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FTSE 100 ends lower after energy and mining stocks weigh and concerns about European banks return

7th Sep 2010, 5:20 pm
FTSE 100 ends lower after energy and mining stocks weigh and concerns about European banks return

Renewed concerns about the health of European banks coupled with declined in oil and metal prices ended the recent good form for London’s FTSE 100, pushing the blue chips index down 0.8% and below the 5,400 level.


An article in the Wall Street Journal suggested that the recent stress test of European banks understated some banks’ holdings of government debt, which it said was potentially risky.


The health of the European banking system has been a major concern that has kept equity markets under pressure for months in the wake of the debt crisis that struck the euro zone and nearly forced Greece to declare bankruptcy, while it was becoming increasingly hard for banks to borrow.


Now the strength of the banks and their ability to survive further economic turbulences is again emerging among the main factors behind share price movements. In additional to that, banking group Barclays (LON:BARC) slipped 3% today after announcing a change at the helm. John Varley, who has been CEO since 2004, will step down in March 2011 to be replaced by Bob Diamond.


Hedge fund manager Man Group (LON:EMG) was the heaviest faller among the blue chips with a loss of over 3.5%.

Telecom company Cable & Wireless Worldwide (LON:CW) and retailer Kingfisher (LON:KGF) dropped 2.5%.


Moving in the opposite direction, engineering firm Invensys (LON:ISYS) found itself atop the leader board in late afternoon after advancing 4%. Oil and gas producer Tullow Oil (LON:TLW) and water company Severn Trent (LON:SVT) followed, rising 2.5%. Airline British Airways (LON:BAY) was the only other FTSE 100 constituent to add more than 1%, climbing 1.7%.


Commodities


Oil prices continued sliding in European trading today as a selloff in stock markets added to a couple of other bearish factors that have been impacting crude oil futures so far this week.


Yesterday’s Labor Day holiday in the US marked the conclusion of the summer driving season, which usually leads to a decline in gasoline demand.


Oil demand in the US has been in decline, which was reflected by substantial gains in crude inventories reported by the Energy Department. Last week, the US government revealed a massive increase of 3.4 million barrels, while the American Petroleum Institute (API) reported a gain of 4.8 million barrels.


October Brent Crude slid to US$76.04/barrel, while US light, sweet crude for October delivery declined to US$73.33/barrel.


Most blue chip oil and gas producers were in decline today. BP (LON:BP) posted a small loss, while fellow supermajor Shell (LON:RDSB) slid 1.6%, as did BG Group (LON:BG). Cairn Energy (LON:CNE) declined 1%.


Gold slides to $1,245


Even today’s declines in equity markets on renewed concerns about the health of the European banking system did not give gold enough support to stay at US$1,250/oz. The yellow metal pulled back to US$1,245/oz after briefly rising to US$1,251/oz late on Monday.


Gold has been strong for the past two months, rallying from below US$1,200/oz to nearly reach its record highs of US$1,265/oz. This could be the reason behind today’s falls with the markets perceiving the metal as overbought and going for alternative safety assets.


Other precious metals followed with silver and platinum sliding to US$19.60/oz and US$1,545/oz respectively.


Major mining stocks turned negative. African Barrick Gold (LON:ABG) and Randgold Resources (LON:RRS) posted small losses, while platinum miner Lonmin (LON:LMI) and silver miner Fresnillo (LON:FRES) lost 1.5% and 1.7% respectively.


Miners fall as base metals decline


Copper and nickel declined to US$3.40/lb and US$9.75/lb, while zinc slid to US$0.96/lb.


Base metal miners retreated. Vedanta Resources (LON:VED) lost 1%, while Anglo American (LON:AAL), BHP Billiton (LON:BLT), Kazakhmys (LON:KAZ) and Xstrata (LON:XTA) shed about 1.5%.


Antofagasta (LON:ANTO), Eurasian Natural Resources (LON:ENRC) and Rio Tinto (LON:RIO) lost nearly 2%.
Swiss-headquartered resources company with assets in Ukraine, Ferrexpo (LON:FXPO), moved with the sector, shedding 2.2%.

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