London: European equities edged lower on Tuesday ahead of a crucial vote on unpopular austerity measures by Greece’s parliament linked to more aid, while a slump in Cable & Wireless Worldwide led telecom shares down.
The market got some support in early trade on France’s agreement with its banks to roll over some Greek debt and talk that officials were working on a contingency plan for Greece if its parliament rejected the austerity plan, but nervousness soon returned.
Sentiment remained fragile and there were concerns that even if parliament voted in favour of the move, Greece would not find it easy to implement the austerity measures.
The Euro STOXX 50 volatility index , one of Europe’s main barometers of sentiment, was up 0.9%, indicating a drop in risk appetite. The index has jumped nearly 50% in the past two months, signalling investor jitters.
At 3:16pm, the FTSEurofirst 300 index of top European shares was down 0.1% at 1,074.29 points after rising as much as 1,082.25 earlier in the session.
However, Greek banks rose 3.2% and Greek shares rose 1.9% on hopes that the outcome of the vote would be positive. The Thomson Reuters Peripheral Eurozone Banks index fell 0.1%.
“Tomorrow is going to be a decisive day. If they approve the austerity measures, then we have a chance that the market could stabilise,” said Klaus Wiener, chief economist at Generali Investments, which manages 330 billion euros ($468 billion).
“If not, we will have a turmoil. The core yields will fall even more, peripheral spreads will widen even more and equities will lose ground.”
Greek unions promised to fill the streets of central Athens on Tuesday at the start of a two-day strike to protest painful austerity measures. Greece’s parliament will vote this week on a package of spending cuts, tax increases and privatisations agreed as part of a massive bailout aimed at averting the euro zone’s first default.
The cost of insuring Greek debt against default and short-dated government bond yields rose as investors remained tense ahead of the vote.
“One could say that equities have not corrected enough compared to the CDS levels on the PIGS (Portugal, Ireland, Greece and Spain). However, we must not forget that Greece, Portugal and Ireland are only 6% of the zone’s economy,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
“The 800-pound gorilla, Germany, is still firing on all cylinders. I do not think there is too much of a disconnect between the bond markets, CDSs and equities.”
The Euro STOXX 50 , the euro zone’s blue chip index, was flat at 2,724.46 points. Technical analysts said there was a big resistance area at 2,791-2,800, which could be difficult to clear, as the former support line had became resistance.
“The price has rebounded during the last two sessions, however, is still holding below the neckline of the head and shoulders top, indicating quite significant risks of a new sell-off,” said Dmytro Bondar, technical analyst at RBS.
“Even if the index does break higher, the price will also face resistance at 2,822.”
Among gainers, European mining shares rose 0.2%, tracking a rise in key base metals prices. Anglo American was up 1.5%.
Among individual movers, Cable & Wireless Worldwide fell 16% after the corporate telecoms group issued a profit warning just 10 weeks into its new financial year because of slump in orders. Telecom shares fell 1%.