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FTSE 100 drops after Greek coalition talks fail

May 15 2012, 2:49pm FTSE 100 drops after Greek coalition talks fail

 

UK stocks slid in the afternoon after posting small gains in morning trade following the failure of the last round of coalition talks in Greece. The FTSE 100 closed at 5,437, down 28 points (0.5 percent) from Monday’s close.

Earlier in the session, demand for equities in Europe was lifted by today’s better than expected euro zone GDP figures. The report revealed that the monetary union avoided a recession as its economy stagnated in the first three months of this year following a 0.3 percent contraction in the final quarter of 2011.

Expectations were for a decline of 0.2 percent.

However, the data was taken with a grain of salt as it also showed a stark difference between the German economy, which surprisingly rose 0.5 percent from the previous quarter and 1.2 percent year on year, and the rest of Europe.

The euro zone’s third largest economy Italy contracted 1.3 percent from a year earlier, the fourth largest economy Spain saw its GDP drop 0.4 percent and the Greek economy shrank 6.2 percent.

Meanwhile, the Netherlands, currently the euro zone’s fifth largest economy, saw its GDP contract for the third quarter in a row.

“We know that some large German companies like BMW had their best ever quarter in the first three months of the year, thus there were signs that Germany could do better than expected,” said analyst at forex.com Kathleen Brooks.

“But what is surprising is that even though Italy contracted more than expected at 0.8pct (quarter on quarter) in the first quarter, the euro zone managed to avoid a recession and registered flat growth overall between January and March.”

Speaking of Greece, the country is set to hold new elections after a desperate attempt to form a government failed. The latest coalition talks between five parties that were organised by president Karolos Papoulias failed today, which means there will be no end to the Greek political turmoil for at least another month.

It has been reported that the anti-bailout Coalition of the Radical Left has gained support over the past week and could win a new election, which could put Greece’s membership in the euro zone in jeopardy.

The impact of the Greek uncertainty was reflected in today’s German business confidence index for May from the ZEW institute. The gauge dropped to 10.8 this month from 23.4 in April.

ZEW economist Michael Schroeder linked the bigger than expected drop in confidence to the political uncertainty in Greece.

“For the time being we do not know what Greek politicians will do, when we will see a new Greek government, what will happen with the consolidation process...all the agreements in Europe made during the last half year, are now at stake,” said Schroeder, according to Reuters.

Security services group G4S (LON:GFS, up 3.1pct at 275.2p) topped the FTSE 100 leaderboard after reporting a 7.5 percent surge in first quarter revenues, followed by cruise operator Carnival (LON:CCL, up 2.8pct at 2,022p) and Tullow Oil (LON:TLW, up 1.7pct at 1,416p).

Investors also bought Russian steelmaker Evraz (LON:EVR, up 1.5pct at 328.5p) and telecom group BT (LON:BT.A, up 1.4pct at 207.7p).

Miners were headed in different directions as while Anglo American (LON:AAL, up 1pct at 2,140.5p) made the leaderboard, Vedanta Resources (LON:VED, down 2.9pct at 1,022p) was among the heaviest fallers in the top flight.

Meanwhile, British Airways owner IAG (LON:IAG, down 4pct at 153.1 pence) slid to the bottom of the FTSE 100 pile after JP Morgan reduced its rating to ‘neutral’ from ‘overweight’ on valuation grounds.

Financial stocks including asset management firm Schroders (LON:SDR, down 1.4pct at 1,261p) and banking group Barclays (LON:BARC, down 1.5pct at 187p) also were in decline today. 

 

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