The UK benchmark index fell below 5,000 points again on Tuesday, dragged down by BP’s 5% slide and an extended banking sector sell-off, but clawed back some losses thanks to a handful of firmer mining stock.
By close of play, the FTSE 100 index stood at 5,028.2 points, down 40.9 or 0.8%, while the FTSE 250 dropped 121.5 points or 1.3% to 9,356.2. The mid-cap index is seen as more closely replicating the UK economy as around 70% of the listed blue chips earn their revenues abroad.
Sterling was under pressure on Tuesday after Fitch Ratings published a report saying the UK faces a “formidable fiscal challenge” as it attempts to shore up its public sector balance sheet and that the government needs to do more to bring the deficit lower. “The comment from Fitch that the UK has the highest rising debt ratio of all the highest rated countries is making it seem that the UK is in the relegation places for a new rating,” commented City Index market strategist Joshua Raymond, adding “which of course does not breed confidence.”
Comments from Fed chairman Ben Bernanke last night also weighed on sentiment. Bernanke expressed a cautious outlook for the US economy, stating that the recovery was underway, but that growth would be moderate and unemployment would remain high. He does not believe there is a significant chance of a double-dip recession, however.
Apprehension about tighter financial regulation and a potential tax on banks continued to take their toll on the banking sector, with Lloyds Banking Group, Royal Bank of Scotland and Barclays all featuring on the FTSE 100 casualty list, 4.1%, 3.8% and 3.3% lower, respectively.
But BP was the weakest link, 5.0% behind after US President Obama toughened his rhetoric and said he was ready to “kick ass” over the Gulf of Mexico oil spill.
Other fallers included Tesco, which shed 2.4% in lament at the loss of chief executive Sir Terry Leahy, who today announced he will retire next spring after 30 years with the company, the last 14 of which have been spent at the helm. International and IT director Philip Clarke will step into Leahy’s shoes in 2011. Read Morningstar analyst Michelle Chang's long-term take on Tesco here.
On the upside, miners celebrated a rebound in metal prices that saw Fresnillo, Randgold Resources and BHP Billiton each rise between 1.9% and 4.6%.
Aggreko was another strong performer, 3.9% firmer, after citing contracts from the World Cup in South Africa as among the reasons it now expects to achieve a stronger-than-previously-expected full-year performance.
Hopes of a bid war for mid-cap peer Chloride also helped bolster Aggreko shares amid rumours ABB’s agreed offer could be countered by US rival Emerson. Chloride ended the Tuesday session at the top of the FTSE 250 leaderboard, thanks to a 19.4% surge.
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