The ECB left policy on hold at its monthly meeting, disappointing minority bets for an interest rate cut, and its president Mario Draghi flagged downside risks to the expected economic recovery in the second half of the year.
The gloomier prospects for the Eurozone chimed in with a run of soft data from the US this week, with yesterday’s rise in weekly jobless claims building the case for a below-forecast print in today’s key non-farm payrolls report.
That dampened expectations of a recovery in corporate earnings in coming quarters and weighed on shares in British blue chips which earn around half their revenues in North America or continental Europe.
The FTSE 100 closed down 76.16 points or 1.2 per cent at 6,344.12 points, its lowest finish since 4 March and a further retreat from a 5-year peak of 6,533.99 points set last month.
“We’ve seen a bit of profit taking, particularly some of the construction names and some of the airlines. It’s just an excuse to sell a few names after the big move that we had up,” said Martin Tormey, head of equity trading at Goodbody Stockbrokers.
Companies which earn around half their revenue in North America were among the top fallers. Housebuilder Wolseley dropped 2.8 per cent, while information provider Reed Elsevier lost 3.9 per cent and cruise operator Carnival fell three per cent.
Such stocks have been popular in recent months, with exposure to the US seen as a bonus as Britain’s economy hovers on the brink of its third recession in four years. That, though, has pushed up valuations, potentially making the shares vulnerable in case of a turnaround in the market or the US economy.
Wolseley, for example, traded on 14.9 times its expected next year earnings, in the top third of the FTSE and compared with a ratio of 10.8 times for the index as a whole, Thomson Reuters StarMine data showed.
On the upside, miners, among the worst performers so far this year, pushed higher. Antofagasta and Eurasian – among only four stocks in the FTSE 100 to hit 52-week lows this month – rose 4.7 and 1.7 per cent, respectively.
Peer Vedanta, meanwhile, added 6.1 per cent, helped by a price target rise from Societe Generale and by continued bid speculation.