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Markets stutter as eurozone issues drag on

The end of what has been another chaotic week was characterised by various headlines out of the Group of 20 meeting in Cannes. Whilst markets had initially benefited from momentum following news that a Greek referendum on the bailout package was off the table, news clips from the French Riviera soon dented sentiment. It was apparent that there had been disagreement on boosting the resources available to the IMF, funds Europe had been hoping to tap into to help finance the EFSF (a crucial part of Greek rescue package arranged only a week ago). Equity markets fell, France and Germany particularly vulnerable although the UK’s FTSE lost its early modest gains to find itself in negative territory.

Economic data from the US didn’t help, employment increasing slightly less than expected in October, as measured by a non-farm payroll reading of 80,000. Whilst the overall unemployment rate fell 0.1% to 9.0%, this was attributable to an upward revision of previous estimates. Although this softened the announcement somewhat, many commented that job growth was still far too slow. The release, which preceded the US market open, contributed to declines in excess of 1% on all major US indices.

Elsewhere in the Eurozone, political wrangling amongst Greek politicians was also in focus, with opposition members calling for the resignation of George Papandreou, and early elections, in return for their support for the bailout deal. The embattled leader still faces a confidence vote at midnight tonight.

Italian bond yields spent much of the day above 6.3%, and even reached an all time euro-zone high of 6.43% before the European Central Bank stepped in to purchase bonds in the secondary market. The yields jumped further into unsustainable levels as markets were disappointed no concrete offers of support for the EFSF were presented at the G20 meeting. The fall in confidence came despite the Italian Prime Minister stating that Italy doesn’t need a loan from the IMF and conceding to IMF supervision over the implementation of its austerity measures.

At a stock specific level, Arm Holdings was top of the FTSE leader and Royal Bank of Scotland fared better than its banking peers upon the release of results which showed the group made a £1.2 billion net profit in the third quarter. The group had also dramatically reduced its exposure to peripheral European sovereign debt. The 1.25% gain to 23.1p came amid accompanying rhetoric that suggested further jobs could be lost as the institution moves to shrink its investment banking arm in line with recommendations from the Vickers Report.

The FTSE finished the day down 0.3% at 5527, an 18.5 point loss heading into an important weekend for financial markets.

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