Indices fall 2% on continued Greece contagion fears

<p>European investors started the new quarter on much the same fashion as the previous, on the back foot, selling out of stocks and risky asset […]</p>

European investors started the new quarter on much the same fashion as the previous, on the back foot, selling out of stocks and risky asset classes on fears of a contagion of Greek debt.

The news over the weekend that Greece’s draft budgetary figures showed that the indebted country will miss the deficit targets of 7.6% that was contingent on EU liquidity support has cemented existing concerns that the disposal of the next tranche of bailout funds to Greece remains far from certain. With the Troika talks with Greece set to conclude today, after multiple visits to country’s General Accounting Office, investors remain on edge and are unwilling to build up risk in their stock portfolios with so much uncertainty remaining in Europe.

Banking stocks have taken the brunt of today’s selling, with those banks highly exposed to Greek debt particularly weak in early trading. French banks Societe Generale and BNP Paribas fell 6% whilst falls of 4% were seen in Barclays and RBS. Barclays was the worst performing equity in London trade, falling 6.7%, closely tracked by Burberry, whose share price woes continue.

Mining shares lost around 3% – 4% in early trading also as investors reduced exposures in risky asset classes whilst prices also tracked weaker copper prices, which fell over 3%. Crude oil prices fell 2% also, weighing on oil firms BP and Royal Dutch Shell.

Talks later in the day between European officials where they will discuss the potential to leverage the EFSF will also take a keen market focus. Germany’s finance minister Evangelos Venizelos stated over the weekend that Germany’s contribution will remain at €211 billion, along with ECB member Noyer stating that it is unrealistic to expect an increase in the size of the EFSF, although a leveraged top up is potentially on the table. There is a wide consensus that the existing size of the EFSF at €440 billion lacks the power to prevent a deep contagion of sovereign debt, and so if they can agree to leverage the pool of funds and increase is size five-fold, this could help to ease some sentiment in the near term, depending on any contingencies that may come with it.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (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.