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Investors trim bets as doubts over Greece resurface

13/04/2010 14:42
A mildly disappointing start to the US first-quarter earnings season and a more cautious assessment of the bail-out for Greece provided the excuse for investors to pare back risky bets on Tuesday.

The FTSE All-World equity index dropped 0.2 per cent from cyclical highs, commodities saw selling and the euro stabilised as some traders argued that details of the €30bn ($41bn, £26.6bn) aid package for Athens were – yet again – vague, and did not solve the fundamental budget problems facing heavily indebted nations.

Toronto exchanges in drive to attract Chinese investors - Apr-12“Reaction to the Greek bail-out package can only be described as lukewarm,” said strategists at Royal Bank of Scotland in a note.

“The market still has some doubt over Greece’s ability to turn its fiscal position around and some investors view the bail-out as only kicking the can down the road.”

In addition, investors were wary that equities, in particular, were looking overstretched in some major markets – the S&P 500 has risen six weeks in a row to recent 18-month highs – and looked vulnerable to any earnings anti-climax.

US equity futures suggest the S&P 500 will open lower by 0.3 per cent after Alcoa, the traditional vanguard of the the reporting season, missed analysts’ sales estimates when the aluminium group reported after the market close on Monday.

Nervous bulls will be aware that the previous reporting season in January was greeted by a pull-back for stocks as profit-taking held sway. Chip bellwether Intel will present itself after the bell on Tuesday.

● Greek bonds remained near the levels of the previous session after a €1.6bn auction of six-month and 1-year bills saw strong demand. The auction’s outcome was as expected, given the backstop provided by the eurozone.

The sharp drop in yields seen as the market digested news of the EU/IMF back-stop on Monday has, however, left the funding costs of Athens at stubbornly high levels. The 10-year yield on Tuesday rose 1 basis point to 6.66 per cent, leaving the spread with Bunds – the premium Greece must pay to raise money – at a still-elevated 353 basis points. Two-year Greek yields fell 46 basis points to 5.85 per cent and the cost of insuring Greece debt against default fell 1 per cent.

The yield on US 10-year bonds were stable, having retreated from the 4 per cent level breached last week as investors found the payout attractive relative to supposedly over-stretched stock markets. The benchmark yield was 3.84 per cent.

● Asian and European bourses took their lead from the softer US futures. The FTSE Eurofirst 300 fell 0.2 per cent and the FTSE 100 in London lost 0.3 per cent, with miners causing most of the damage. Athens fell 1.5 per cent.

The FTSE Asia-Pacific index dropped 0.6 per cent, led lower by Tokyo, where the Nikkei 225 lost 0.8 per cent as higher risk aversion boosted the yen and hurt exporting stocks. Shanghai came back from an early fall to advance 1 per cent, with technical issues seeing heavyweight stocks bought ahead of the introduction of index futures on Friday, according to Reuters. Hong Kong dropped 0.2 per cent, while softer commodity prices hurt Sydney, which fell 0.7 per cent.

● The euro struggled to make further headway after its bounce over the past two trading sessions. The single currency rose just 0.1 per cent to $1.3598 as traders took a more cynical view of the likely effectiveness of the Greek aid in drawing a line under the eurozone’s fiscal woes.

The yen initially made a broad advance as it benefited from perceived haven flows. The Japanese currency climbed 0.5 per cent versus the dollar to Y92.73 and rose 0.3 per cent against the euro to Y126.15. However, those gains were pared somewhat after a group of politicians from Japan’s ruling party said they wanted to see the yen at Y120 to the dollar.

The dollar index, which measures the buck against a basket of its peers, fell fractionally to 80.47.

● Gold lost ground, continuing a reversal that began late on Monday. The bullion had pushed to a four-month high of $1,169 an ounce early in the previous session, but an unexplained relapse has left it down another 0.2 per cent on Tuesday at $1,153.

Most industrial commodities were softer, reflecting the general caution. Oil lost 0.5 per cent to $83.92 per barrel, though copper appeared still to be buoyed by strong Chinese import figures and managed to rise 0.5 per cent to $7,889 a tonne.

Meanwhile, there were signs of shortages building in agricultural commodities after China sold nearly 80 per cent of its 1m tonnes of reserves in an attempt to damp market prices.

“China can only pull this trick once, and in the context of grains and now resurgent sugar prices being the only items keeping the CRB [the benchmark commodities index] from soaring in Q1, we would gain highlight the underlying swell of inflationary pressures,” said Marc Ostwald at Monument Securities in London.