FTSE rises on Greek expectation but low volumes tells a tale of caution

Strong UK retail figures earlier in the session and boosted optimism of the Greek bailout deal going through early next week gave the blue chip FTSE 100 index a firm end to the trading week before the extended American bank holiday weekend which sees US markets shut on Monday. The emergence of a timetable for successfully agreeing the Greek bailout has settled some nerves and boosted risk appetite though clearly investors look on cautiously considering the scale of previous disappointments and hot air resolutions.

Weak volumes on the FTSE
Volumes on the FTSE 100 today were however weak at just 43% of their average 90 day volume, and this is a real sign that investors remain extremely cautious following the “will they or won’t they” week of the Greek bailout drama. In the final chapter for the week it would appear that Greece will receive the €130 billion rescue bailout and avoid the messy default which some were expecting. However doubts do still remain over the lenders requirements for stricter supervision and considering the numerous obstacles in the last few days, investors are wary of another surprise setback over the weekend.

That said risk appetite is helping to sustain the FTSE above the important 5900 level. Financial stocks have seen a boost from the possibility of closure on the Greek issue which in turn would remove some of the uncertainty from the inevitable knock on effects of a Greek default from their balance sheets. As a result, Royal Bank of Scotland and Lloyds were both in the top gainers for the blue chip index. Furthermore investors were looking again towards the miners after shunning them in the previous few sessions. Vedanta Resources had a notably strong day gaining 4% during the course of the day.

M&A activity triggers share moves
With mergers and acquisition speculation already starting to take a much more central seat in 2012, Sainsbury’s shares rose a further 1.1% on the back of rumours of a potential bid from its 25% shareholder the Qatar Investment Authority, though naturally this has been one story that has filled the broadsheets for some time. Oil explorer Bowleven rose a staggering 60% as speculative investors reacted with pace and vigour to buy the firms shares after Dragon Oil said it was considering an approach for the firm.

UK retail sales data surprises 
Also worth a mention were the surprisingly strong UK retail sales figures that helped to maintain the positive start this morning. The figures for January were predicted to come in at minus 0.4%, yet the actual data came in at a positive 0.9% growth, surprising many. Retail stocks pushed higher following the announcement at 09:30am GMT with Next and Marks and Spencer’s rallying over 1% as a result.

Despite this good news it is worth putting the figure into context. January’s data does tend to give a slightly distorted picture due to the impact of the January Sales period, whilst not all retailers completed the survey. So it is important not to read too much into this figure but wait for further evidence to support these figures and the positive impact it therefore may have on UK growth.