Investor caution leads FTSE to a three-week low – London Report
BRITAIN’S top share index slipped to a three-week low yesterday as a slowing US economy and caution before the end of a Federal Reserve policy meeting led some investors to take profits from recent highs.
The US reported its economy grew in the first quarter at just a 0.2 per cent annual rate, well below expectations for 1 per cent growth and the fourth quarter’s 2.2 per cent growth.
“The disappointing GDP headline seems to be the pretext used by equity investors to take some profits,” said Tristan Abet, cross-asset strategist at Louis Capital Markets. “The malaise is well known: equity indices have gone well ahead of the reality. A pull-back is simply a ‘normal event’.”
Investors also were waiting for a statement from the Fed, due after the UK market closed. The US central bank has kept rates near zero since late 2008 to spur recovery from the crisis.
“Investors are cautious before the outcome of the Fed’s policy meeting and will scrutinise the Fed statement for hints about the timing of the first rate hike in the United States,” said Robert Parkes, equity strategist at HSBC Global Research.
The FTSE 100 index closed 1.2 per cent lower at 6,946.28 points after falling to 6,945.56, the lowest since early April and further away from Monday’s record high of 7,122.74 points.
The index is still up around 6 per cent so far this year, but it has underperformed regional peers such as Germany’s DAX , up nearly 20 per cent this year, amid certainty about the result of a UK election on 7 May.
Traders said the UK stock market was likely to stay choppy until the election, when a drop in British consumer confidence may work against Prime Minister David Cameron.
Among top sectoral decliners, the UK mining index fell 1 per cent. Antofagasta fell 2.2 per cent after cutting its copper output forecast.
Barclays dropped 1.7 per cent after setting aside another £800m to cover potential settlements for foreign exchange manipulation.
Shares in British American Tobacco, the world’s second-largest cigarette maker, fell 2.2 per cent after reporting a drop in revenue for the first quarter. It was hurt by the strength of the pound and a continued decline in the number of people who smoke.
Next, Britain’s second-biggest clothing retailer, rose 1.7 per cent as it maintained its profit forecast after posting sales slightly ahead of its own guidance.