LONDON MARKET COMMENT: Greece Saga Continues To Subdue Stocks

LONDON (Alliance News) - London stock indices closed flat to slightly higher Thursday as Greece's financial troubles continue to weigh on investor sentiment, with the European Central Bank warning of contagion risks if a deal cannot be reached between Greece and its creditors.

The ECB said further delay in reaching an agreement could raise the yield on debt of other countries.

"Sovereign risks emanating from Greece, in particular, have increased sharply owing to heightened political uncertainty over the past six months, while the banking sector in Greece has witnessed substantial deposit outflows, a loss of access to the wholesale funding market and deteriorating asset quality," the ECB said in its bi-annual Financial Stability Review.

"Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialize," the report states.

There also were Thursday a number of contrasting comments from Greece and its creditors regarding how close a deal actually is. Athens said it expects to clinch a debt deal by Sunday, but the International Monetary Fund joined Germany and the European Commission in ruling out an early end to the tortuous negotiations with Greece.

Greek government spokesman Gabriel Sakellaridis said the conditions were "ripe" for a deal, whereby cash-strapped Greece would receive the final EUR7.2 billion payment under its bailout plan in exchange for introducing a tough round of economic reforms. However, IMF chief Christine Lagarde said that while things have moved, "there is still a lot of work to do".

The FTSE 100 ended 0.1% higher at 7,040.92, the FTSE 250 ended flat at 18,237.00, and the AIM All-Share ended up 0.6% at 770.26.

European stock markets, which have more exposure to Greece, fared worse than London, with the French CAC 40 index ending down 0.9% and the German DAX 30 down 0.8%.

US indices also were lower at the London close. The DJIA and S&P 500 indices both were down 0.3% and the Nasdaq Composite down 0.2%.

The pound took a hit against its main trading partners after first quarter GDP in the UK was reported slightly below expectations. The second estimate of UK GDP in the first quarter of 2015 showed growth at a slower pace than the quarter just prior, unrevised from the first estimate, according to the Office for National Statistics. The report showed that the UK gross domestic product expanded 0.3% in the first quarter, which was weaker than the 0.6% seen the quarter before. This was the slowest growth since the fourth quarter of 2012. Economists had expected a 0.4% rise.

At the close of UK equities trading, the pound was quoted at USD1.5280 and the euro at EUR1.4004.

Oil prices fell to their lowest in over a month. Brent oil hit a low of USD61.27 a barrel, while West Texas Intermediate hit a low of USD56.49.

Sports Direct International closed as the best performer in the FTSE 100, up 4.2%, as it said it expects underlying earnings before interest, taxation, depreciation and amortisation for the financial year to April 26 to be in line with market expectations, while both underlying pretax profit and earnings per share are set to be ahead.

Kingfisher also performed strongly throughout the day, closing up 3.2%. The DIY retailer reported a drop in total revenue in the first quarter of its financial year as it was hit by adverse currency movements, but said it is making good progress with its turnaround plans following Veronique Laury's appointment as the company's new chief executive.

The retailer reported total sales of GBP2.59 billion for the 13 weeks to May 2, which is a 4.6% decline on the same period the year before, but would have been an increase of 2.7% had exchange rates remained constant. The group's performance was boosted by a strong performance in the UK and Ireland where total sales grew 2.9%.

Sky shares ended down 1.1% after The Daily Telegraph reported the broadcaster is understood to have walked away from talks to create a joint venture with Italian broadcaster Mediaset, the company founded by the country's former prime minister, Silvio Berlusconi. City sources told the newspaper the talks had broken down over the valuation of Mediaset Premium, Mediaset's pay-TV rival to Sky's Italian business. The two sides had been in talks over a combination of Mediaset Premium with Sky Italia.

PayPoint closed as the best FTSE 250 performer, up 8.2%. The payments services company reported higher pretax profit in its last financial year, driven by growth in its retail networks, and hiked its dividend on the back of the results. It said it made a GBP49.6 million pretax profit in the year ended March 31, compared with GBP46.0 million in the prior year. Revenue increased by 3.0% to GBP218.5 million due to growth across its retail networks, with margins improving.

AIM-listed Marimedia shares closed down 42% after it said it anticipates its 2015 results will be materially below market expectations owing to a decision by the company to exit the display advertising sector and focus solely on mobile.

In a full economic calendar Friday, there are Japanese consumer prices and unemployment figures at 0050 BST and eurozone money supply at 0900 BST. The market's focus will then turn to US first quarter GDP reading at 1330 BST before the Reuters/Michigan Consumer Sentiment Index at 1500 BST.

In a quiet UK corporate calendar, there are full-year results from Standard Life European Private Equity Trust and Premier Veterinary Group.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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