Oil majors lead the FTSE 100 lower as investors avoid risk

BRITAIN’S blue-chip FTSE 100 closed lower yesterday after bouncing once again off an important technical resistance level, led by heavyweight energy stocks on a fresh bout of Eurozone debt-inspired risk aversion.

The index traded in a fairly tight range for the early part of the session, rising to test 5,700 before bearish comments from a top official at ratings agency Fitch over the handling of the sovereign crisis sent markets lower.

Fresh talk of an imminent downgrade of France’s credit rating, denied by a senior French source, added to the bearish tone, although the UK market ended off its lows, down 0.5 per cent, or 25.8 points, at 5,670.82, giving back a third of Tuesday’s gain.

Oil majors Royal Dutch Shell, BP and gas firm BG Group trimmed most points from the index, a combined 0.5 per cent, as crude took a hit from the debt worries. Brent crude futures were down 0.4 per cent by the close.

That same concern underpinned a 4.2 per cent rise in volatility, as measured by the FTSE Volatility index, to 20.79.

“We failed to break 5,700, which is quite a big resistance level,” while a sliding euro was contributing to the regional equity market weakness, said Trevor Coote, head of equity sales at Alexander David Securities, adding he was now targeting further short-term weakness before buying back in.

Mike Lenhoff, strategist at Brewin Dolphin, said his charts showed the index overbought on several levels, and the last time he had seen this was October 2011, when the FTSE 100 “failed to get much past 5,700”.

Rather than a major sell-off, however, Lenhoff said he expected the pullback to be at worst a “shallow retreat”, before the recent upwards momentum continued, buoyed by factors including improving US economic data and recent moves to help contain the region’s debt crisis.

The degree to which buyers come back in force and underpin a further move higher will be crucial, however, as the slide in volumes experienced across developed Europe equities since last summer shows no sign of a marked reversal.

Traded volumes on the FTSE 100 were just over their 90-day daily average by the close, but, as that covered the holiday-thinned Christmas period, this was a crimped number to begin with.

Nevertheless, among the most heavily traded stocks was Cairn Energy, up 3.6 per cent in volume two and a half times its 90-day daily average and rising for a second day after a pledge in the previous session to return $3.5bn to shareholders.

Broker action helped fuel a surge in interest in other stocks including ITV, up 2.7 per cent in volume around 214 per cent of its average and buoyed by an increase in its target price by Panmure.

With the fourth-quarter earnings season already kicked off in the US, Sainsbury’s was among the most high profile firms updating the market. In spite of beating forecasts, it closed down 1.2 per cent, hit by a weak outlook.

Sainsbury’s boss Justin King said he saw no improvement in the business environment this year and expected the consumer to “remain in a very tough place”.