FTSE loses 1 78 as Greek political situation intensifies Euro crisis

The FTSE 100 lost 1.78% to hit a new 2012 low as traders in London returned to their desks and sold out of risky asset classes such as the miners and banks, after political deadlock in Athens threatened the country’s bailout and Hollande swept to victory in France, a victory itself that investors in London are concerned could threaten the countries good relationship with Germany.

Despite the turnaround in the markets yesterday, we have seen risk aversion today by traders returning to their desks in London with the miners and banks targeted by investors looking to reduce their equity exposure. The violent swings we have seen in European equity markets over the past few days is concerning as it shows indecision by investors, who are unsure of how to position themselves in the midst of the political uncertainty in Greece and the likely domino effect on the country’s ability to service its debts. Testamount to this sentiment is the fact that we have seen yet more gains in the VIX, the Volatility Index and a key gauge of market fear or pessimism, which gained another 9% today.

The situation in Greece is highly uncertain. Whilst the New Democracy leader Samaras failed to secure a collation government of ‘national salvation’ over the last few days, it remains uncertain whether the Leftist party will be able to do so either within the three days it has been given to find its own coalition, a failure of which would leave the country in limbo and facing new elections.

If the Left Coalition does get into power, there can be little doubt as to the consequences with leader Alexis Tsipras stating today that he wants to nationalise its banks and make the country’s bailout pledges ‘null and void’. Should the Left form a coalition government, the rejection of the terms of its bailout agreements would likely threaten a sharp and painful exit from the Euro, a scenario many have forecasted for some time but could now be on the cusp of reality.

That said, there remains a huge degree of uncertainty as to whether a new coalition can be formed and whether the country will have to go back to elections and it is this uncertainty that continued to force traders to only consider short term positions at present, which is making stock prices all the more jumpy.

Tullow Oil was the top gainer in trading today, with shareholders gaining in enthusiasm after the explorer found more oil in it Kenya well, triggering a raft of broker upgrades. Tullow Oil shares rose 3.5% as a result, closely followed by Aviva shares, after a successful shareholder revolt saw its CEO Andrew Moss resign this morning with immediate effect. Aviva shares rallied 3.3% in early trade as a result before falling back to more modest gains of just 0.6%.

HSBC shares gave heavyweight support to the UK Index in early trading however after the bank reported a 25% jump in underlying pretax profits for the first quarter to $6.8bn, which significantly surpassed most expectations of $5.8bn to $6bn. HSBC shares rose 0.9% in the morning session before losses started to escalate on the UK Index, forcing the banks share price lower by 0.5%, yet still outperforming a weaker banking sector that slumped 1.87%.