FTSE gains reverse in choppy session Spanish IBEX falls 2

Afternoon trading in London saw the FTSE 100 reverse its day’s gains to trade flat going into the close in a choppy trading session lacking many indicators from which traders could take their lead, apart from a weaker Spanish trading session and rising Spanish bond yields.

With the US session closed for Memorial day, trading volumes in Europe have been something light and so as such, this has contributed to the choppy trading session that we have witnessed, with clients only confident enough to take short term trading positions. A lack of significant corporate news or economic data also added to lacklustre trading session today.

It was the mining sector that had been the main engine behind the mornings charge on the FTSE 100 but those FTSE gains soon evaporated as investors started to sell out of UK financials, mirroring another weaker session for broader European banks on concerns over Spanish banking stocks amidst the Bankia bailout and expected recapitalisation.

The fact that benchmark Spanish 10-year bond yields hit a new six-month high today of 6.6% is testament to the fact that there remains significant concerns over the banking crisis in Spain, and Spain’s ability to tap into the funding markets whilst the ECB continues to refrain from showing its hand. We are edging closer and closer to the record high of 6.73% that 10-year Spanish bond yields reached in November last year and are within levels historically seen as unstable. Will this be enough to convince the ECB to act? Time will tell.

Whilst mining stocks were able to hold onto their gains, despite falling back somewhat from the days highs, we have also seen buys in typical defensive sectors today such as pharmaceutical and utility firms, which indicates that traders are taking a much more diversified view of the markets, to help them to take advantage of any upside but also mitigate against the risk of further downside.

The FTSE 100 has yet again failed to hold onto levels between 5400 and 5420 seeing yet another sell off from this point of resistance. A failure to break above here could limit the any bounce back attempt for UK large cap stocks and remains a key level the market needs to break through.

Aveva Group shares were the standout performer on the day, with shares rallying over 10% to top the mid cap gainers after the firm reported a 14% rise in full year profits and saw strong demand from the oil and gas industries, boosting shareholder confidence.

Trading is expected to pick up as the week progresses, with a heavy calendar of economic data to get through including US GDP and US non-farm payrolls, which could give the markets a volatile end to the trading week, particularly with the Jubilee bank holiday to come where UK investors will likely take a break from trading.