The FTSE 100 finished lower yesterday, giving up initial sharp gains on news of a last-minute Cyprus bailout as investors fretted about the deal’s implications for the rest of Europe and for its banking sector.
Cyprus secured the €10bn (£8.5bn) rescue from international lenders overnight, in exchange for shutting down its second-biggest bank. Although, crucially, it stuck to EU guarantees, protecting deposits of less than €100,000, bigger depositors face large losses.
Comments from the head of Eurozone finance ministers that the programme represents a new template for resolving the bloc’s banking problems unsettled markets in afternoon trade.
The remarks hit sentiment across the European banking sector as a whole, including in euro outsider Britain.
Britain’s FTSE 350 banking index closed down 1.1 per cent, giving up earlier gains of as much as 1.7 per cent and extending losses suffered last week in what was its worst weekly showing in 10 months.
“This morning I had covering of short positions, people getting squeezed up, and then it completely reversed,” said Jordan Hiscott, sales trader at Gekko Capital Markets.
The blue chip FTSE 100 index finished off 14.38 points, or 0.2 per cent, to 6,378.38 after a failed attempt to move back towards a five-year high of 6,533.99 points set earlier this month.
In a volatile session, markets were rife with speculation on how Russia, many of whose wealthy citizen held money in Cyprus, could react to the deal. Moscow signalled it would backstop the bailout, despite signs of anger from some.
Realised 10-day volatility index on the FTSE 100 – based on open, high, low and close prices – picked up to its highest since mid-February, and its third highest since November.
Given the heightened volatility and with FTSE 100 investors sitting on gains of 8.1 per cent since the start of 2013, traders said they expected profit taking ahead of a four-day Easter weekend with Thursday the final trading day of the quarter.
Banks, which are up 6.3 per cent this year, were seen as key targets, given the recent concerns about the sector
FTSE’s losses were capped by a rally in Vodafone, the fourth biggest company in the index.
Shares in the telecoms firm added two per cent, boosted by renewed speculation the telecoms company could be working towards a deal to either sell its 45 per cent stake in Verizon Wireless in the United States, or merge itself with the Wireless unit’s co-parent Verizon.