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Markets lower despite new Greek PM announcement

It proved to be an unpredictable day in the financial markets, the UK’s FTSE initially opening more than 1.5% lower before alternating into positive and negative territory throughout the day. European Commission President Jose Manuel Barroso warned the beleaguered eurozone of the dangers of splitting up the currency bloc, and Angela Merkel added her voice to calls that deep structural reforms were needed, importantly mentioning the need for “more Europe” (integration).

The European Central Bank was once again active in the sovereign debt secondary markets, this time with more firepower and at an earlier stage. It helped bring the yields on the government debt down relatively significantly to below the 7% level, although the 10 year notes remained dangerously close to what is widely regarded to be unsustainable borrowing costs (if the country needed to refinance their debt at this level). It came as Italy sought €5 billion in a 12 months bond auction this morning, the nation managing to get the debt away at a yield of 6.08%. The high financing cost disappointed the market, equities losing some ground and Italian 10 year yields drifting back above the 7% level.

Chinese trade data came out overnight, October’s trade surplus falling to $17billion from an expected $24 billion. Whilst a slowdown in export growth highlights the detrimental effect of a global economic slowdown and a decline in demand from Western economies, a surge in imports hinted towards a rebalancing of the country towards important domestic demand.

With so much focus on Europe, the Bank of England interest rate decision may have gone unnoticed. However the central bank kept rates on hold at their record low of 0.5%. The naming of former ECB vice-president Lucas Papademos as the next Greek prime minister, combined with some temporary relief in the Italian political situation and hence bond yields, led to a slight relief rally around midday, although this was not to last.

On a stock level, Experian and Vedanta were subject to opposing fates following their first half results, ending up top and bottom of the FTSE leader board with a 5.3% gain and 9.5% loss, respectively. The index ended the day lower by around 0.3%, a 15.5 point loss to 5444.8.

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