Downbeat World Bank forecast and mining shares drag FTSE 100 lower

A downbeat growth forecast from the World Bank together with weak mining stocks helped tip Britain’s top shares into negative territory yesterday, with Anglo American among the biggest losers after worker unrest at its platinum mines.

The World Bank cut its global growth outlook for 2013, citing, a slower-than-expected recovery in developed nations.

In its twice-yearly Global Economic Prospects report, the bank said it expected world growth to be 2.4 per cent this year, down on the three per cent forecast it made in June.

Michael Hewson, senior market analyst at CMC Markets UK, said the cut to the World Bank’s forecast adjustment had helped create “a bit of a softer tone in equity markets.”

Anglo American fell 3.1 per cent, underperforming a 1.4 per cent decline in the mining sector.

The company laid out a blueprint for its Anglo American Platinum arm on Monday, but the plan to close two South African mines and sell one could mean 14,000 jobs losses and has been met with resistance from the government and unions there.

Anglo’s Kumba Iron Ore unit has separately warned its 2012 profit is likely to have fallen by a third, hit by lower prices and an illegal strike. Societe Generale cut its rating for the stock to “sell” from “hold”.

Also weighing on the miners, which tend to be out of favour in harsh economic times, was caution over the health of the global economy, thrown into focus by Tuesday’s weak German GDP figures, and mounting worries about a looming political fight in Washington over lifting the federal government’s debt limit.

Investors in the sector will be focused on economic data out of top metals consumer China on Friday, including fourth-quarter GDP and December industrial output.

The FTSE 100 fell 13.33 points, or 0.2 per cent, to 6,103.98, but was well off a session low of 6,076.12. Fourth-quarter earnings from US banks JPMorgan and Goldman Sachs, both of which beat expectations, aided sentiment.

“The US fourth quarter reporting season has come to life today ... However, with an unrelated series of events rattling an assortment of high-profile corporates across the board, sentiment in the equity market remains slightly bearish,” GFT Global technical analyst Fawad Razaqzada said.

“Perhaps the market is just waiting for another set of important economic pointers from the likes of China and the US before making its mind up in terms of direction. On the technical front, the FTSE needs to break 6,135/40 (around the 14 January high) before it could embark on another strong rally.”

Drug stocks helped limit the FTSE 100’s losses, led by a 2.4 per cent gain in Shire as traders cited rehashed talk of a potential bid from pharmaceutical peer AstraZeneca, which fell 0.2 per cent.

AstraZeneca said it did not comment on market rumours, while Shire was unavailable for comment.

A pick-up in M&A activity, as companies spend cash saved during the worst years of the global financial crisis, should boost European equities this year, said Fidelity Worldwide Investment pan-European equities fund manager Paras Anand.

“I expect one potential spur to share prices in the coming year could be the impact of merger and acquisition activity,” he wrote in a research note.

“While many companies may elect to buy back their own shares, more will look at compounding their advantages in the context of a moribund demand environment, and to that end the ‘buy versus build’ options will be increasingly weighed.”