John Dance

Merkel reassurance lifts markets - Latest market analysis

Markets opened in positive territory in early trade after it was reported that China’s largest sovereign wealth fund was in discussion with Rome regarding a significant purchases of Italian debt. Whilst Asian equities were buoyed overnight on this potential development, the boost was short lived as the prospect was dismissed as unlikely. European markets soon found themselves slipping into the red, Italy once again in the spotlight as a €3.9billion 5 year tranche of government debt was auctioned off at 5.6%. The yield represents the the highest in Italy’s Eurozone history and was described as “enormous” by some commentators. Combined with a low bid-cover ratio, i.e. the ratio between the number of bids to securities sold, the auction suggested a lack of appetite amid continued Eurozone worries.

Such concerns continued to weigh on equities for the rest of the morning, although the FTSE broke through its 5130 point opening level and held on to gains for the rest of the afternoon. Banking stocks led the ascent following comments from Angela Merkel that suggested preventing an uncontrolled Greek default was a priority. The news lifted European equity markets, the CAC 40 and DAX finished up 1.4% and 1.9% respectively, the FTSE 100 put on 45 points to finish up 0.9% at 5174.

On a stock specific level, Cairn Energy was the FTSE 100’s worst performer as it announced disappointing news from the second well in its Greenland drilling campaign. Investors reacted badly: the stock fell 26 points to finish 8.2% lower. Barclays, RBS and Lloyds occupied the top three positions of the FTSE leader board, all 4% better off on the day.

Economic data for the UK came in the form of Inflation readings prior to the market open. The consumer price index and the retail price index were up to 4.5% and 5.2% (YoY) respectively, although these were broadly in line with expectations and as such their release induced only a limited market response (GBP was down around 0.5% against the Euro).

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