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

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.