London View - Afternoon

Equities in Europe flipped between small gains and losses

Equities in Europe flipped between small gains and losses but staged a slight recovery on the whole amid some easing tensions in Ukraine.

President Putin said his government will work with the next president of Ukraine, even though the election won't meet international standards. In constructive comments, Putin said he will respect the Ukrainian public’s decision no matter the result. This is the first time Putin has attempted to forge better relations and friendly stance on the situation – a sign that Russia is finally de-escalating the crisis to some degree, though Western policymakers will undoubtedly remain suspicious.

Staying on the geopolitical front, the global investor community is now sharply focusing on Thailand following this week’s military coup. Schools have been shut and television networks closed; Thailand’s military seized control following a six-month political stalemate that has sapped economic growth. The situation is still liquid so will remain a concern for market participants until we see signs of stability.

Over in the US, a better than forecast existing US home sales in April has done little to boost stock markets, which are sitting at near record highs, prompting many in the market to pause for breath. Closer to home in Europe, stocks slipped earlier but have since recovered – that said, today’s recovery has been timid and vulnerable to say the least.

Nerves ahead of Sunday’s Europeans parliamentary elections in which people in the region have casted votes in polls could see a dramatic change in the EU. Much has changed since the last elections in 2009, notably the debt crisis which threatened to send the EU back to the stone-age.

That in turn led to the growth of euro-sceptic parties who are looking to break down the power and influence of the EU. In the UK, right-wing anti-euro party UKIP have outperformed most expectations in local elections and are likely to gain more influence via the EU elections.

As such, the euro fell to $1.3627 against the USD. European bond markets were seeing action too, with Spanish and Italian bonds gaining on the back of increased expectations of an ECB stimulus package in June. The yield on 10-year Spanish bonds dropped seven basis points to 2.98% and Italy’s 10-year yield fell eight basis points to 3.15%.

Earlier, Standard & Poor’s raised Spain’s rating one level to BBB, endorsing the improvement in the euro zone peripheral nation that only this time last year was contracting at a dramatic rate. Next week, public holidays in US and the UK will see markets in those countries shut, but it will be business as usual for European and Asian markets.