Greek confusion sends stocks and the euro lower

Yet more confusion surrounding Greece sent both stocks and the euro lower in trading as investors downsized the amount of risky assets they hold in their portfolios.

The FTSE 100 and CAC 40 both fell 0.7%, whilst the DAX lost 1.3% as all benchmark EU Indices lost ground weighed down by weakness in financial and mining stocks.

Investors don’t know what to believe
We are getting to the point now whereby investors are starting to lose trust in much of what is said from EU officials in Europe. The disparity of views and rhetoric out of Greece, Germany and broader Europe are in direct contradictions to each other and this is making the situation so much harder to read for investors. No sooner had the Greek Finance Minister Evangelos Venizelos said that Greece had found solutions to plug a €325m hold in budget cuts mandated to the indebted country by the eurozone, did Germany’s own finance minister report that Greece had questions still to be answered.

There are clearly deep reservations amongst European leaders as to whether Greece can still implement its agreed austerity plans after the April election, with a new government in power. This reservation echoes a sincere lack of trust between the two parties and this is threatening to derail the Greek bailout, with rumours now suggesting it could be delayed until after the election.

A solution to this could be greater fiscal control over Greek finances by the eurozone, but with an election pending in the next few months, agreement to this is likely to trigger yet more public anguish on the streets of Athens and significantly weaken any political power in Greece by the coalition. As such, there remain doubts as to whether Greece can stomach such a solution.

This uncertainty is what has weighed on risky stock sectors in Europe today and encouraged investors to diversify their risk by selling out of heavyweight financial and mining stocks, and seeking defensive sectors such as tobacco or utility firms, as well as the US dollar.

Adding to the concern was a move by ratings agency Moody’s last night to place 114 European banks on review for a downgrade as the eurozone crisis intensifies through a lack of co-ordinated solutions and as Greece edges closer to its vital March 20 redemptions.

FTSE VIX rises
A notable 7% rise in the FTSE Volatility Index today, a key gauge of market pessimism or fear, is telling also, and if we start to see the VIX rally further, this could see a wider stock market correction looming.

Associated British Foods was the top stock gainer in London’s big cap trade, with its shares rising 1%, whilst on the downside was shares of BAE Systems, falling 3% after the firm saw a 7% fall in full year profit. Revenues fell at the defence company by 14% to £19.15bn as US defence budget cuts weighed.

We have some significant data out of the US later this afternoon in the shape of PPI, weekly jobless claims and the Philadelphia Fed business survey. Investor reaction to these elements is likely to play a role in how European stock markets close on the day.