London Report: Sharpest fall in the FTSE since turn of the year

BRITAIN’S main equity index yesterday suffered its biggest one-day fall this year, weighed down by disappointing US economic data and weak updates from Easyjet and Pearson.

Global stocks extended losses in the afternoon as data showed US manufacturing growth slowed in January for the first time in three months.

The data further undermined sentiment towards the world’s largest economy after discouraging earnings reports from bellwether companies such as McDonald’s.

The FTSE 100 closed 53.05 points lower, or 0.8 per cent, at 6,773.28 points, a third consecutive daily fall and the biggest since 12 December.

The index is still up roughly five per cent since mid-December, boosted by flows of money into Europe on the back of better-than-expected data in Britain and the Eurozone, which are responsible for half the sales generated by UK blue chips.

“We are holding our longs at the moment as we feel the UK markets are looking stronger than the US,” said Ed Woolfitt, head of trading at Galvan.

British shares trade at a 16 per cent discount to their US counterparts based on their respective price-to-earnings ratios, the steepest valuation difference in seven years, Datastream data showed.

The FTSE, which hit an eight-month high on Tuesday, fell in just eight of the last 24 trading days. Each dip was followed by a stronger bounce over the following few days. Some traders bet this time will be no different.

“All the little moves (down) ended up being bought, so it’s likely that it will be the same case here, albeit this one is a bit more dramatic,” Giles Watts, head of equities at City Index, said.

Watts still expected the FTSE to head towards the record high of 6,950 it set in late 1999.

Shares in Pearson plunged 8.2 per cent, their biggest fall in 12 years, after the publisher reported big restructuring charges alongside weak demand in its education businesses in North America and Britain.

Easyjet was also among the top fallers, off 4.1 per cent after the budget airline indicated that first-half seasonal losses would be higher this year than last year because Easter falls in its fiscal second half.

Basic materials knocked 2.9 points off the FTSE as data showed activity in China’s factory sector contracted in January for the first time in six months, according to the Markit/HSBC PMI, pointing to a weak start in 2014.