Benckiser to ‘hold’ from ‘buy’ also hit Reckitt’s shares today, which fell 2%.

British American Tobacco shares saw gains of 0.5% after the tobacco firm reported a 7% rise in sales after hiking prices to combat falling demand. Volumes rose by 1% in the quarter, helping to prevent a volume slide for much of the year, when volumes had fallen by 1% in the first six months.