Britain's leading share index ended higher on Friday with mining shares helping blue chip stocks the buck chart weakness that is set to overshadow the start of second quarter trade. The FTSE 100 ended up 0.5 percent, or 26.42 points, on the day at 5,768.45 to end the month down 1.8 percent. That ended a three-month winning streak and recorded a quarterly gain of 3.5 percent.
While positive for many investors in that it recouped two-thirds of 2011's loss, the gains are much less than those enjoyed by rival bourses in Germany, France and the United States. "The FTSE has been a bit disappointing. It performed in line with its beta through the rally, but as the rally has cooled it's underperformed a little bit. I think investors have been a little unfair towards it," said Orrin Sharp-Pierson, global equity & derivatives strategist at BNP Paribas.
"It's been an unfortunate laggard due to a bit of risk rotation, with investors preferring the DAX and some of the higher beta recovery names on the continent. On the other hand it does look quite cheap." Among the biggest drags on the index throughout March was the mining sector, but in spite of a still cautious global growth outlook, the beaten-down sector enjoyed a bounce on Friday to add near half the index's total by the close. Heavyweights Rio Tinto, up 2.1 percent, and BHP Billiton, up 1.6 percent, contributed most of the sector's points. Both were cited by Credit Suisse as target picks in a sector note.
BHP currently trades at a level that implies an earnings per share compound annual growth rate of around minus 14 percent over the next five years, Thomson Reuters StarMine data to the Thursday close showed. After a batch of recent patchy data, cyclicals got a boost later in the session from bullish US consumer confidence data.
That, as well as the earlier agreement between eurozone finance leaders to boost the size of the region's bailout fund, helped underpin the market's gains into the afternoon session, as both banks and integrated oils posted solid gains. Defensive sectors led by telecoms were the worst hit throughout the day, although Shire was the biggest faller across all sectors in Britain and Europe after the failure of a clinical study on a new bowel drug. That prompted investors to sell out of the pharma stock throughout the afternoon session and it ended down 4.6 percent in volume more than six times its 90-day daily average.
Technically, the FTSE continues to lose momentum thanks to the downside breakout of the 50-day moving average, Nicolas Suiffet, technical analyst at Trading Central, said. "However, prices are still holding above a short term support area around 5,700/5,720 (October's high and ascending 20-week moving average). Only a break below this area would tarnish the short term outlook."
That lack of direction was also feeding through into the options market, BNP's Sharp-Pierson said, citing falls in both implied and realised volatility, although "the volatility risk premium of the FTSE is lower relative to other indices in Europe". "In terms of market direction, our view is sideways from here or maybe up a little bit, as risk continues to slowly dissipate from the market," he said.
By the close, the FTSE Volatility index, which measures expected swings on the FTSE 100, was down 9.9 percent. "Generally speaking, the infusion of liquidity, despite the rally, will be persistent in lowering volatility this year compared to last year, so I don't think you'll see the same levels of volatility.
"That said, markets never go exactly sideways. Buying short-term FTSE straddles is therefore an attractively priced strategy," he added. A straddle is an options trade where an investor holds a position in both a put and call with the same strike price and expiration date.