Indices fall 2 on continued Greece contagion fears

European investors started the new quarter on much the same fashion as the previous, on the back foot, selling out of stocks and risky asset classes on fears of a contagion of Greek debt.

The news over the weekend that Greece’s draft budgetary figures showed that the indebted country will miss the deficit targets of 7.6% that was contingent on EU liquidity support has cemented existing concerns that the disposal of the next tranche of bailout funds to Greece remains far from certain. With the Troika talks with Greece set to conclude today, after multiple visits to country’s General Accounting Office, investors remain on edge and are unwilling to build up risk in their stock portfolios with so much uncertainty remaining in Europe.

Banking stocks have taken the brunt of today’s selling, with those banks highly exposed to Greek debt particularly weak in early trading. French banks Societe Generale and BNP Paribas fell 6% whilst falls of 4% were seen in Barclays and RBS. Barclays was the worst performing equity in London trade, falling 6.7%, closely tracked by Burberry, whose share price woes continue.

Mining shares lost around 3% – 4% in early trading also as investors reduced exposures in risky asset classes whilst prices also tracked weaker copper prices, which fell over 3%. Crude oil prices fell 2% also, weighing on oil firms BP and Royal Dutch Shell.

Talks later in the day between European officials where they will discuss the potential to leverage the EFSF will also take a keen market focus. Germany’s finance minister Evangelos Venizelos stated over the weekend that Germany’s contribution will remain at €211 billion, along with ECB member Noyer stating that it is unrealistic to expect an increase in the size of the EFSF, although a leveraged top up is potentially on the table. There is a wide consensus that the existing size of the EFSF at €440 billion lacks the power to prevent a deep contagion of sovereign debt, and so if they can agree to leverage the pool of funds and increase is size five-fold, this could help to ease some sentiment in the near term, depending on any contingencies that may come with it.

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