Greece worries, a fall in commodity prices on the back of a stronger dollar, and the Bank of England’s inflation report sent the FTSE 100 below breakeven on Wednesday afternoon.
The index ultimately closed 0.7% or 45 points lower at 5,973, just below the elusive 6,000-point mark. The FTSE 250 index also fell, down 0.3% or 40 points to 12,015.
The latest batch of Chinese data showed industrial production for April growing 13.4% year-on-year and retail sales up 17.1% for last month. CPI, however, came in at an above-target 5.3% year-on-year. Investors’ initial reaction was positive, however, and miners gained in morning trade.
Later in the day, the Bank of England released its inflation report and cut is GDP growth forecast for the UK economy to 1.7% for 2011. Governor Mervyn King said the economic outlook has deteriorated since the Bank’s February report and inflation as measured by consumer prices is likely to increase to 5% this year and stay above target until the end of 2012.
“The recent comments from Governor Mervyn King suggest that the MPC will implement an exit strategy over the coming months and interest rate expectations are likely to heavily influence future price action for the British Pound as investors weigh the prospects for monetary policy,” commented David Song, currency analyst for DailyFX.
Adding to this outlook, further Greek debt concerns ultimately knocked risk appetite off its perch. Eurozone officials today attempted to lower expectations of a speedy financial boost for Athens and said that the question of another Greek aid package will be discussed at a meeting next week, but a decision won’t be made until an EU mission to Athens rules on what progress the country has made with its reforms.
This combination of macro events sent mining majors to the bottom of the FTSE 100, with Fresnillo (FRES), BG Group (BG.) and Kazakhmys (KAZ) down 2.9%-3.9%. BG Group suffered further after its trading update disappointed investors on Tuesday.
ITV (ITV) was today’s greatest casualty, down 5.4% after projecting a decline in its May and June advertising revenues due to tough comparables.
Also on the list of fallers, HSBC (HSBA) lost 1.6% after announcing plans to reduce its wealth management and retail banking businesses.
On the flipside, Burberry (BRBY) was today’s greatest gainer, up 2.4% after European peers Bulgari (BUL) and Hermes (HESAY) posted strong first-quarter sales.
A set of defensive equities also benefitted as investors shied away from risk this afternoon. International Power (IPR), Severn Trent (SVT) and Scottish & Southern Energy (SSE) were up 1.5%-1.8%.
