UK and European markets slid a bit lower on Monday, with many industry observers noting that since Olympic distractions are now out of the way, investors are feeling less bullish.
The large-cap FTSE 100 index dipped by 15 points, or 0.3%, to close at 5,832. The FTSE 250 index also edged down by 34 points, or 0.3%, closing 11,437.
“Markets [are] struggl[ing] to sustain their current low-volume rally,” says IG Index trader, Yusuf Heusen. “Although the [market] moves have not been particularly severe, there is a sense of something stirring in markets this afternoon. Perhaps it's because traders don't have the Olympics to distract them from their screens, but there is a dawning realisation that all is not as rosy as last week's rally suggested. Global growth remains anaemic at best, while the eurozone crisis simmers on, exemplified by this morning's news that the Greek economy had shrunk yet further during the second quarter.”
“Whilst the UK has been in a sort of happy clappy frame of mind there is no getting away from the fact that the economic environment is getting no better and is, possibly, about to get a lot worse,” states Simon Denham, CEO at Capital Spreads. “Mervyn King has indicated that he expects zero growth for the remainder of the year and this leaves any company struggling with a debt situation in a bit of a hole.”
Generally the FTSE 100 and FTSE 250 were quiet on Monday, with most shares edging down, but not tanking. One of the only corporate earnings announcements to stir up strong reactions on Monday was the release of first-half 2012 numbers by Petrofac (PFC). Investors sent shares in the oil and gas services company tumbling by 6% after the company issued a lower-than-expected revenue outlook for the second-half of 2012.
Morningstar analyst Stephen Ellis puts the numbers into context in his latest research report:
“Petrofac reported respectable interim results for 2012. Revenue was up 20% year-over-year to $3.2 billion and operating profit was up 38% to $411 million over the same time frame. Order intake across the firm's core engineering, construction, operations, and maintenance (ECOM) services line was $2.3 billion with another $1 billion in awards that were secured but not yet signed. As is typical with oil and gas engineering and construction firms, project awards are again moving out to the right, with bureaucracy and slow decision-making on the part of countries such as Iraq, Kuwait, Abu Dhabi, and Saudi Arabia. Management has now tempered its expectations of around $4 billion-$4.5 billion for ECOM awards in the second half of the year to around $2 billion-$2.5 billion. The lower level of order intake should lead to slower and possibly flat to negative growth for the ECOM segment in 2013.”
Looking to the week ahead, there are a few key economic data releases that could move the markets.
“The next few days could help shake markets out of their lazy, slightly bullish malaise,” says Kathleen Brooks, research director at GAIN Capital. “We have Eurozone GDP tomorrow along with German ZEW for August. Both are expected to show a weakening in the economy.”
Brooks expects the euro will take a plunge if the data falls short of already-low market expectations.
To read about market action from last week and expectations for this week, read “Is the FTSE Rally Sustainable?”
