FTSE trades lower in slow trade as investors watch Italian/Spanish bond market turbulence

<p>The FTSE 100 lost around 0.4% on Monday as investors moved to lock in their gains from Friday’s stock charge as ripples continued to emerge […]</p>

The FTSE 100 lost around 0.4% on Monday as investors moved to lock in their gains from Friday’s stock charge as ripples continued to emerge from debt markets after a jump in Italian and Spanish bond yields today.

It’s been a choppy start to the new trading week, with early gains quickly sold into as investors reacted to another sharp jump in gross yields at the latest Italian 5-year bond auction and a spike in Spanish bond yields.

Investors in stocks continue to take their lead somewhat from developments in the bond markets and that has remained the case today.

In an auction of 5-year Italian bonds, the gross yield paid increased from 5.32% a month ago to today’s sale of 6.29%, reminding that despite the arrival of Mario Monti as the prospective new Italian PM, deep concerns remain over Italy’s ability to pay creditors. At the same time, both Italian and Spanish 10-year bonds saw a jump in yields, with Spanish yields trading above 6% for the first time since August, heightening fears that contagion could spread deeper into Spain.

Naturally however, with impending elections to come in Spain and the latest polls indicating that the opposition Popular Party should secure a strong majority of the vote, political instability may not escalate Spanish bond markets in much of the same fashion as it has with Greece and Italy.

Most of today’s losses were weighted in the mining and banking sectors, two sectors that saw strong gains on Friday and so the jump in yields of both Italian and Spanish bonds has helped to entice investors into locking in their gains in these areas as a defensive move in case we see another sharp jump in yields like last week.

Considering the strong gains seen in the 48 hours of trading prior to today’s start, at a time when perhaps the fundamental and political strength of Europe may deem this rally as somewhat premature, investors moving to cash in their gains quickly to preserve any profits is to be expected, particularly with trader sensitivity remaining high.

ITV shares led in trading on the FTSE 100 after the broadcaster said it expected to outperform the broader TV market this year after a jump in revenues by 4% in the first three quarters, beating market expectations. In the third quarter, net advertising revenues grew by 1%, helped by viewers staying on their sofas to watch the Rugby World Cup and popular TV drama Downton Abbey at a time when most analysts had expected little change in advertising revenues. Total revenues grew for the first nine months of the year grew to £1.29 billion. The upgrade in forecast from the broadcaster helped to inspire shareholders and investors alike today, triggering a 3.3% rally in their respective share price.

Shares in Smith and Nephew jumped 2.6% also today after BNP Paribas upgraded its stance on the firm’s shares price to ‘outperform’ from ‘neutral’, stating the belief that the underperforming share price could see upside as the company’s $150 million savings plan starts to make an impact on earnings.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.