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Footsie drops half a ton as markets mull Greek fall-out

The markets wobbled after the Greek 'no' vote but investors generally held their nerve

Fireworks.jpg
There were fireworks aplenty over the weekend

London close

The top share index suffered a fifty point fall in the wake of the Greek referendum vote, but it could have been worse.

Indeed, it was worse earlier in the day, when the FTSE 100 dipped to 6,507 before it rallied to 6,536.

Dealers were closely watching the fallout from Greek voters' rejection of creditors' proposals to keep the struggling Mediterranean country's economy afloat.

Eurozone leaders arranged an emergency summit for Tuesday evening to discuss the referendum result, but they stood their ground over Greek demands for debt relief in exchange for reform, saying a debt cut wasn't on the table.

There was some cheer for the creditors when controversial Greek finance minister Yanis Varoufakis resigned.

The front-runner to replace him is Euclid Tsakalotos, who has already stood in for Varoufakis in some talks in the past few months.

“Clearly, the ‘No’ result allows the Greek government to negotiate from a position of strength, but both Greece and the EU will have to seek compromises to avoid a disorderly Greek exit,” suggested Michael Stanes, investment director at Heartwood Investment Management.

“There are already signs that negotiations out of the current crisis are underway, starting with the resignation of the Greek Finance Minister Varoufakis - a gesture that has been described as ‘helpful’ in reaching an agreement - but over the medium- to longer-term, the Greek government and the EU will have to address the much thornier issue of debt sustainability,” Stanes suggested.

Engine developer Rolls-Royce (LON:RR.) applied reverse thrust, down 54p at 802.5p, after warning on profits due to weakness in civil aerospace and marine power markets.

Reports that the government would countenance selling shares in taxpayer-controlled Royal Bank of Scotland (LON:RBS) at a loss unnerved the lender’s shareholders. RBS shares finished down 3.6% at 346.5p.

With markets falling like ninepins worldwide, it was a bad day to be holding fund managers such as Schroders (LON:SDR), down 3.6%, and Hargreaves Lansdown (LON:HL.), down 2.3%.

Utilities SSE (LON:SSE) and Centrica (LON:CNA) defied the downward trend on reports that the Competition and Markets Authority (CMA), is expected shortly to clear the country’s “big six” power companies of market abuse.

SSE rose 16p to 1,574p and Centrica advanced 1.6p to 267.4p.

Structural steel specialist Billington (LON:BILN) reached for the sky, climbing 19% to 262.5p after it said half-year results would be significantly ahead of expectations.

Driver safety technology firm Seeing Machines (LON:SEE) motored forward 0.625p to 5.25p on news of two deals. The first is with industrial vehicles giant Caterpillar, and will see Caterpillar Safety Solutions provide 24/7 monitoring and analytical services to their global customers using Seeing Machines' DSS products, while the second is with Aussie transport and logistics firm Toll, which will roll-out Seeing Machines’ technology across its fleet. 

Europa Oil & Gas (LON:EOG) fell 1.25p to 6.625p after the company revealed plans to raise up to £3.4mln through share sales at 6p a pop.

US open

US markets opened lower in the wake of Greece’s emphatic vote in favour of rejecting its creditors’ bailout terms.

As with European markets, however, stocks have not been hit as hard as some pundits feared, with the benchmark S&P 500 off six points, or 0.28%, at 2,070.

The tech-heavy Nasdaq Composite was down a dozen points at 4,997 while the old war-horse, the Dow Jones average, was 54 points lower at 17,676.

“The markets are remarkably calm. Stocks are trying to recoup earlier losses, while EURUSD volatility is lower than it was during last month’s peak,” notes Kathleen Brooks, a research director at foreign exchange firm Forex.com.

“As we mentioned on Sunday evening, the market reaction has been less severe than last week when capital controls were first announced. The relative stability may be down to a few of things: 1, investors are still hopeful that a deal can be reached to save Greece; 2, if no deal is reached then the European authorities will give Greece the help it needs to leave the Eurozone gracefully; 3, intervention from global central banks to stem excess volatility in the FX market, and protect the downside for the EUR,” she added.

Having not got the result it wanted to see in Sunday’s referendum, Germany appeared to be in no hurry to get back to the negotiation table with Greece.

Steffen Seibert, a spokesman for the German chancellor, Angela Merkel, said the door remains open for a restart of debt negotiations, but said “conditions are currently not given to enter negotiations about a new aid programme”.

Noted French economist Thomas Picketty weighed in with his views, saying that Germany was in no position to lecture other nations about failure to repay debt, given Germany did not repay its external debt after the Great War of 1914-18; nor did it repay its debts after World War II.

“The younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future,” Picketty said in an interview with German newspaper Die Zeit.

Ramifications of the Greek vote kept traders interested on a day short of corporate news flow.

