London's top share index ended down 1.1 percent on Wednesday, hitting its lowest closing level in more than two months, as weakness in banks, oil producers and miners offset minor resistance in some defensives. The FTSE 100 closed down 46.77 points at 4140.23, its third day of losses. The index has gained 20 percent since hitting a six-year low in March, but is still down 6.6 percent for the year.
"We've been looking for direction from America, which we haven't really got not helped by the fall in the price of oil," said Mark Priest, senior equities trader at ETX Capital. "The trend at the moment is definitely in the southerly direction, unfortunately.
Despite IMF talk that the recession is on its way (out), people remain unconvinced." Banks were under pressure on the economic outlook and following plans set out by British finance minister Alistair Darling to strengthen regulation of financial markets to prevent a re-run of the credit crunch. Royal Bank of Scotland, Barclays, HSBC and Lloyds Banking Group fell between 1.9 and 4.5 percent.
Crude futures fell 2.2 percent to below $61 and were headed to their sixth straight negative session, which pressurised shares in the energy sector. Oil and gas producers BP, BG, Royal Dutch Shell, Cairn Energy and Tullow Oil fell between 0.4 and 3 percent. Tullow Oil dropped after saying it expected first-half revenue to fall 23 percent on lower oil prices.
Miners dipped against a backdrop of mixed metal prices and comments from South African Mineral Resources Minister Susan Shabangu who said complete recovery from recession is still a way off. Fresnillo, Vedanta Resources, Lonmin, Xstrata and Anglo American shed between 3.8 and 4.5 percent. In a sea of red, gains were seen in pharmaceuticals as investors bought into sectors perceived as safe bets in an extremely risk averse environment.
GlaxoSmithKline added 1.6 percent. Telecom giant Vodafone gained 0.9 percent after reaching an agreement with Deutsche Telekom that allows the British telecoms group to use the German incumbent's high-speed VDSL network in Germany. The US Federal Reserve is due to issue May consumer credit figures at 1900 GMT. Economists surveyed by Reuters forecast consumer credit falling $9.5 billion versus a $15.68 billion decrease in April.
And the US second-quarter corporate earnings season kicks off as well on Wednesday, with among the first being Alcoa, which is expected to report its third consecutive quarterly loss after markets close, and Pepsi Bottling Group. Leaders from the Group of Eight major industrial nations are expected to warn against complacency over economic recovery at their annual summit in L'Aquila, Italy on Wednesday.
Highlighting the headwinds buffeting the economy, the Halifax house price index showed prices fell 0.5 percent on the month in June to be 15 percent lower in the three months to June compared to a year ago. "I think there is considerable upside in equities on a 6-12 month view, but for that we are going to need profits in the cyclicals to recover, and we need to see valuations in the defensive areas of the market expand," said head of macro and strategy research Darren Winder.
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