Britain's top share index fell to a fresh two-month low on Thursday, as news that the eurozone had fallen back into recession provided an impetus to break out of recent ranges. The UK bluechip index was down 44.26 points, or 0.8 percent, at 5,677.75 at the close, finishing below 5,700 for the first time in two months and marking an end to range-bound trading that had persisted since early September.
"Yesterday it closed below the 200-day moving average... and now we're closing below 5,700, both of which suggest that the uptrend off the low in June is over," Phil Roberts, technical analyst at Barclays, said, adding he was looking for support at September's low of 5,634.
"It is a very worrying development. My inclination is that the trend is over; it's just what follows next, whether it's range or downtrend," he added, saying that the failure to get back above 5,800 would suggest a downtrend had set in. The euro zone slipped back into recession between July and September, contracting 0.1 percent on top of a 0.2 percent drop in the second quarter, despite French and German growth proving resilient.
"For every little bit of good news you get, it's largely small, or mixed and counterbalanced with some bad," said Robert Quinn, Chief European Equity Strategist at Standard & Poor's Capital IQ, citing the euro zone data. "It becomes a game of confidence," Quinn said. Thomson Reuters data showed a broad-based sell-off, with every sector falling. Energy took 8.5 points off the index, with sentiment hit by growth concerns in Europe and worries over the United States' ability to avoid a 'fiscal cliff' of spending cuts and tax hikes, which could jeopardise growth.
However, sectors resilient to the economic cycle also fell, with consumer non-cyclicals taking 9 points off the index, despite generally being regarded as a defensive play when the growth outlook falls. Pennon was the biggest faller on the index, losing 6.2 percent after it said first-half profit before tax and joint ventures at Viridor would fall 30.5 percent to 27.8 million pounds. Pennon traded over six times its average 90-day volume.
Wood Group also fell in heavy volume, losing 5.9 percent in trading of over five times the average 90-day volume. Traders said the failure of the energy services company to get onto the list of companies added to the MSCI UK index this month was crimping demand for the stock.