Health insurer Ætna came under selling pressure after announcing its agreed takeover of sector peer Humana last Friday; US investors were denied the opportunity to dump Ætna shares on Friday as markets were closed ahead of Independence Day.

In other mergers & acquisitions news, Botox maker Allergan was barely changed after revealing it is making an agreed US$125mln bid for Oculeve, a maker of treatments for dry-eye disease.


London mid-session

The London market held its nerve on Monday as Greece and its creditors prepared for the next moves in the country's debt crisis.

The FTSE 100 Index modestly pared earlier losses to stand 37 points off at 6549, although that was still better than the 140-point drop analysts had predicted.

Mainland European indices fared less well, with Germany's DAX falling 174 points and France's CAC-40 dipping 90 points.

Dealers were closely watching the fallout from Greek voters' rejection of creditors' proposals to keep the struggling Mediterranean country's economy afloat.

Eurozone leaders arranged an emergency summit for Tuesday evening to discuss the referendum result, but they stood their ground over Greek demands for debt relief in exchange for reform, saying a debt cut wasn't on the table.

There was some cheer for the creditors when controversial Greek finance minister Yanis Varoufakis resigned.

The front-runner to replace him is Euclid Tsakalotos, who has already stood in for Varoufakis in some talks in the past few months.

Connor Campbell at Spreadex said: "Tsakalotos is a more stable figure than Varoufakis and his (relatively) moderate views could help ease a deal into existence."

Greek politics specialist Professor Hari Tsoukas, of Warwick Business School, warned premier Alexis Tsipras against bowing to demands from hard-liners in his party.

"In a country where national pride is important, people were moved by the way Tsipras stood up to the creditors," Tsoukas said.

"However, they may be surprised to find national dignity is not so much served by confrontation and protests at rallies but by pragmatically building alliances, searching for compromises and making credible commitments."

Back in London, Rolls-Royce (LON:RR.) was off 65p at 791.5p after warning on profits due to weakness in civil aerospace and marine power markets.

Shares in Bovis Homes (LON:BVS) rose 22p to 1,163p as the house-builder unveiled record home deal completions.

Landscaping material supplier Marshalls (LON:MSLH) made up early losses to stand 3.1p up at  322.6p as an 11% rise in first half revenue to £199mln failed to impress.

Ophir Energy (LON:OPHR) slipped 2.7p to 108.9p after the Asian and African explorer said it was on track to meet annual production hopes at "a tough time in the commodity cycle."

Vehicle tracking technology firm Trakm8 (LON:TRAK) reversed 4.2p to 171.32p despite announcing higher annual +revenue and profit.

Europa Oil & Gas (LON:EOG) leaked 1.4p or 18% to 6.4p after revealing plans to raise up to £3.4mln through share sales.

Shares in ECR Minerals (LON:ECR) jumped 0.01p or 14.75% to 0.09p as exploratory work at its Itogon gold project in the Philippines yielded positive results.

Most followed

While Europe struggles with a little local difficulty following yesterday’s Greek referendum vote, Chinese stock markets have been showing Europe how to do volatility.

A weekend of emergency meetings saw the arms of several brokerages forced as far up their backs as they would go, with the authorities calling on them to contribute to a stabilisation fund and pledge not to sell any shares until the Shanghai Composite index had recovered 4,500 points.

This made shares something of a one way bet, and the Composite index finished up 2.4%, having been up more than 8% at one point.

According to Bloomberg, “Chinese financiers are turning to the same playbook used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale”.

The emergency action by US financiers in 1929 worked … for a day or two. We’ll see if China’s strong-arm tactics working any better some 86 years later.

It is unlikely to have escaped your notice that predictions from some quarters (such as this one) that the Greek referendum vote would be a close run thing turned out to be even less accurate than predictions about the UK General Election outcome.

Greece’s Prime Minister Alexis Tsipras has promised to return to the negotiating table to get a better deal from the country’s creditors; meanwhile, Greek finance minister Yanis Varoufakis, who was made to feel about as welcome as a bluebottle fly in a restaurant by the other European finance ministers, has resigned, thus avoiding any more meetings with the European Union’s grey-suited number jugglers.

“I shall wear the creditors' loathing with pride," he is reported to have said, though from the broadcasts it appeared he was actually wearing a teal coloured T-shirt and, possibly (the cameras did not pan down that far) a pair of beige shorts and some flip-flops.

The vote to reject the creditors’ bailout terms has sent European stock markets lower, but not by the sort of margin that would cause a sleepless night in Beijing, though the common currency has taken a shoeing (but not a flip-flopping) on the foreign exchange markets.

The term “Black Friday” is trending on the Business news section of a well-known search engine, but this is not, surprisingly, a reference to stock market crashes we have known and loathed, but some sort of contrived US shopping event.

