Glaxo props up the FTSE 100 as bank shares fall

BRITAIN’S benchmark FTSE 100 share index steadied near 10-week lows yesterday, retracing strong early gains as financials sold off in afternoon trade, while heavyweight defensive stocks provided underlying support.

Weakness in financials erased all of a 0.5 per cent rise in morning trade after Morgan Stanley traded lower in New York following its results, and another batch of weak US data reflected poorer business conditions.

“There’s been a flight to defensive stocks, and when banks and miners are tailing off, the natural money flow is to go into defensive, yield-paying names,” said Matt Basi, senior sales trader at CMC Markets, said.

“This earnings season we’ve already seen that it’s not enough for financials to beat earnings estimates, and people are much more concerned about the quality of earnings ... With this mindset, you can see why people are willing to take risk off the table at any sign of nervousness.”

Financials shaved 12.8 points off the FTSE 100, in contrast to the more defensive plays of health care and telecoms, which combined to add 20 points to the index.

Heavyweight pharmaceutical GlaxoSmithKline rose 3.1 per cent to add the most points to the index after a U.S. panel recommended approval of its new lung drug, prompting Deutsche Bank, Natixis and Kepler to raise their target prices for the stock.

Glaxo contributed nearly 10 points to the FTSE 100, with the index closing down 0.54 points at 6,243.67 points.

Also lending the market support in afternoon trade was Vodafone, up 1.7 per cent after renewed focus on the possibility that it could sell its stake in Verizon Wireless to its partner.

The stock surged as much as three per cent at its peak on comments from Verizon’s chief finance officer that it was confident the British group could exit the joint venture without “any major tax implications”.

The slim gains on the FTSE came after four straight sessions of losses, as worrying economic data from the United States and China and slumping commodity prices weighed on the market.

On Wednesday it fell one per cent to its lowest close since early February – a level where some saw value in the market again.

“The weaker data provided an excuse to take some profits in the last week, but there are still investors out there that appreciate the long-term outlook for the equity market looks very attractive indeed on a valuation and yield basis,” said Henk Potts, equity strategist at Barclays.

“With a pullback, there’s an opportunity to increase their exposure to the asset class.”

Miners remained unloved, however, dipping 0.2 per cent to take their losses for the week so far to 7.4 per cent.