Member Article

FTSE higher despite continued banking woes-Latest Market Analysis

Markets were anticipated to begin the week lower on Monday as German Chancellor Angela Merkel furthered her stance on Eurobonds in a television interview over the weekend. She stated that a common bond guaranteed by all members of the currency bloc was the “wrong answer” that would lead to a “debt union” and not a “stability union”. She also suggested that politicians should not be bullied by the markets, comments that have previously led to dramatic negative reactions by investors.

Upon opening however, European markets experienced upward momentum presumably as much of the German stance was already factored into the price, given the sharp declines experienced post the Sarkozy-Merkel meeting last week. The German position is also perhaps unsurprising given the increased financing costs this would bring for the German tax payer. The FTSE 100 soon gained more than 100 point in a broad based rally.

As well as bargain hunting, sentiment may also have been boosted by developments in Libya, where rebel forces entered Tripoli and news broke that two of Gaddafi sons had been captured. Increasing stability in the region would improve the prospects for the country to resume oil production, which stood at 1.6m barrels/day prior to the conflict. This weighed on the European oil benchmark, Brent crude, which fell around 1.4% to $107/bbl.

After a savage sell off last week, the FTSE steadily gained ground throughout the day to peak at 5180 points prior to the US open, the latter leading to a subsequent sell off in the afternoon and highlighting the fragility of the recovery. The FTSE finished the day at 5095, up 55 points or 1.1%.

Gold’s continued surge, reaching $1892 per ounce at its daily peak, saw Fresnillo top the FTSE leader board for much of the day, before losing its top position to finish 3.5% better off at 2039p. At the opposite end of the spectrum was Essar Energy, the shares in the London listed energy company fell 3.8% in response to its half year results, news of project delays and higher refining costs more than offsetting upbeat earnings. The beleaguered Barclays began the day in positive territory before losing ground amid news that credit default swaps (CDS) for its debt were within 10 basis points (0.1%) of their all time high. Barclays closed 4.25p lower at 146.3p, its 2.8% decline actually outperforming its troubled counterparts RBS and Lloyds, whose shares closed down 5.3% and 2.9% respectively.

This was posted in Bdaily's Members' News section by John Dance .