FTSE lower as Greek concerns linger

The FTSE 100 lost small ground on Monday in a choppy trading session as investor concerns lingered concerning Greek approval of fresh austerity measures that are required to satisfy the Troika and enable the indebted nation to receive a new bailout that will help it to meet its March debt redemptions, or Greece will face a default scenario.

The FTSE 100 closed lower by eight points at 5892 in what was a slow and choppy start to the new trading week.

US stocks opened in the red and European markets continued to edge lower as we progressed through the session. A distinct lack of clarity surrounding the Greek timetable surfaced and heightened doubt emerged over whether they will accept the terms of the new painful bailout deal, with sticking points remaining over the labour force and bank recapitalisation.

The uncertainty in Greece alongside their inability to agree over private sector wage cuts and other measures demanded by international lenders has led to Merkel and Sarkozy warning Greece that time is running out, but it remains to be seen whether this strong rhetoric can force Greece’s political parties into finalising negotiations. Further comments however from Merkel that they ‘refuse to accept a Greek bankruptcy’ may convince Athens that there is some room for manoeuvre.

The banking sector which has rallied 18% this year slipped back as a decent earnings season faded into the background and investor unease reappeared over Greece’s ability to strike a deal. Although in general the markets seem optimistic, trading near six- month highs and whilst the potential for a March default by Greece remains a very real possibility, what we have seen today has mostly been small bouts of profit taking.

Aside from the banking sector, miners were also dragging on the FTSE after a powerful start to the year. Traders reconsidering the Glencore/Xstrata merger deal saw Glencore fall around 4% as brokers suggested the commodities trader would need to pay a much larger premium than the currently proposed 8% to satisfy shareholders. Xstrata shares traded down 2.3% also on the back on this.

Despite strong economic indicators last week there is a lack of direction from economic data for the start of the new week. The only data of significance today was German manufacturing orders that came in better than expected yet still failed to ignite a response from the markets. The focus this week will remain on the Bank of England Rate decision on Thursday, where investors are hoping that the UK’s Central Bank may announce more asset purchases as part of QE2.