European markets finish lower despite afternoon rally in quiet session

Joshua Raymond, Market Strategist at City Index commented: "European markets recovered earlier losses of 1% to finish the day minimally lower after a positive opening in the US helped to lift European equities.

Investors started the day firmly in consolidation mode, looking to cash in their profits after strong equity gains last week. However, we started to see investors move quickly to use this morning's equity losses as a buying opportunity and this ensured that Index losses were limited.

Banks weak on bonus tax

The Banks have been weak all day with investors selling out of their holdings in Royal Bank of Scotland and Lloyds as a precaution to Wednesday's pre budget report where Alistair Darling may announce a windfall tax on banker's bonuses. The fear is that this may scare away the talent that is needed to help UK banks return to the types of profitability seen 2 years ago.

The miners rebound

The miners have been the turn around story of the day. Despite the sector starting the day 1% lower, we immediately saw investors looking to bargain hunt helping the miners to finish the day in the black. Weaker metal prices and a sell off of Gold did help however to ensure that any gains in the miners were minimal.

Lack of equity direction?

There is a vacuum of macro economic data due out in Europe and the US over the next few days and so there may be a lack of drivers to the market until Alistair Darlings pre budget report on Wednesday.

The speed at which the FTSE 100 recovered from its early losses and the fact that investors remain willing to use any equity losses as a buying opportunity is a positive to the market and this will need to continue for equities to push on.

However, with equities still over 50% higher from early March, it is looking increasingly likely that we may just be in a sideways month with investors happy to sit on their years profits.

Treasury moves to tax banker bonuses

UK banks have been in focus today after reports that the Treasury are considering a windfall tax on banker's bonuses. Clearly there is a strong election motive behind this move but there may also be significant underlying impacts on the City.

If UK banks are handicapped in terms of the talent they are able to attract and also keep, they will be at a severe disadvantage to their European and US competitors and this could put a bump in the recovery road for the UK economy.

This is why there is a slight apprehension in the City today and why the pre-budget report will be viewed with a keen eye by the UK banks."

For more information, visit cityindex.co.uk.