FTSE corrects as Greek deal struck
BRITAIN’S top share index edged lower yesterday, with investors taking profit on banks and cyclicals after Greece secured a long-awaited bailout deal that averted the immediate risk of a messy default but offered no long-term panacea.
London’s blue chip index closed down 17.05 points, or 0.3 per cent at 5,928.20, retreating from a seven-month closing high it reached on Monday on expectations for the Greek deal and posting its biggest daily drop in seven sessions.
Having risen 6.5 per cent this year, bolstered by liquidity injections from global central banks and improved risk appetite, the FTSE is approaching overbought territory on the relative strength indicator (RSI).
“If we go down two per cent from here, that will be a good healthy correction. We are not going to go back to unchanged on the year – there is too much money about, all that QE (quantitative easing) liquidity,” said Justin Haque, pan-European equity sales trader at Hobart Capital Markets.
Low turnover underlined investors’ cautious mood, with volumes on the FTSE 100 coming in at 93 per cent of the 90-day average.
Eurozone policymakers agreed a €130bn (£109bn) rescue for Athens, enabling it to meet bond payments due in March. With the widely expected deal done, investors switched their focus to the remaining doubts about Greece’s ability to recover and avoid a default in the longer term, as well as risks of contagion to other countries.
“It [the Greek deal] does not change my view at all,” said Francesco Curto, CROCI strategist at Deutsche Bank.
“We all know that it is not going to take three months or six months to solve Greece, but ultimately it seems that within Europe you are managing to confine the problem.”
Curto favours a defensive value strategy, focusing on companies with low price-earnings ratios, which also offer relatively high cash returns, low financial leverage and low volatility, like pay-TV group BSkyB, drugmaker Shire and oil major Royal Dutch Shell. Shell was one of the few FTSE gainers, up 0.8 per cent, as high oil and metal prices boosted energy and miners.