Germany’s Ifo index of business sentiment fell for a fifth month running, bucking expectations for a rise, to become the latest in a run of poor data from major economies.
That data has turned investors’ minds back to the longer-term problems of both Europe and the United States in generating growth while trying to get public debt under control.
“Today’s probably more by way of a reality check ... [the] weak Ifo doesn’t really help,” said Frances Hudson, global thematic strategist at Standard Life Investments.
“A lot of positive feedback has been read into the central bank easing, whether it’s the ECB or the Fed, and anything like that is going to take a long time to deliver,” Hudson said.
The FTSE 100 closed down 13.78 points, or 0.2 per cent at 5,838.84, having notched up a loss of 1.1 per cent last week after two consecutive weeks of gains.
Weakness in heavyweight miners accounted for around eight points, or over half of the index’s decline, as the sector tracked weaker copper prices.
Overall the mining sector has fallen around five per cent since the release late last week of dull manufacturing data out of China, the world’s top consumer of metals.
JP Morgan Chase recommended that investors pocket recent gains in the sector because the impact of stalling global – and particularly Chinese – growth momentum was offsetting the modest boost generated by the US Federal Reserve’s new asset-buying programme.
“A healthy period of consolidation to a market underpinned by the printing presses might not be a bad thing, helping to remove some of the froth and tail risks presented to the market by the recent rush into riskier assets,” said David White, a trader of financials at Spreadex.
JP Morgan Chase’s top sector picks were Rio Tinto, Antofagasta, Fresnillo and BHP Billiton and it said it would avoid Anglo American and Kazakhmys.
Anglo American, down 2.9 per cent, also suffered as BofA Merrill Lynch cut its rating to “neutral” from “buy” with a reduced target price of 2,400p.
Weak banks also dragged on the blue chips, reversing a summer rally as investors’ appetite for risk shrank and the focus returned to lenders’ exposure to Eurozone debt.
The banking sector has gained over 18 per cent since late July when ECB president Mario Draghi promised to do everything in his mandate to protect the euro.
The Eurozone’s troubles were back in focus this week with Spain, under pressure to submit to a rescue programme, due to present its 2013 budget on Thursday and with talks due to restart between Greece and the EU/IMF/ECB troika on the progress of austerity measures linked to a rescue package.
As risk appetite took a knock, stocks seen as less dependent on the economic cycle found support, with drugmakers the biggest gainers led by Shire, up 1.7 per cent helped by positive comments from Exane BNP Paribas in a review of the European sector.
Positive comments from Credit Suisse strategist Andrew Garthwaite on UK equities also helped underpin the market. He reiterated an “overweight” stance on UK equities, with a year-end FTSE 100 target of 6,250.