The FTSE 100 is now facing a critical point as it teeters dangerously close to plummeting below its March 17th low, a leading strategist warned yesterday.
“It is now at a critical point. If it retests these lows then it could go a good deal lower to the 5000 level. This would mark a 50 per cent retrenchment of the bull market gain since 2003,” said Mike Lenhoff, strategist at broker Brewin Dolphin.
His warning came as the index of leading UK blue chip shares yesterday marked its first day of third quarter trading by plummeting 2.6 per cent to 5479.9.
The FTSE 100 has already lost 17 per cent in the first half of this year marking its biggest fall for fourteen years.
The sell off was driven by a host of negative economic news with data showing that the manufacturing sector had contracted at its fastest rate in seven years in June and inflation expectations had risen to a record high of 4.6 per cent. Oil’s continued strength as it traded close to Monday’s record high of $143 a barrel also fuelled inflation fears.
“The capitulation phase is upon us. The fundamental growth profile and the poor interest rate outlook mean there is nothing to stop markets falling further,” said Graham Secker, strategist at US bank Morgan Stanley. He expects the FTSE to fall to around 5100 within the next few weeks.
Refreshed fears over the health of the financial sector also weighed on markets yesterday. Shares in Swiss bank UBS fell over 6 per cent after four of its board members resigned. Deutsche Bank was also under pressure losing 5 per cent amid speculation of a profit warning. UK banking stocks also fell, led by Royal Bank of Scotland.