Online shopping giant Amazon is celebrating its 20th anniversary, not, as some might have hoped, by reviewing its corporate tax policies, but by holding a promotional shopping event.

In the small caps world, gas-to-liquids firm Velocys (LON:VLS) has suspended its chief executive officer, Roy Lipski, while it investigates allegations of serious misconduct.

The company said the allegations do not involve any element of fraud or financial impropriety, and stressed that the suspension of Lipski does not imply it believes he is guilty of misconduct.

The share price has taken a whacking, but not as much the shares of product developer LiteBulb (LON:LBB), which have dimmed considerably after it announced the results of a strategic review.

Chief executive Simon McGivern and sales director James Phillips are heading for the exit, while Guy Pettigrew (chief financial officer) and Leigh Webb (chief operating officer) have joined the board.


London open

European markets appeared to take the Greeks' rejection of creditors' plans for a debt deal in their stride on Monday.

The FTSE 100 Index dropped 44 points to 6542 in early trading, confounding analysts' forecast of a drop of up to 140 points.

Germany's DAX dropped 107 points and France's CAC-40 dipped 60 points.

It came after the Greek electorate made a clear decision to reject creditors' latest terms for a bailout to keep the struggling Mediterranean country's economy afloat.

Connor Campbell at spread betting firm Spreadex said: "All in all, given the potential ramifications of this ‘no’ vote, the markets dealt fairly well with the news. Of course, they slipped into the red, but given the haemorrhaging that happened when the referendum was announced last week, this morning’s losses are rather tame."

The vote raises questions over whether Greece can remain part of the Eurozone, although Prime Minister Alexis Tsipras was conciliatory in tone in his victory speech.

“The mandate you’ve given me does not call for a break with Europe, but rather gives me greater negotiating strength,” he said.

Athens also appeared to try to allay tensions with the creditors as controversial Greek finance minister Yanis Varoufakis resigned.

The vote brought volatility to the Asian markets but not chaos.

IG analyst Chris Weston said: "It has to be said that despite markets adopting a definitive risk-aversion feel, the mood has felt quite calm and there is little panic.

“It’s almost as if Asia-based traders are waiting for confirmation on trading moves from European traders before positioning short-term portfolios.” 

Hong Kong’s Hang Seng Index was down more than 1,000 points, or 4%, the Nikkei in Japan was off 2.5% while the Shanghai Composite rose 2.4% after the authorities introduced measures to stabilise Chinese stock markets.

Back in London, Rolls-Royce (LON:RR.) was off 75.5p to 781p after warning on profits due to weakness in civil aerospace and marine power markets.

Shares in house-builder Bovis Homes (LON:BVS) were flat despite news of record home deal completions.

Landscaping material supplier Marshalls (LON:MSLH) lost 0.75p to 318.75p as an 11% rise in first half revenue to £199mln failed to impress.

Ophir Energy (LON:OPHR) slipped a penny to 110.5p after the  Asian and African explorer said it was on track to meet annual production hopes at "a tough time in the commodity cycle".


London pre-open

The FTSE 100 looks set to tumble 140 points on opening after a decisive ‘no’ vote by the Greeks opened the door to economic and monetary chaos within the Eurozone.

The anti-austerity Syriza-led government scored a decisive victory as the electorate rejected a compromise plan put forward by the country’s creditors.

It raises serious questions over whether Greece can remain part of the currency bloc, but Prime Minister Alexis Tsipras was a conciliatory in tone in his victory speech.

“The mandate you’ve given me does not call for a break with Europe, but rather gives me greater negotiating strength,” he said.

The rhetoric from Berlin remained hard line with Deputy Chancellor Sigmar Gabriel accusing Tsipras and his cohorts of tearing down the “last bridges to compromise”.

The vote brought volatility to the Asian markets but not utter chaos.

“It has to be said that despite markets adopting a definitive risk-aversion feel, the mood has felt quite calm and there is little panic,” said Chris Weston, analyst at IG.

“It’s almost as if Asia-based traders are waiting for confirmation on trading moves from European traders before positioning short-term portfolios.”  

Hong Kong’s Hang Seng Index was down more than 1,000 points, or 4%; the Nikkei in Japan was off 2.5% and the Shanghai Composite fell around 0.5%.

Here in London, the FTSE 100 is set tumble 140 points to 6,445.78, according to IG.

The European bourses are expected to follow suit, although the sell-off is likely to be less severe than many had predicted in the run up to Sunday’s Greek vote.

“Amazingly, our opening calls for European equities are lower by between 2.4% and 3.5%,” said IG’s Weston.

“If you had said to me on Friday that we would see an emphatic ‘no’ vote and the DAX called to open 2.4% lower, I would have bitten my right arm off!” 

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