The UK stock market closely resembled Wednesday’s session by the end of trade Thursday, with miners and banks weighing heavily amid concerns over China’s monetary policy and President Obama’s fight with large banks, while a few pharma and utilities stocks outperformed on the upside.
The FTSE 100 index repeated the previous day’s performance, falling 85.7 points or 1.6% to settle at 5,335.1, while the FTSE 250 index lost 54.2 points or 0.6% to 9,418.1.
Figures from China early Thursday revealed the Asian economy beat market expectations—as had been both hoped and feared—to increase gross domestic product by 10.7% in the fourth quarter, pushing 2009 growth to 8.7%. The strength of the Chinese economy, while important as a driver of the global economic recovery, also raises concerns that the local government will ramp up efforts to tighten monetary policy, which would spell bad news for international mining and resource stocks if China’s demand for commodities was curtailed.
The US dollar hitting a five-month high versus the euro amid continued sovereign debt worries and concerns that the eurozone's recovery is faltering also reduced the attractiveness of commodities.
As such, metal extractors Fresnillo, Anglo American and Kazakmhys were high up on the list of UK blue-chip casualties, each extending the previous day’s losses by an extra 6.0%-6.2%.
British banks also featured among the FTSE 100 losers, with Royal Bank of Scotland dropping 7.1%, Barclays 5.9% weaker and Standard Chartered sliding 5.2%, tracking their US counterparts lower after President Obama said he will set limits on bank trading in an effort to curb excessive risk taking. The tougher regulatory stance sent a chill through financial stocks.
Elsewhere, the passage of healthcare reform in the US hit a hiccup as the Democratic seat in Massachusetts was lost to the Republicans. The loss of Democratic power in the Senate will likely mean any potential healthcare reform will be scaled back from the current proposals in the House and the Senate.
As was the case on Wednesday, AstraZeneca and GlaxoSmithKline outperformed the broader market, climbing 1.0% and shedding just 0.1%, respectively.
Regardless of whether reform passes, we believe the pharmaceutical industry will come out on top, as the direst scenarios for the sector have been all but ruled out as outcomes. Read our 2010 outlook for big pharma.
Utility providers also attracted investors seeking defensive positions, which helped United Utilities, International Power and Severn Trent take on between 1.8% and 3.2%.
The top blue-chip performer, however, was British Airways, which was lifted 3.6% after cabin crew union Unite withdrew its threat of industrial action over the busy Easter holiday.
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