FTSE continues to feel the pain of banking fears
Financials were once again among the main blue-chip casualties as uncertainty remains over the future of the banking sector
The FTSE 100 index lost 59.4 points or 1.1% to 5,217.5, while the FTSE 250 index shed 47.7 points or 0.5% to 9,245.3.
Economic data from both sides of the Atlantic thwarted any ideas of market gains. The Confederation of British Industry reported a surprise drop in retail sales in January as the return of VAT to 17.5% combined with unusually cold weather to deter consumers. The sales balance fell from +13 in December to -8 this month—considerably lower than the +8 consensus forecast.
Meanwhile, speaking at the Davos forum in Switzerland, head of the Financial Services Authority Lord Turner insisted that the UK needs a “macro-prudential body” to directly limit bank lending to particular areas such as housing. "The tool cannot be the interest rate,” Lord Turner said, “It is too imperfect for that. The bubble can't be pricked with classic monetary policy."
In the US, new home sales unexpectedly fell 7.6% in December. Uncertainty surrounding the extension of the new home-buyers credit and high unemployment are the likely culprits for the decline. Investors were skittish about this news, as a rebound in residential investment is seen as a key to a sustainable economic recovery.
Investors were also awaiting the Fed rate decision this afternoon, which is widely expected to be held near zero percent, and any accompanying comments about when the central bank might start raising rates.
Within the FTSE 100 index, British banks Royal Bank of Scotland, Barclays and Lloyds Banking Group fell into the red, shedding between 1.7% and 5.2% each. But it was listed hedge fund manager Man Group that suffered the greatest loss, down 6.5% after the net asset value of its flagship Man AHL Diversified Futures fund lost 3.6% over the previous week to $34.87.
Commodity plays were also out of favour as fears over how and when China will attempt to soften its economic growth path continued to weigh. Miners Fresnillo and Anglo American dropped 3.2%-3.7%, while heavyweight oil producers Royal Dutch Shell and and BP fell back 1.8% and 1.3%, respectively.
Oil explorer Tullow Oil also featured among the main casualties after raising £925 million in a share sale to help fund exploration and development in Ghana and Uganda. Tullow shares were 4.6% weaker by close of play.
On the upside, with just over a fifth of the FTSE 100 components managing to make headway against the weaker backdrop, defensives featured heavily. Brewer SABMiller added 2.4%, tobacco producers British American and Imperial took on 1.2% and 0.5%, and utility providers International Power and Scottish & Southern Energy rose .1%-0.4% apiece.
