Member Article

FTSE shrugs off Euro letdown

Markets were always going to be dominated by new flow from the EU summit the end of this week and into next, obviously last night’s 10 hour discussions were no exception. Global equities see-sawed between positive and negative territory in response to news flow that indicated a solution to the debt crisis looked more or less likely.

A major takeaway form last night was that 23 members of the 27 strong EU agreed to pursue tighter integration and stricter budget rules via treaty changes. Whilst France and Germany had initially lobbied for all members to sign up, they resigned to the fact that this may was unlikely and as such settled for a 17 nation euro-zone accord with the addition of 6 others from the wider EU. Britain was the most high profile member vetoing the changes after Cameron’s “shopping list of demands”, designed to protect British interests, was not accepted. Hungary, Sweden and the Czech Republic also reserved their positions.

The meeting also threw some light on details of the European Stability Mechanism, the replacement to the current European Financial Stability Facility. Whilst this has been agreed to be brought forward by one year to mid-2012, German requests that it should be capped at €500billion were last night upheld. Combined with news that this would not receive a banking license as previously hoped and which would have enable it to leverage up its firepower, markets were disappointed.

The latter in particular unnerved investors in riskier eurozone government bonds, coming just hours after the ECB’s Mario Draghi implied that greater secondary bond market intervention was unlikely. Although yields of Spain and France suffered, the effects were most prevalent in those of Italy, with ten year yields breaching the 7% level once again before falling dramatically back to 6.34% later in the day as the ECB continued to buy despite its rhetoric the previous day.

Amongst the blue chips, GlaxoSmithKline, the UK’s largest drug company, lost 1.1% on news that they had suffered a setback with Tykerb. The drug which was in the last phase of clinical trials for early stage breast cancer, showed an improved survival profile but didn’t prove statistically significant. Meanwhile the FTSE 100 made a gain of 45.4 points to close 0.8% higher at 5529. After the close US and European shares continued to rise as traders headed off for the weekend hoping the confidence would be retained when they returned on Monday.

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