FTSE Takes a Tumble
U.K. markets ended the week on a negative note, with the key FTSE 100 Index dropping by 0.7% and the FTSE 250 Index sinking by 0.6%. Continuing concerns over Greece’s debt problems contributed to the negative market performance. While it seemed on Thursday that Greece’s political leaders had sorted out an agreement to secure another €130 billion bail-out package, eurozone lawmakers were unimpressed, asking Greece for additional austerity commitments.
"The original deal between Greek political leaders yesterday has been quickly scuppered by additional austerity terms handed to them by the Troika (EU, ECB and IMF) ... This has put the cat amongst the pigeons when the situation looked to potentially have finally moved towards the finish line yesterday," says Joshua Raymond, Chief Market Strategist at City Index.
Aside from Greece, there are now renewed concerns over China’s ability to continue powering the global economy."Weaker than expected Chinese data ... weighed on heavyweight mining stocks on the FTSE 100, contributing to much of the drag on the U.K. index," says Raymond. "Chinese imports last month fell [by] 15.3%, the most since August 2009. Exports also fell [by] 0.5%. This has escalated fears of slowing metal demand as China’s economy faces a slowdown ... This has triggered investors into selling some of their holdings in mining stocks such as Kazakhmys and Anglo American. The FTSE 350 mining sector fell by 2.1% in trading as a result."
Man Group (EMG), Essar Energy (ESSR) and Kazakhmys (KAZ) were the main market losers on the FTSE 100 on Friday, with each company losing over 4% of their overall market value.
In total, the FTSE 100 Index lost 43 points, closing at 5,852. The FTSE 250 Index dropped by 67 points to end the week at 11,168.
ECB Keeps Rates Low, Reduces Collateral Requirements
In other developments this week, Mario Draghi, President of the European Central Bank (ECB), announced that the ECB will keep its key lending rate unchanged at 1%, as expected. Draghi followed-up his comments last month regarding “tentative” eurozone stabilisation by stating on Thursday that the ECB still sees "low-level" stability in the economic activity of the euro area though “downside risks” remain.
In addition to keeping rates at record lows, Draghi announced that the ECB would be relaxing its collateral requirements. The decision was prompted by worries over an impending 'credit crunch' after a slowdown in private-sector lending in December. By loosening collateral restrictions, small and medium-sized banks in particular will be better able to take advantage of the ECB's liquidity enhancing measures. In doing so, the ECB hopes to stimulate private-sector lending and quell fears of a credit crunch. However, critics have pointed out that by easing collateral requirements the ECB is assuming greater credit risk. But Draghi pressed the point that this risk would be monitored closely and re-evaluated in six months.
U.S. Jobless Claims Continue To Fall
Data released this week from the U.S. Bureau of Labour Statistics showed that initial jobless claims fell 15,000 to 358,000. To strip out inter-week volatility, most economists look at the trend in jobless claims by using a 4-week moving average. Following this week's data release, the 4-week moving average of jobless claims fell by 11,000 positions to 366,250 -- the lowest mark since April 2008. Sustained jobless claims reports below 400,000 tend to indicate employment growth. These numbers continue to support the assertion that the U.S. labour market is slowly recovering.
