The government in Tokyo cut its economic assessment yesterday, citing the impact of a slowdown in the United States and China on top of Europe’s debt crisis.
Miners were weak, tracking falls in copper prices on uncertainty about the outlook for growth, which could impact demand for commodities.
Investors were also reluctant to take on fresh positions as they awaited a meeting of central bankers later this week for clues on possible further stimulus measures to boost growth.
US Federal Reserve chairman Ben Bernanke gives a keynote speech on Friday at the US central bank’s annual get-together in Jackson Hole, Wyoming, with investors hoping he will hint at forthcoming monetary policy moves.
“I think there’s an expectation that they [central banks] are going to deliver, but it’s to an extent what they’re going to deliver,” said Joe Rundle, head of trading at ETX Capital. If the banks are very bullish the FTSE could break through the upper end of the August range at 5,876, setting it up to target 5,900, he said.
“The risk is to the downside – if they come out and say nothing, I think we’re going to fall back quite heavily [to around] 5,625,” Rundle added.
However, not all commentators expect the Fed to undertake more quantitative easing (QE) to boost the economy.
“I am not expecting further QE ... given I think the US has shown good signs of recovery this month in construction and also in retail. I think the US economy is doing as well as it can and doesn’t need further stimulation,” said Colin McLean, managing director of Edinburgh-based fund manager SVM.
The FTSE 100 index fell less than a point or 0.02 per cent to 5,775.71, stuck within a tight 30-point trading range from a session low of 5,749 and a high of 5,779.
Volume for the UK blue chip index remained thin at around 65 per cent of the 90-day daily average as traders returned to their desks after a long UK bank holiday weekend, with many still dragging out the summer holiday break.
“I think prices have held up pretty well given the markets have had a good run. But I think we’ll see a bit of profit-taking before the end of the month,” said SVM’s McLean.
Among the weak miners, Rio Tinto lost 1.7 per cent, with traders citing the impact of a cut in estimates and price target by Morgan Stanley for Rio and a number of other miners in a sector review, reflecting lowered commodity price forecasts for iron ore and metallurgical coal.
But takeover target Xstrata bucked the mining sector trend, adding 1.4 per cent, with its predator, commodities trader Glencore International ahead 4.7 per cent, as investors weighed up the chances of its bid succeeding ahead of key shareholders meetings. Xstrata shareholder Qatar Holdings has pushed for better terms.
Drugmakers were also a drag on the FTSE 100 index, with GlaxoSmithKline losing 0.8 per cent as UBS downgraded its rating for the stock to “neutral” from “buy” with a reduced target of 1,525p, down from 1,625p.
Peer AstraZeneca lost 0.5 per cent. The drugs group has poached Pascal Soriot from Swiss rival Roche to be its new chief executive, hoping his track record in drug innovation and dealmaking can revive a company battered by clinical trial failures and patent expiries.