Europe sinks lower on Greek fears despite Asian rebound

European markets sold off sharply again today, on public holiday Ascension Day for mainland Europe, as concerns over Greece continue to weigh on sentiment on trading, whilst speculation that Moody’s were set to cut a range of Spanish bank ratings also escalated losses into the close. 

Today’s weaker session came despite strong economic data from Asia and suggestions of a possibility of more stimulus from US central bank in the FOMC minutes last night.

Unexpectedly strong Gross Domestic Product data from Japan meant a late session rebound in Asian stocks with the Nikkei gaining 0.9% on the news that its economy had grown by 1%. This news combined with the fact that the Federal Reserve indicative that it will act again to shore up the US economy if it falters – though refrained from indicating it could extend Operation Twist – should have given the FTSE 100 a positive start to the day. Instead the 1% plus sell off this morning has only added to the 7.5% loss that the UK blue-chip index has suffered since the beginning of May emphasising that risk off continues for now and investors have shown no willingness to bargain hunt badly beaten stocks. The UK Index has now lost over 10% from its mid-March high of 5989 hitting a 6 month closing low in the process.

As the Greek drama continues, it is the uncertainty of whether Greece will remain in the euro or not and the consequences on peripheral states should the new election see the anti-austerity party succeed which is bearing down on investors. Each day the likelihood of Greece leaving the eurozone seems to increase, which could lead to somewhat unpredictable consequences. With this in mind we are seeing investors continue to sell out of their more risky assets and focus on short term strategies, it has become a familiar picture to see Miners and Financials heading up the losers on the FTSE 100 and today is no exception. Vedanta, Xstrata and Glencore have all lost over 4% of their value, whilst Lloyds, Barclays and RBS have each shed over 3%.

Spanish banks lost heavily in trading after rumours infiltrated the markets that Moody’s was set to cut their ratings on a number of Spanish banks. This weighed on trading in the afternoon session and triggered deeper losses going into the close.

HSBC had traded slightly better than the rest of the banking sector in early trading as it released news that it had achieved a $2 billion cost saving on an annualised basis since it started to scale back its size and boost its profitability. Furthermore it expects to hit its target of $3.5 billion cost saving by the end of 2013. However, the banks share price weighed down in afternoon trading, matching similar bearish sentiment for European banks.

With more positive news, ICAP is leading the gainers, up over 1.5% by mid morning trading, following a series of broker recommendations and increased target price. It was also reported that they are in talks to buy Plus Market Group PMK.L, the UK exchange for fledgling companies.