UK stocks tumbled this morning as investors continued monitoring the political crisis in Greece, which is all but certain to hold another election after last week’s talks ended in failure. The FTSE 100 stood at 5,458 in early afternoon, down 116 points (2.1 percent).
Greek president Karolos Papoulias has called for emergency talks between the parties that secured the most votes in an attempt to from a government and prevent a new election.
However, it appears that the negotiations are set to fail as the anti-bailout Coalition of Radical Left, which finished second behind the centrist New Democracy, has refused to participate.
It is feared that the coalition, which is known as Syriza, could win a new election, further reducing the chances of Greece honouring its commitments under the bailout deal and leaving the euro zone.
Recent polls have shown that Syriza’s support has topped 25 percent.
“The delay to any government formation is bringing bond repayment deadlines closer and without a coalition soon another round of elections will be needed which will simply cause more uncertainty as the anti-austerity party that is causing the deadlock is gaining significantly in the polls," said chief executive of Capital Spreads Simon Denham.
“When you’ve got central bankers talking about how to deal with a possible “Grexit” then it really is more likely that the euro as we know it today could be very different to the euro we’ll know at the end of the year.”
The uncertainty in Greece more than offset Saturday’s decision by China to reduce reserve requirements by 50 basis points, paving the way for the banks to inject more cash into the economy.
It has been speculated that China could slash the reserve ratio by a further 100 points this year to support economic growth.
Concerns about the exposure of the banking sector to the European debt crisis reduced demand for part-nationalised banks Lloyds (LON:LLOY, down 5.6pct at 29.34p) and RBS (LON:RBS, down 5pct at 21.81p) and sector peer Barclays (LON:BARC, down 5.5pct at 191.6p).
Investors also dumped mining stocks following a sharp decline in base metals prices.
Kazakh copper miner Eurasian Natural Resources (LON:ENRC, down 4.4pct at 494p) was at the bottom of the sector, followed by Xstrata (LON:XTA, down 4.2pct at 1,008p) and Anglo American (LON:AAL, down 3.5pct at 2,109p).
Oil prices also dropped, knocking energy stocks including Tullow Oil (LON:TLW, down 4.4pct at 1,398p).
Defensive stocks did well today with water group Severn Trent (LON:SVT, up 0.7pct at 1,705p) topping the FTSE 100 leaderboard.
Financial bookmakers are currently expecting an early sell-off on Wall Street.
Futures for the Dow Jones industrial Average (DJIA) slipped 80 points (0.65 percent) in pre-market and futures for the broader S&P 500 index dipped 12 points (0.9 percent).
Traders in the US are focused on the Greek political turmoil today as the macroeconomic calendar is empty. On the corporate front, security software major Symantec (NASDAQ:SYMC) slipped five percent to US$14.72 after Goldman Sachs reduced its recommendation on the company to ‘sell’ from ‘neutral’.
Tomorrow, investors on both sides of the Atlantic will have a raft of updates to digest including the first quarter euro zone GDP estimate and an update on US retail sales for April.
Analysts at Nomura expect the figures to show a 0.2 percent decline following a 0.8 percent increase in the previous month.
UK corporate news
Back in the UK, other new sin the top flight included an interim management statement from Serco Group (LON:SRP, down 3.2pct at 533p).
The government services group said its full year guidance remains unchanged and that improving conditions around the globe, if they continue, could lift its organic revenue growth in 2013 as well as result in further improvement into the medium term.
“This would support the continued delivery of strong financial performance by Serco,” the group told investors in the report.
HSBC has agreed to sell its businesses in Colombia, Peru, Uruguay and Paraguay to Banco GNB Sudameris S.A. for a total US$400 million in cash.
“We are pleased to have reached this agreement with Banco GNB Sudameris as we seek to focus on our operations where we see the greatest potential for sustainable growth for HSBC,” said president and chief executive of HSBC Latin America and the Caribbean Antonio Losada.
Precious metals miner Polymetal has sold Amikan Holding Limited, which owns the Veduga gold deposit in the Krasnoyarsk region of Russia, to Polygon Gold.
In return for the asset, Polymetal has received US$20 million in cash and 750 shares in Polygon, giving the group an 81.8 percent stake.
Polymetal said it planned to provide certain technical and regulatory assistance to Polygon and may dilute its stake if “external financing is raised”.
Veduga has an open pit reserve estimate – which is compliant with the NI43-101 standard – of 1.05 million ounces of gold at a grade of 5.5 grammes per tonne (g/t).
“We believe this transaction allows Polymetal, through its more than 80 percent stake in Polygon, to benefit from the development of this high-quality asset while preserving management's focus on the company's existing project pipeline,” said chief executive of Polymetal Vitaly Nesis.