UK bank shares lead half hearted relief rally

The emergence of a deal between Eurozone leaders and Greece has encouraged yield-hungry investors back into European stock markets, though once again the moves are more moderate than one might expect without a considered look.

The Eurozone’s broad FTSEurofirst 300 index traded as firmly as 2% higher early in the session before slipping back almost half a percentage point as the reality set in that the unprecedented terms of the agreement to remit an additional €86bn to Greece would still need to be passed in double-quick time by Athens’ Parliament.

PM Tsipras will face questions about the incendiary issue of perceived transference of sovereignty, when he meets Greek lawmakers during debates that are supposed to be concluded no later than Wednesday night—and EUR traders on Monday sold virtually all the single currency’s hard-won ascent from Friday in deference to that.

Still, the ‘yield’ story can only be taken so far, whilst major European indices remain below multi-year April highs.

That tardiness is arguably a function of the source of much of day’s stock market gains—the banking sector.

With the Europe-based banks on the hook, directly or indirectly for much of the €38.7bn in Greek government bonds owed to so-called ‘private investors’, we can expect their shares to be require a much longer run-up to hurdle highs touched in April, judging by the Euro Stoxx Bank Index, even after its 12% advance in the last our sessions.

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Similarly, the UK-based FTSE 100 benchmark on Monday managed to close a gap that opened in its daily closing levels a fortnight ago, when Greece called a referendum on a set of almost identical proposals as the one its PM capitulated to late on Sunday.

But UK banks were almost the only blue-chip sector to rally today.

Almost all of Britain’s largest banks—RBS, Barclays, Lloyds and HSBC—are slated to release results in the next 30 days, and caution ahead of these is one of the factors that capped investor enthusiasm.

The largest UK-listed miners, a bigger weight on the FTSE 100 than its banks, were also troubled with pressures elsewhere, with BHP Billiton, and Rio Tinto and Glencore managing to contribute gains of just 0.5%-1.5% by the afternoon.

All in all, the FTSE 100’s ‘relief rally’ rally was quite a considered one, with the most liquid tradable index based on the benchmark able to mend the join to the levels from which it tumbled on Sunday 26th June, but not emphatically.

The fact that the divide coincided with one of the more powerful retracement levels watched by traders increases the stakes further, as it would not be an enormous surprise if further advances were to pause in the medium term, especially with both MACD moving averages pointing lower and below the zero line.