BRITAIN’S FTSE 100 fell yesterday, as weakness in miners and engineers outstripped strength in defensive stocks after China cut its growth forecasts, while mixed economic data in Europe and the United States dimmed the outlook for global growth.
London’s blue chip index shed 36.31 points or 0.6 per cent to 5,874.82, although it held within its recent tight range between 5,830 and 5960, in place since early February.
Volumes were weak and implied volatility rose 3.3 per cent, suggesting concern had returned among investors, although the level remained at less than half the multi-year peaks set in September 2011.
Weighing on the FTSE 100 was the announcement that China, the world’s most voracious consumer of raw materials, had cut its official growth target for 2012 to an eight-year low of 7.5 per cent.
“Chinese economic growth is an assumption that many investors have come to rely on and so anything less than perfection will be badly received,” David Miller, partner at Cheviot.
A softening of growth in the world’s second-biggest economy is bad news for the demand outlook for miners, which fell in tandem with base metals.
Global miner BHP Billiton, the FTSE’s second-biggest stock by market cap, fell 2.9 per cent, while auto and plane parts maker GKN, which was looking to China as a key driver of demand for premium cars this year, fell 2.0 per cent.
Commodities trader Glencore shed four per cent as the firm reported in-line full-year results and stuck to its guns over proposed merger terms with Xstrata. Xstrata slipped 4.9 per cent, but brokerage Killik said it likes the Glencore-Xstrata merger due to the ability to benefit from increased economies of scale in terms of project development, M&A clout, marketing and purchasing, while its preferred means of getting exposure to the combination is through Xstrata.
Kazakhmys was down 4.9 per cent as BofA Merrill Lynch and HSBC cut their respective ratings to “neutral”, with the former concerned over the risk to the Kazakh miner’s earnings because of declining grades and local cost inflation.
News that the Eurozone’s private sector shrank last month and Britain’s dominant services industry expanded less than forecast, added to the economic gloom.
Mixed US economic data also muddied the global growth outlook.
That did little to improve sentiment surrounding engineers such as Weir and IMI, down 4.7 and 1.7 per cent respectively.
Weir was already under pressure after Citigroup downgraded its rating for the pumps manufacturer to “sell” from “neutral” following recent full-year 2011 results.
Serco shed 5.9 per cent as BofA Merrill Lynch downgraded its rating for the outsourcing group to “neutral” from “buy”, following recent full-year results, on valuation grounds.
Banks were also lower, weighed down by concerns of an outright default for Greece. The country’s finance minister, Evangelos Venizelos, warned Athens was ready to enforce losses on Greece’s private sector creditors if they do not accept the country’s debt swap offer, which traders said would almost certainly trigger credit default swaps on its bonds.