London Report: Financial and mining stocks weigh on FTSE
BRITAIN’S top stock index fell yesterday, with miners leading the retreat on lingering concerns their earnings could be hurt by weaker metals prices following an economic slowdown in China and improving supplies.
Banks also lost ground after the Federal Reserve blocked the US units of Royal Bank of Scotland and HSBC from paying higher dividends or buying back their own shares, citing weaknesses in their capital planning.
Among sharp individual movers, defence support and engineering services group Babcock International topped the losers’ list. It fell 6.7 per cent after saying it had agreed to acquire helicopter transport services firm Avincis, funding the deal with a £1.1bn rights issue.
Miners and banks, the two heavyweight sectors, took the most points off the FTSE 100 index, which closed 0.3 per cent lower to 6,588.32 points and is down 3.3 per cent this month.
The UK mining index fell 0.7 per cent, taking total losses this month to nearly six per cent on concerns that earnings of mining companies might disappoint in coming quarters due to pressure on prices of major metals.
“The outlook for commodity prices has changed quite substantially as the supercycle that we saw in China is coming to an end,” said Henk Potts, strategist at Barclays Wealth.
“There has been a huge amount of investment in the mining sector during the boom years and that supply is just about to come through at a time when demand has been slowing down.”
Precious metals miner Fresnillo dropped four per cent, Randgold Resources fell 2.6 per cent and Rio Tinto slipped 0.9 per cent
Financials were the second-biggest drag on the market after miners, with the banking index down 0.4 per cent. Royal Bank of Scotland and HSBC were down 1.4 per cent and 0.5 per cent respectively following the Fed’s rejection of their request for higher dividends.
Under the Fed rules, foreign banks will have to wall off their US units and meet tougher capital requirements. Some traders said discussions about the US stress tests were not over, however, so the banks could get off more lightly.
“It’s a watching brief for UK banks… but with any further downside they’re likely to attract buyers,” said Matt Basi, head of sales trading at CMC Markets.
“We expect there to be a resolution at some stage in the near-term.”