15th Jun 2015 06:34
LONDON (Alliance News) - Stocks in London are set to open significantly lower Monday, with the FTSE 100 adding to the losses posted on Friday, as talks between Greece and its international creditors broke down over the weekend.
OANDA expects the FTSE 100 to open down 21 points at around 6,764 points, having closed down 0.9% at 6,784.92 on Friday, while CMC Markets and IG both call the blue-chip index to open even lower, at around 6,743 points.
European Commission President Jean-Claude Juncker broke off high-level bailout talks with Greek officials on Sunday, after weekend negotiations failed to deliver progress on "significant gaps" in reform plans for the cash-strapped country.
Greece has now been negotiating with its creditors - the European Commission, the European Central Bank and the International Monetary Fund - for months over the reforms needed to access EUR7.2 billion in bailout aid. However, with the European part of Greece's bailout due to expire at the end of June, time is now running out.
"We have always argued that a Greek deal would only occur at one minute to midnight; yet it now looks like 23:58 and counting," says Rabobank analyst Michael Every.
Greek politician Nikos Pappas met with Juncker's personal representative at the weekend, as well as members of the ECB and the IMF, in what the commission described as a last attempt to broker a deal before European markets open on Monday.
"While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of Commission, European Central Bank and International Monetary Fund," a Commission spokesperson said.
The gap between measures proposed by Greece and the demands of its creditors amounts to around 0.5%-1% of gross domestic product, or up to EUR2 billion annually in permanent fiscal measures, the spokesperson said in a statement, adding that Athens' proposals remain "incomplete".
Further talks are to take place at a meeting of eurozone finance ministers on Thursday.
"The fact is, unless some significant concessions are made on either side, a default is now more or less inevitable, and even if a plan were agreed that was agreeable to the creditors, it is unlikely that the Greek government would be able to get it through their parliament," says Michael Hewson, chief market analyst at CMC Markets.
"It can therefore only be a matter of time before capital controls are introduced, particularly given that the Greek Prime Minister Alexis Tsipras has more or less indicated that he won?t make a deal without debt relief, something that the Greeks do see eye to eye with the IMF on," Hewson adds.
The negative UK open is expected after stocks in the US closed broadly lower on Friday, with the DJIA, NASDAQ Composite and S&P 500 all closing down between 0.6% and 0.8%. In Asia, ahead of the UK equity market open, the Nikkei in Tokyo is marginally lower, while the Hang Seng and Shanghai Composite index are down 1.3% and 0.8%, respectively.
Late last week, Standard & Poor's Ratings Services downgraded its outlook for UK sovereign debt to negative from stable due to the government's decision to hold a referendum on membership in the European Union by 2017.
"We believe that the UK government's decision to hold a referendum on EU membership by 2017 indicates that economic policymaking could be at risk of being more exposed to party politics than we had previously anticipated, similar to the situation in the US when we lowered that sovereign rating in 2011," S&P said.
"A possible UK departure from the EU also raises questions about the financing of the economy's large twin deficits and high short-term external debt," the ratings agency added.
At the same time as downgrading its outlook on the UK, S&P affirmed its AAA/A-1+ long- and short-term sovereign credit ratings.
"The negative outlook reflects our opinion that there is at least a one-in-three probability of a downgrade over the next two years," S&P said. "In our opinion, the process of holding a referendum on the UK's membership of the EU is evidence of increasing risks to the effectiveness, stability, and predictability of the UK's policy-making. This in turn could negatively affect sustainable public finances, balanced economic growth, and the response to economic or political shocks," it added.
In UK data released overnight, property tracking website Rightmove reported that the average asking price for a house in the UK jumped 3.0% month-on-month in June, coming in at GBP294,351. Prices had fallen 0.1% in May.
On a yearly basis, prices rose 4.5% in June after gaining 2.5% in the previous month.
Still to come in the data calendar Monday, Italian consumer price inflation data for May are scheduled to be released at 0900 BST, with eurozone trade data for may expected shortly after at 1000 BST.
In the US, the New York Empire State manufacturing index for June is released at 1330 BST, with US industrial production and capacity utilization data for May expected at 1415 BST. The National Association of Home Builders releases its housing market index for June at 1500 BST.
In the forex market, ahead of the data and the UK equity market open, the pound trades at USD1.5533, EUR1.3867, JPY191.780 and CHF1.4498. The euro trades at USD1.1204.
On top of the economic data, investors also will be keeping a close eye on central bankers who are due to speak Monday. Deutsche Bundesbank President Jens Weidmann is scheduled to give a speech at 0800 BST, with European Central Bank President Mario Draghi expected to speak to the European Parliament in Brussels at 1430 BST.
"Draghi is likely to be pressed on the ECBs bond buying program, its effectiveness and lifespan as well as its ELA [emergency liquidity assistance] program and possibly at what point it will stop supporting Greek banks," says Craig Erlam, senior market analyst at OANDA. "This could make for interesting hearing given the volatility in bond markets recently driven by rising inflation and the impact on interest rate expectations."
In corporate news, FTSE 250-listed Vedanta Resources on Sunday said it is merging two important Indian subsidiaries as it looks to simplify its structure. The move results in the combination of Vedanta Ltd and Cairn India.
Minority shareholders in Cairn India will receive one equity share in Vedanta Ltd, as well as one redeemable preference share in Vedanta Ltd with a face value of INR10, implying a premium of 7.3% to the previous closing price.
Also in the FTSE 250, NMC Health has announced the acquisition of ProVita International Medical Center LLC, which is describes as the "leading provider" of long-term medical care in United Arab Emirates, for USD160.6 million in cash.
AIM-listed Majestic Wine, meanwhile, reported that its pretax profit for the 52 weeks to end-March fell to GBP18.4 million from the GBP23.8 million posted in the year before, even though revenue increased 2.3% to GBP284.5 million from GBP278.2 million. Chief Executive Rowan Gormley said that required investments will suppress the company's profit in the short term.
By James Kemp; [email protected]; @jamespkemp
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Vedanta ResourcesNMC.LMJW.L