Stocks drop on Greek concerns; Spain to nationalise Bankia

<p>Pressure very much remained on European stock markets this afternoon as they headed into the close. Despite triple digit losses in the previous session, the […]</p>

Pressure very much remained on European stock markets this afternoon as they headed into the close. Despite triple digit losses in the previous session, the sell off continued as investors worried not only about the future of Greece in the erozone, given the political stalemate, but also about indications that Spain will nationalise its third largest bank.

The FTSE 100 clearly struggled under mounting negative news surrounding the eurozone and slipped comfortably under 5500, shedding over 1.3% as the day progressed whilst hitting lows not tested since December last year. However the last 30 minutes saw a late rally into the close.

The continued concerns regarding Europe and more specifically Greece and its inability to form a Government following Sunday’s inconclusive elections persist. The left wing Leader Alex Tsipras has demanded that Antonis Samaras (New Democracy leader) and Evangelos Venizelos (Pasok) revoke the terms of the €130 billion bailout from the EU and IMF before they meet later this evening. Such arrogance is unlikely to help form a coalition government and makes reaching a majority seem even more unobtainable, meaning new elections and continued uncertainty for investors. 

The near term impact of this uncertainty is that investors are looking to unwind riskier trades. Spain’s 10-year bond yield rose 25 basis points, taking it above the notable 6% level, often thought of as the point of no return. Italy’s are not far behind, up 25 basis points to 5.6%. The fact that both German and UK long term bond yields continue to fall shows that investors are exerting low risk strategies in the medium to long term. UK 10-year yields continued to trade below the 2% level whilst German 10-year yields hit 1.533%.

Meanwhile the European banking sector suffered fiercely in the hands of investors, losing over 3.3% as reports indicated that Spain will be looking to nationalise Bankia, its third largest lender. Furthermore the Spanish government will ask banks to set aside another €35 billion against loans to builders. Although this request doesn’t seem unreasonable considering the size of the Spanish property market and the burden it places on banks, investors will really be looking for a line to be drawn under this never ending saga. Royal Bank of Scotland and Lloyds are both showing losses of over 3.5%.

Focusing on UK equities, Sainsburys’ shares continued to outperform the broader grocery sector in London trading, with shares gaining another 2.6% after the supermarket retailer reported a growth of 7.1% in underlying profits to £712m. Profits came in slightly ahead of the median forecast whilst sales also grew a healthy 6.8%, with Justin King confident that the firm can continue to grab market share from Tesco’s.

Shares in Clinton Cards were suspended from trading after the card maker said it was likely to enter into administration later today. Its biggest supplier American Greetings bought up its loan facilities from Barclays and RBS yesterday before promptly calling them in, effectively forcing the retailer into administration. The swift deal and immediate calling in of the loans will inevitably leave a rather sour taste not just in the mouths of its shareholders, but in the UK retail sector in general with some eyebrows raised in the City.

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