THE UK’S top share index snapped a 10-session winning streak yesterday, with weak US data taking some shine off and with technical charts pointing to an increasing risk of a correction.
The FTSE 100 closed down 5.75 points, or 0.1 per cent, at 6,687.80 points, retreating from a fresh 5-1/2 year high of 6,714.48 scaled earlier in the session and posting its first daily loss in 11 sessions.
The retreat came towards the end of the session, sparked by US data showing higher than expected jobless claims and weaker than forecast housing starts.
That dampened investor enthusiasm in the British market, whose bluechips earn around a quarter of their revenues in the United States.
“A lack of sellers and ‘fear of missing out’ has pushed us to these levels, but the gap between the economic reality and share prices continues to grow which does worry me,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500m in assets.
David Madden, market analyst at IG, added: “Some of the momentum witnessed in recent days has slipped on profit-taking.”
Technical charts also suggested that the FTSE 100, which is on track for its 12th monthly gain, could be losing momentum.
“In the very near term, there is risk for a pullback. The daily studies are quite overbought and there is intraday bear divergence on the hourly relative strength index and momentum studies,” said Ed Blake, technical analyst at Informa Global Markets, highlighting the May 10 low at 6,591.58 points as the first target on the downside.
But “I see any near-term setbacks as corrective against the long term uptrend – if we close positively this month, the charts will show twelve consecutive bullish monthly candles.”
Earnings still offered some support, with shares in Aviva rising 7.5 per cent after the insurer reported strong new business growth.
To date, some 75 per cent of the UK’s large and mid-caps have met or beaten first quarter earnings expectations, compared with just 46 per cent of Eurozone peers, according to Thomson Reuters StarMine data. That has helped the FTSE 100 rise 13.5 per cent this year, more than double the gains on the EuroSTOXX 50.
However, Associated British Foods took a hit from sharply lower guidance by Europe’s biggest sugar company Suedzucker.
“It’s down because of Suedzucker talking about significantly lower profits in EU sugar, and ABF has pretty large exposure to EU sugar. The news isn't a surprise, but the magnitude of how much the Suedzucker guidance has been lowered has caught people by surprise,” said James Targett, analyst at Berenberg Bank.