Greek Austerity Vote Spooks Investors

WEDNESDAY MARKET UPDATE: Investors cheered for Obama but then bid stocks lower ahead of tonight's Greek austerity vote

Alanna Petroff 7 November, 2012 | 5:18PM
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After a morning relief rally that brought the FTSE 100 index above the 5,900 mark, investor sentiment took a turn and the markets dropped. The FTSE 100 fell by 93 points, or 1.6%, to close at 5,792. The FTSE 250 index also dropped by 120 points, or 1%, to close the trading day at 11,961.

UK investors were initially pleased to see that US President Barack Obama was re-elected for a second term. His re-election ends the feeling of uncertainty that had been dominating global markets over the last few days as investors waited to see who would lead America forward. But after the initial euphoria died down, investors refocused their attention on concerns over the upcoming US fiscal cliff and tonight’s Greek austerity vote.

“Barack Obama is back by popular demand, but traders are now more interested in Athens than America as stocks slide ahead of the Greek austerity vote,” said David Madden, a market analyst at IG. “Morning gains made on the back of Obama fever have been wiped out by renewed fears for the eurozone. The European Commission got the ball rolling by cutting next year's growth forecast for the region; poor German industrial production numbers then dragged stocks into the red; before jitters surrounding the Athens austerity vote means we are now well and truly offside. Today’s movements show us just how fickle investors are.”

Greek politicians are set to vote this evening on yet another round of austerity measures. This package of spending cuts and tax hikes must be passed before the government can secure another tranche of bailout money.

“If the measures are passed, which seems probable, if only narrowly, that won’t be the end of the story, as the EU, IMF and ECB still need to deal with the problem of Greece’s debt sustainability which still hasn’t been addressed. This also leaves the problem of trying to implement the deeply unpopular measures which, given Greece’s track record, could well be a problem,” said Michael Hewson from CMC Markets.

By the close of the trading day, only 8% of stocks listed on the FTSE 100 had managed to eke out any gains. Meanwhile, many companies' shares were in the red, with Randgold Resources (RRS) leading the way down with a 6.5% drop.

Click here to see which specific companies moved ahead and which fell behind in London trading.

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Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.

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