Choppy trade sees FTSE gain after successful Spanish bond auction

A choppy start to the trading session and continued nerves towards potential credit ratings downgrades kept investors on edge, with early FTSE gains of around 1% quickly reversed within the first two hours of trading. However a successful Spanish bond auction at 10am helped to reignite the days gains, rallying the FTSE 0.6% by 10.45am.

The session starting with investors attempting to pick up some bargains, particularly in the resource sector after mining and oil stocks suffered sharp falls in the last 24 hours. However, early gains were quickly sold into, emphasising the caution that exists amongst investors at present over the fragility of the sovereign debt crisis within the eurozone.

Italian bond yields remain in unsustainable territory, with 10-year bond yields rising another nine basis points early on to reach 7.334% after a rise of 50 basis points yesterday. Pressures within bond markets continue to send aftershocks into equity markets and it is here, alongside existing fears of potential credit ratings downgrades for Europe’s top notch club, particularly that of France, which is keeping investors from adding a significant degree of stocks to their portfolios.

A Spanish bond auction this morning proceeded relatively well, with Spain selling €6 billion worth of debt that expires in 2016, 2020 and 2021. The average yield for debt expiring 2016 fell from last time around to 4.02%, whilst the 2021 expiry saw a small increase in yield to 5.45%. Bid to covers fell for 2016 and 2020, whilst demand increased for the 2021 expiry. All in all, the bond auction was digested well by the market, particularly given the volatility of bond markets at present, and this helped to give European stocks a fillip to push slightly higher in late morning trade.

With so many questions remaining unanswered over the scope of funds at Europe’s disposal to contain the debt crisis and the ECB stubbornly refraining from buying aggressively into bond markets, investors are now getting to the stage whereby they are recycling funds into safe haven asset classes, packing their bags, and leaving the market for the year end.

Data out of the Office of National Statistics showed that UK retail sales fell slightly more sharply than expected last month, falling 0.4% when the market largely expected a fall of 0.3%. However, the previous month’s sales were upwardly revised to 1% from 0.6% and this helped to balance out the negative aspects of the report. Whilst this is not necessarily a confidence boosting set of retail sales figures, there was every chance that this could have been a lot worse.

Old Mutual was the top stock gainer on the FTSE 100 after the insurer sold its Nordic business to Skandia Liv for a sum of $3.2 billion. The move comes on the back of a change in strategy to remove non-core assets at the insurer and shares have risen on the back of the sale, with shareholders optimistic that the sale itself will help to boost investor returns. The sale actually marks a loss, given that the Nordic business was initially purchased for a sum of $6 billion some six years ago.