FTSE commodities drop on fear over Fed announcement

BRITAIN’S top shares dropped back yesterday, led by weakness in commodity issues as investors nervously awaited the outcome of a US Federal Reserve meeting with expectations for further economic stimulus seen as already discounted.

The FTSE 100 closed down 75.30 points, or 1.4 per cent at 5,288.41, retreating after a two per cent bounce on Tuesday to end near session lows back below the 5,300 level.

Technical analysis of the FTSE 100 showed it is currently in a comfort zone, said Bill McNamara of Charles Stanley in a note, with the UK index firmly within a flag pattern that has defined its price action for the last six weeks.

“Ironically, it is when a trading range becomes a ‘comfort zone’ that a break-out starts to become more likely. Critical support is in the region of 5,130 while resistance is at 5,450 or so,” McNamara added.

Specialty miners were the biggest FTSE 100 fallers, with Chilean copper miner Antofagasta the worst off, down 6.7 per cent, while Rio Tinto shed 4.2 per cent as the copper price dropped to its lowest level since November 2010.

Integrated oils also suffered, led by BP down 2.5 per cent, on worries that the Fed’s expected stimulus measures will not be enough to prevent global economic growth dipping back once again.

Investors expected the US central bank, which concluded a two-day policy meeting yesterday, to push down already low long-term interest rates by tilting its portfolio towards longer maturities in a move known as “Operation Twist”, rather than announce more quantitative easing.

US blue chips were 0.3 per cent lower by London’s close as investors awaited the Fed statement.

“If anything you would have thought that (equity markets) would be quite receptive to some more stimulus from the Fed in a very controlled way, and this is exactly what Operation Twist is,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities.

“Because it doesn’t require the Fed to increase the size of its balance sheet – it just involves a restructuring of the balance sheet – so I would have thought that that’s to be welcomed, particularly if it helps the housing market, and if it helps bring back some confidence in some way shape or form.”

Banks were lower as a sector, reflecting falls by global lender HSBC, off 1.7 per cent, and emerging markets-focused Standard Chartered, down 1.5 per cent.

But the two part state-owned British lenders bucked the sector trend, squeezed higher by their low liquidity and short-selling bias, with Lloyds Banking Group, the top blue chip riser up 5.6 per cent, and Royal Bank of Scotland ahead 1.3 per cent.

Among individual blue chips, Land Securities firmed 0.9 per cent after BoA Merrill Lynch upgraded its rating for the real estate firm to “buy” from “neutral”, highlighting a value gap with its peer British Land, down 1.2 per cent.

Inmarsat fell 2.6 per cent, with traders citing the impact of two broker downgrades for the satellites operator, partly on valuation grounds, and partly due to concerns over progress at its US partner LightSquared.

Ex-dividend factors took 1.5 points off the FTSE 100, with Aggreko, Aviva, International Power and Petrofac all losing their payout attractions.