Markets Swing between Gains and Losses as Focus Switches to Greek Election

European stock markets swung between gains and losses in yet more choppy trading on Wednesday as investors kept their eyes on Italian and Spanish bond markets whilst the weekend Greek election started to also sway investor focus.

The FTSE 100 opened to gains of over 35 points only to see early gains quickly reverse and force the UK index back to flat territory by 10am. By early afternoon trading the FTSE 100 had hit a low of 5436 before a late rally helped the UK Index to close higher by 10pts at 5483.

We have seen benchmark Italian and Spanish bond yields rise marginally today and remain at extremely high levels, keeping investors cautious.

A short term 12 month Italian T-Bill auction saw yields hit their highest levels since a similar auction in December last year. Whilst this was a short term auction and thus has not affected sentiment dramatically today, the bigger focus will be on a 3yr debt auction by Italy tomorrow and to see the impact on the average yield sold.

Eurozone industrial production fell less sharply than expected in April, losing 0.8% against expectations of a sharper 1% fall, with March’s 0.3% fall revised to a marginal decline of 0.1%.

On the economic data front, US retail sales slumped in line with expected at -0.2% last month but when excluding auto, sales fell more than expected at -0.4%. Producer Prices also slumped more than expected at -1% against expectations of a 0.6% fall. The sharper decline in both sales and Producer Prices is hoped will help to convince the Federal Reserve to announce more stimulus measures following the culmination of Operation Twist this month.

Equities are proving to be fairly difficult to trade as yesterday’s session on the FTSE 100 testifies. With Spanish 10yr bond yields hitting euro era highs and Fitch downgrading multiple Spanish bank ratings, the FTSE 100 managed to stage a 1% rally from its daily lows into the close, with little triggers providing the steam behind this rally.

Today’s opening gains have already subsided and choppy trading is a testament to short term trading habits. This is understandable given the fact we have a significant election pending this weekend in Greece which could well culminate in whether Greece is forced to leave the single currency or not.

Sainsbury’s shares fell 2% after the supermarket retailer reported a 1.4% rise in like-for-like sales for the quarter which included the four day Jubilee weekend.

The 1.4% rise in sales just missed the majority of forecasts for 1.7%, but before investors cheer this result as yet another outperforming sign when compared to Tesco’s 1.5% decline for the same quarter as Tesco’s results did not include the extended Jubilee weekend in the UK.