The downward trend on the FTSE has remained in tact so far, as fresh evidence of robust growth in China implies the country may have to continue tightening policies.
By 11:30am (London time) the FTSE 100 Index had declined 17.07 points (-0.31%) to 5403.73 while the broader FTSE 250 Index was up 6.51 points (+0.07%) to 9478.8.
China’s National Bureau of Statistics revealed that the Chinese economy returned to double digit growth in the fourth quarter of 2009, with GDP surging 10.7% on the year following a revised 9.1% rise in the third quarter. Although seemingly positive, the data suggests that China may be at the verge of overheating and will have to continue tightening those policies that have helped spur economic growth.
‘Today’s data suggest that tighter policy is just around the corner,’ said Brian Jackson, a strategist on emerging markets at Royal Bank of Canada. ‘Policy makers will need to move soon to stop the economy from overheating,’ he said, forecasting officials will end an exchange-rate peg and boost interest rates starting this quarter.
The prospect of further policy tightening in China encouraged investors to trim their exposure to commodities and to increase their holdings of relatively safer assets denominated in US dollars.
The FTSE was, as a result, stung by a heavy bout of selling pressure in mining stocks, which for the most part traded between 1% and 4% lower. Platinum miner Lonmin was the only miner to buck the negative trend so far, climbing 0.70% to 1893p. The miner may have outperformed on the view that the underlying metals it sells will continue to appreciate; Gold has declined by around 2.7% from a week ago, while silver plunged 4.3% over the same period. Platinum and palladium outperformed the precious metals group, however, rising approximately 0.60% and 4.8% on the week respectively.
Also bucking the trend were energy majors, with Tullow Oil seen climbing 0.60% to 1333p after confirming it has struck oil in a well it drilled offshore Ghana. BP climbed 0.47% to 622.4p while BG Group advanced 0.80% to 1210.5p.
Pharmaceuticals and utilities, considered to be defensive shares for their stable earnings, were also in demand today.
AstraZeneca was the best performing stock in the pharmaceuticals sector so far, up 2% to 3117p after Morgan Stanley upgraded its rating from ‘equal weight’ to ‘overweight’. In the meantime, Glaxo gained 1.6% to 1304.5p after the broker raised its target price by nearly 16% to 1,530p.
Elsewhere, United Utilities shot to the top of the FTSE 100 leader board, rallying 4.4% to 531p on its decision to cut its dividend to protect its balance sheet from certain restrictions enforced by the regulator. Severn Trent was the sector’s second best performer, up 2.1% to 1151p followed by National Grid with a 1% gain to 653.5p.
Looking ahead, investors should keep an eye out for this afternoon’s US jobless claims figures for further insight into the state of the US labour market. The figures are scheduled for release at 1:30pm (London time). The US leading indicators index and Philadelphia Fed manufacturing survey will follow at 3pm.
As it stands, March Dow and S&P 500 futures traded between 0.20% and 0.30% lower, indicating the market currently the recent downtrend on Wall Street to remain in tact today.
