FTSE closes higher by 1 1 after day of high drama in Greece

The FTSE 100 closed higher by 1.1%, led chiefly by gains in heavyweight mining firms as investors bought into the market from earlier lows enthused by rumours that George Papandreou, the Greek PM, was to cancel plans for a referendum on the EU bailout plan.

It has been a day of high drama, rumour, speculation and uncertainty as investors attempted to second guess what action the Greek PM was likely to take. Equities rallied from early morning weakness after the Greek PM called another emergency cabinet meeting where it was rumoured that he could announce his resignation and allow a new stronger coalition government to take the country forward.

The market rally was triggered on hopes that a new stronger coalition government would keep Greece’s euro membership and cancel a referendum vote, easing the uncertainty over whether a Greek bankruptcy could come as early as December.

Whilst those rumours supported equities into the close, the Greek PM refrained from announcing in Parliament this afternoon his resignation or a complete retraction of his referendum call. That said, confirmation from the Greek Finance Minister that the referendum will not go ahead helped to ease trader sensitivities, though considering the situation is changing on an almost hourly basis, investors are not counting their chickens yet.

Instead, the Greek PM focused on gaining broad-based bi-partisan support for the EU bailout agreement and in winning the confidence vote that goes ahead tomorrow. It is hoped that should he win opposition support for the bailout deal, this will negate the need for a public referendum on the package, which is increasingly being spun as more of a dangerous political move by the Prime Minister.

Nevertheless, despite today’s developments in Greece, one thing is for sure and that is that tomorrow’s vote of confidence carries with it a huge weight of expectation now from European investors and the uncertainty concerning the political and economical path Greece is on remains particularly clouded.

At the very least, the seemingly sharp turnaround from the Greek PM to now apparently not hold a referendum loses Mr Papandreou a huge amount of credibility and weakens his position as head of government.

The markets held on to their support going into the close, with investors somewhat enthused by the speculation that the referendum won’t go ahead and optimism that Greece will continue to receive the fiscal support it agreed last week with EU officials in Brussels.

The miners provided the largest support to the FTSE, with the FTSE 350 mining sector gaining 2% and stocks such as Fresnillo and Vedanta Resources rallying 5% and 3% respectively on the day.

ECB surprises with rate cut
The surprising move by new ECB President Mario Draghi to cut ECB rates by 0.25% to 1.25% today also gave stocks a filip to push higher. In the proceeding press conference, Mr Draghi stopped short of suggesting more rates were imminent but investors have taken his suggestion that the economic outlook was subject to ‘intensified downside risks’ as an indication that further rate cuts could be in the works.

The euro fell sharply against the US dollar from its day’s highs on the back of the ECB move, before a Greek optimism induced rally saw it regain lost ground. The FTSE 100 saw an immediate 0.5% jump on the back of the ECB rate cut.