FTSE slips lower on weak data but adds 8% in 2Q

Having initially crept higher, the UK’s leading index slipped into the red in afternoon deals after some reassuring British economic data was overshadowed by weak US consumer confidence. Despite the blue-chip index’s 1.0% slide on the final trading session of the second quarter, it has managed to gain over 8% over the past three months.

The FTSE 100 index closed down 44.8 points or 1.0% after a brief foray above 4,300 earlier in the session, while the FTSE 250 index lost 62.7 points or 0.8% to settle at 7,414.6.

European markets were similarly unsettled by the US data, with France’s CAC40 and Germany’s DAX both closing 1.7% lower, while Wall Street fared equally badly at the time of the UK close.

A plethora of economic data gave investors much to digest on Tuesday. The UK’s GfK/NOP consumer confidence index rose in line with economists’ expectations to its highest level in over a year of -25 in June versus -27 in May, while the Nationwide house price index revealed prices increased by 0.9% in June, their third rise in the last four months.

What started the process of unnerving investors, however, was a much more severe downward revision of the UK GDP estimate than the market had feared. The third reading for the first quarter of 2009 revealed a contraction of 2.4% against the previous forecast of a 1.9%. And the bad news didn’t stop there: soon after Wall Street opened for trade, the Conference Board reported an unexpected drop in consumer confidence to 49.3 in June from May’s downwardly-revised 54.8—a notable difference from the consensus forecast of an extended rise to 55.1. Click here for a full round-up of the day's economic events.

Still, the reaction of markets on both sides of the Atlantic was relatively muted as fund managers engaged in ‘window dressing,’ whereby they buy stocks that have performed well over the quarter to prove they owned them and dump losing stocks before closing their books.

The main weights around the neck of the UK market were the banking and mining sectors as the disappointing economic reports spooked the precarious financial sector and raised concerns over commodity demand once again.

A 3% drop in oil prices dragged BG Group, Royal Dutch Shell and BP down 1.8%, 1.3% and 1.0%, respectively. BG Group was also in the news following its announcement it is spending up to US$1.3 billion in an alliance with EXCO Resources to get involved in the US gas shale market. Though the stock was under pressure today, analyst reactions to the news were very positive. “We believe that this is a very exciting move and gets the company involved in a significant market at the bottom of the cycle,” Panmure Gordon’s Peter Hitchens said.

With both base and precious metals feeling the pinch, miners Randgold Resources, Anglo American, Eurasian Natural Resources and Fresnillo lost between 2.5% and 3.1% although traders noted this could partly be down to the ‘window-dressing.’ Randgold, for example, is up more than 6% this past quarter.

Among financials, Standard Chartered slipped 3.0%, while HSBC, Royal Bank of Scotland and Lloyds Banking Group came off 1.7%-0.9%. The latter today announced it is cutting an additional 2,100 jobs at its wholesale business and at group level, bringing the total job cuts since its HBOS takeover to 7,000 in the past six months.

The spotlight was also on banks as Treasury minister Paul Myners said the government will publish a paper next week outlining its opinion on the changes needed in the new power-sharing system in which the Treasury, the Bank of England and the Financial Services Authority share regulatory responsibility.

Speaking last night in the lead up to today’s Annual International Banking Conference held by the British Bankers’ Association, chief executive of the association Angela Knight stressed the importance there being “clarity of who does what, a focus on seamless co-ordination, a no surprises relationship within the tripartite and appropriate actions taken when necessary and in a manner that engenders trust and confidence in the system.” Click here for more on this story.

Returning to individual equity movements, building materials supplier Wolseley led the FTSE 100 risers with a 2.8% gain as investors cheered the start of a new chapter. Chief executive Chip Hornby stepped down today with immediate effect.

Finally, oil services group Petrofac ticked up 1.8% on the back of an upbeat trading update. Analysts at Evolution Securities said the update increases confidence in the company delivering strong growth in 2009 and they subsequently raised earnings forecasts and hiked the price target on the stock to 750p from 650p while repeating their Add recommendation. Petrofac shares settled at 670p.

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