European indices lose ground gained as banks weigh UK benefit claims jump

European indices traded lower on Wednesday as traders locked in gains early from yesterday’s stock price surge and banks weighed on continued Greek debt instability and ahead of a speech on bank restructuring by Chancellor George Osbourne. A surprising jump in UK unemployment benefit claims last month also put the pound sterling under pressure against the US dollar.

Banks weigh on Greece and Osbourne speech
The FTSE 100 lost 29 points in the morning session, weighed down by weakness in the heavyweight banking sector, which fell by near 1%. Naturally there are tensions ahead of George Osbourne’s speech today which will outline new measures to ring fence retail operations from that of banks investment wings. From a consumer perspective, there is little wrong with this and traders will be hardly surprised to see Osbourne throw his weight behind the Independent Commission on Banking’s recommendations here. From a regulatory perspective, most investors are keen to hear the final report by the ICB due out after the summer. From this traders can gauge much better the likely impact on banking operations and underlying revenues.

The failure of eurozone finance ministers to agree on the terms to which private holders of Greek debt should share the costs of a new bailout, aligned with Moody’s placing French banks under review for downgrade owing to exposures to Greece has also added to existing negative sentiment surrounding banks in Europe today.

So far this year, the UK banking sector has lost 8%. After a strong start to the year, the last four months trading has seen banks on a downward slope, with the sector losing 18.6% to today’s lows on continued fears surrounding exposures to European sovereign debt and stricter banking regulations.

A stronger US dollar has put pressure on the prices of commodities today, forcing crude oil prices off by nearly 1%. This has had negative correlations to UK energy stocks, with the sector also down by 0.5%.

UK benefit claims jump 19,600 in May
Data showed that UK unemployment claims surprisingly jumped by 19,600 when a fall from 16,900 to 7,000 was largely expected. However, the three-month ILO employment report showed that 88,000 people gained jobs, which is the biggest fall in the ILO unemployment level since 2000, giving cause for some small degrees of  optimism within the jobs reading. The coalition government is relying on the private sector to help pick up the slack in jobs hiring expected within the public sector and today’s data gives optimism that this maybe working. Although admittedly, the road to a UK jobs recovery remains long and arduous.

The reaction in the market saw equities come off somewhat whilst the pound sterling suffered losses against the dollar.