Indices start lower as eyes remain fixed on Greece

Stock indices started the trading day lower on Tuesday, with investors continuing to take some elements of risk off the table whilst the majority of investors treaded water and waited for developments in Greece, where the indebted nation is still to formally agree tough austerity measures as part of its new bailout terms.

The Greece situation continues to be watched carefully by investors, though the fact that we have not seen a large correction in stock prices thus far indicates that they remain confident that despite the wrangling and delays, an agreement will arise. Nevertheless, with investors sitting on some decent gains of late, the Greek uncertainty and impending Bank of England decision due out on Thursday, which is expected to see more quantitative easing announced, investors have been sitting on their hands somewhat.

Greek leaders are set to meet again today to discuss the austerity plans dictated by the Troika as part of the new bailout terms. An agreement needs to be in place by February 15 in order for the legal side of the agreement to be in place and to give enough time to allow the main contributors to the bailout to seek approval, in order to give Greece the funds it needs to pay off its March 20 redemptions, or a default will occur. That said, the goalposts on deadlines have continued to move over the last 12 months and so as such, how much attention investors will pay to the February 15 deadline remains to be seen.

Xstrata shareholders disappointed with Glencore premium
Miners have been the key drag on European stock indices thus far, with the sector weighed down by a 0.7% fall in copper prices and as the finer details of the Xstrata/Glencore merger were made clear to shareholders of both firms, leaving some Xstrata shareholders somewhat disappointed.

Glencore agreed to buy the remaining 66% of shares it does not currently hold for $41bn to form a ‘merger of equals’ company valued at $90bn. As part of the deal, Glencore will issue 2.8 new shares for each Xstrata share in the deal with a 15.2% premium to Xstrata shareholders, compared to Xstrata’s shares price before the merger talks was announced. The premium is said to be seen unfavourably by some of Xstrata’s significant shareholders, including Standard Life Investment, who said it ‘clearly undervalues’ the company’s assets and future earnings potential. Some shareholders may have been hoping for a premium of the 20% level.

It remains to be seen whether the tone of voice struck by Standard Life Investments is echoed throughout the remaining significant Xstrata shareholders. Certainly even if a sweetener is not seen in the premium offered, it may be seen in the structuring of the new company, in which Xstrata will maintain a significant oversight at boardroom level.