BRITAIN’S top shares surrendered almost all of last week’s gains yesterday, led lower by commodity stocks and banks, as political uncertainty and disappointing economic data revived investor concerns over the Eurozone debt situation.
The mood was darkened by data showing the Eurozone’s business slump deepened at a far faster pace than expected in April, suggesting the economy will stay in recession at least until the second half of the year.
The Eurozone’s commitment to reform may also be in doubt after Dutch Prime Minister Mark Rutte’s government collapsed in a crisis over budget cuts, while Socialist leader Francois Hollande, who has vowed to seek changes to a new EU fiscal treaty, won the first round of France’s presidential election.
Some analysts said a defeat for incumbent Nicolas Sarkozy in the 6 May second round could weaken cooperation between France and Germany in dealing with the debt crisis.
“The prognosis for equity markets is they have to accept that under the current situation we’re not going to be able to magic-wand this and see it finished in a few weeks,” said Paul Kavanagh, a partner at Killik & Co.
“My fear at the moment is that [investors] appear to be panicking because the outcomes are getting more uncertain as we get further into this crisis – not less uncertain.”
The FTSE 100 index closed 106.58 points, or 1.9 per cent, lower at 5,665.57, its lowest close since 13 April, having ended up 0.5 per cent on Friday to record a 2.1 per cent advance on the week.
“It looks like we’re in a near-term corrective downtrend,” Phil Roberts, chief European technical strategist at Barclays Capital, said, highlighting that the index failed last week to retrace more than 50 per cent of the sell-off from its March high to this month's low.
He reckoned the 200-day moving average, at 5,568, could be revisited.
Broadcaster BSkyB was one of only two gainers, ahead 0.7 per cent, aided by its ongoing share buy-back programme, and ahead of third-quarter results due on 2 May. Trading volume in BSkyB was robust, at one and a half times its 90-day daily average.
Commodity stocks were the biggest drag on the UK blue-chip index, as copper prices and crude dropped after mixed factory activity data from China alongside the concerns surrounding the Eurozone.
China’s factories posted their best performance this year as a measure of new business rose from multi-month lows in April, with the HSBC flash PMI at 49.1 vs final March reading of 48.3, but overall activity still contracted for a sixth successive month.
Banks also came under heavy pressure on worries about their exposure to the euro area debt crisis ahead of the sector's first-quarter results season.
Barclays, the first of the British banks to report, was the worst off, down 4.2 per cent, ahead of its results on Thursday.
International Consolidated Airlines Group shed 5.4 per cent, the second-top FTSE 100 loser, as investors eyed integration issues after the owner of British Airways and Iberia completed its acquisition of Lufthansa’s UK airline, BMI, on Friday.
IAG’s chief executive Willie Walsh said the company was in talks with potential buyers for the two subsidiaries but that a sale was far from certain.