Greek relief rally short lived as UK stock gains erase within 70 minutes of trading

The Greek election induced equity relief rally turned out to be extremely short lived today, with opening gains of over 1% reversing completely within 70 minutes of trading, to leave the FTSE 100 in negative territory by 9.30am.Small bounces throughout the session helped the UK Index to close with gains of just 12 points, which was in stark contrast to an opening gain of 76 points.

Most Greek induced rallies have been incredibly short lived and this one has firmly followed suit. The Greek election will inevitably have calmed nerves of an immediate threat to their place in the euro and renegotiation of the bailout terms that a Syriza victory would have dictated. Yet still, perhaps given the polls preceding the vote, the result is not really too much of a surprise. Indeed, what the election has done is revert Greece to the same state of play in which the country found itself a few months ago.

The determination of the leftist Syriza party to not join the collation and stay in opposition is evidence of the fact that they feel there remains an opportunity to grasp power as austerity continues to bite with the pro-bailout coalition retaining the original austerity commitments to the Troika. The low turnout in Greece also keeps an air of instability going forward that should the public antipathy towards austerity escalate, this will only strengthen Syriza’s popularity in opposition.

For now, however, the election has removed a degree of uncertainty regarding Greece and whilst this has triggered the inevitable relief rally, underlying concerns over Spain and Italy have seen investors use today’s higher prices as an opportunity to close positions at higher levels and remove more elements of risk from their portfolios.

The rise in both Italian and Spanish bond yields is testament to the belief that the eurozone crisis has moved far beyond the borders of Greece. Spanish 10-year bond yields rose another 22 basis points to hit 7.141%, whilst Italian equivalent yields rose 13 basis points to 6.05%.

Financial stocks, which helped to lead the early morning rally, have swiftly turned to now lead the downside on the FTSE 100, with RBS and Lloyds shares amongst the top fallers. Both RBS and Lloyds shares fell 3% to 4% as a result, closely followed by Barclays.

Shares in Burberry, however, bucked the trend in London trading, with shares rallying 2.9% higher.

A lack of economic data out of Europe today gave investors little to focus on apart from Spanish and Italian bond yields and post election sentiment from Greece. The start of the G20 meeting in Mexico today has also be a key focus, particularly for any developments on the eurozone front. Recent comments from Angela Merkel that she is unmoved on renegotiating the terms for Greece’s bailout package did little to inspire traders in the afternoon session.

Later in the week we will see the release of the minutes from the previous Bank of England policy meeting, alongside fresh UK unemployment data. Tomorrows German ZEW reading will also be an important element to watch.