Equities slide amid low volumes as China raises reserve ratio

European equity markets reversed much of yesterday’s gains amid light volumes and lingering concerns over the debt problems facing Ireland. The continued lack of time frame to the resolution has led to increasing volatility in equity markets, the continued uncertainty has seen yesterday’s relief rally all but eroded.

Further investor jitters emerged as China announced it was raising its reserve ratio by 50 basis points as of November 29th. The markets have been anticipating tightening measures from China for some time, and an increase in the amount of reserves Chinese Banks must hold is just that. Initial market reaction seemed bearish but such measures may yet be viewed positively. An increase in reserve ratio will take some time to come to fruition, and if successful in its aim as a tightening measure, it could be preventative of the muted interest-rate rise. Arguably a rise in reserve ratio could be the lesser of two evils; which in turn may drive the market higher in the short term.

Bucking the bearish trend, software developer Autonomy headed the FTSE leader board up 3.5% in early trading, as speculative rumours swirled that the company could be an acquisition target from across the pond. Autonomy has been the subject of tenuous bid rumours for months and despite protests that it is still in the market for its own acquisition, investors still see the firm as vulnerable to a possible predatory bid. Technology compatriot Arm also marked the card with a 1% rally, investors buoyed by rumours that Arm could team up with Google on the Google TV offering, comments last night from Arm CEO suggested links between the two firms were ever strengthening on development work.

Support services firm Capita continued yesterday’s slide after Thursday’s update, Capita is one of many firms who have and are likely to suffer from the drive to reduce public expenditure, and confirmation of subdued revenue growth yesterday has led to downgrades from leading brokers.

A lack of macro data from the US is likely to cause markets to drift on light volumes, with investors focus remaining in Europe where a continued lack of resolution could see a slow but gradual sell off as invertors reduce positions ahead of the weekend.

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