Hopes for Greek Saga Resolution Lift FTSE

London equity markets finished a turbulent trading day above breakeven as risk appetite found support in news of a second Greek bailout package agreement

Morningstar.co.uk Editors 21 July, 2011 | 5:43PM
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On Thursday, London-listed blue chips managed to post gains at the end of what was a busy and volatile trading day. Having spent half the day below breakeven, equities recovered as news of promising progress emerged from the all-important EU Summit held today.

Ultimately, the FTSE 100 index added 0.8% or 46 points to 5,990 while the FTSE 250 index gained merely 5 points to 11,707.

On Thursday morning, as investors were anxiously awaiting the outcome of the Franco-German tug-of-war over the Greek debt crisis, July’s Purchasing Managers Indices for both China and the eurozone disappointed and dampened risk appetite. The HSBC Flash China Manufacturing PMI slipped into contraction territory for the first time since July 2010 and hit its lowest point in 28 months.

“We expect industrial growth to decelerate in the coming months as tightening measures continue to filter through. That said, resilience of consumer spending and continued investment in a massive amount of infrastructure projects should support a nearly 9% rate of GDP growth in the rest of the year,” commented Hongbin Qu, chief China economist at HSBC.

In the eurozone, the Flash Eurozone Services and Manufacturing PMIs hit 22-month lows and manufacturing output, as measured by the survey, declined for the first time since July 2009. The rate of expansion in both services and manufacturing slowed down in Germany and France, while elsewhere output fell for the second successive month.

Hit by global growth worries, London Stock Exchange miners fell in early trade. Shares Rio Tinto (RIO), Lonmin (LMI), Xstrata (XTA) and Fresnillo (FRES) remained in negative territory throughout the day and closed 0.3%-0.6% down.

A marked turnaround in investor sentiment was observed alongside signals that the parameters of a second Greek bailout package have been agreed in Brussels. Lower interest rates and extended maturities for the Greek debt alongside a Marshal Plan-style re-allocation of structural funds are some of the key measures planned to prevent Greece from full sovereign debt default.

"It all looks pretty sensible at first glance," commented Gary Jenkins, Head of Fixed Income Research at Evolution Securities. He added that longer maturities for the Greek, Irish and Portugal debt will be positive for these countries and probably negative for German bunds, but, crucially, more detail is needed on the level of financial sector commitment to support Greece, as it has been reportedly stipulated in the bailout agreement.

Reports that French President Sarkozy’s plan to levy a EUR 50 billion tax on eurozone banks has been scrapped were particularly well received by the listed finance majors. Barclays (BARC), Lloyds (LLOY) and the Royal Bank of Scotland (RBS) jumped to the top of the FTSE 100 list of risers, adding 6.5%-8.0%.

In other news, Kingfisher (KGF) gained 5.4% on news that its second-quarter sales had fallen less than expected, while AstraZeneca (AZN) moved 2.0% forward after U.S. drug regulators approved overnight the British group's key anti-clotting drug Brilinta for sale in the world's largest market.

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