No Greek deal yet but markets show stubborn resistance

<p>European stock markets edged slightly lower in the closing stages of trading, having been in positive territory for much of the day, as investors continued […]</p>

European stock markets edged slightly lower in the closing stages of trading, having been in positive territory for much of the day, as investors continued to watch Greek talks patiently. Stocks have shown a stubborn resistance to any correction thus far however, which breeds confidence that perhaps investors are optimistic that there could be more upside to come.

Given the lack of economic data so far this week, all eyes have been focusing on the Greek political negotiations over the debt restructuring deal. Investors are unsure how to interpret Greece’s efforts to reach an accord in order to obtain another tranche of bailout funds and avoid a messy March default, so trading volumes has been light. Without any deal being struck the markets are settling at these levels, however we can take warmth from the fact that prices have not subsided heavily on the back of investor hesitation and this has helped buoy the markets for the moment.

Increased optimism has seen investors return to riskier heavyweight assets which translated to a broadly firmer mining sector.  Furthermore Rio Tinto announced a $3.4 billion expansion of iron ore mining in Australia which was cheered by investors and saw the share value rise 2.3%.

Also underpinning the positive mood we saw Citibank reaffirming its “overweight” position on UK banks. Barclays was its short term preferred bank, whilst Lloyds also joined the miners amongst the top gainers, rallying 1.3% following an additional vote of confidence from Goldman Sachs who increased their target price for Lloyds from 50p to 58p.

UK blue chip saw Reckitt Benckiser was the top FTSE 100 gainer on the day, with shares gaining 3%, after beating expectations on their Q4 results and investors reacted favourably to its new strategic focus. The British consumer goods group stated that their focus will shift away from Europe and towards the emerging markets for growth. It will also be looking to achieve 50% “core” revenue from this growth area.

On the downward side we see International Power top the fallers on the FTSE losing 2.83% off the value of its shares following a warning that achieving its 2013 earnings target could prove challenging given the drop in hydro generation prices in Brazil.

Another quiet day as far as significant economic data is concerned. Notably German exports came in much lower than expected, down 4.3% in December which could be a hint towards a tougher economic climate.

However, tomorrow we have the Bank of England meeting and this is the central point for the week.  It is expected that the more quantitative easing will be announced with a further £50 billion in asset purchases to help inject liquidity into the system. However, any deviation from this could see a volatile market reaction.

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