The FTSE experienced another lethargic start today, with banks suffering on the back of a US banking sector overhaul aimed at limiting financial risk-taking, and miners falling on the view that further policy tightening in China will crimp demand for commodities.
By 10:35am (London time), the FTSE 100 index had declined 19.79 points (-0.37%) to 5315.31, taking the index down by over 2% from last Friday’s closing level. The broader FTSE 250, meanwhile, traded 55.47 points (-0.59%) below its previous close at 9362.6.
Barclays was the worst performing bank in the sector this morning. Its shares were knocked 4% to 271.6p, taking this week’s slide to 12.7%, after US President Barack Obama last night said that banks should not be able to own, sponsor or invest in hedge funds for proprietary profit. President Obama’s proposal, which still requires congressional approval, would also set a new limit on the size of banks.
Barclays has a strong investment banking presence in the US through its acquisition of Lehman Brothers, so it stands to reason that these proposals may have a more significant impact on the bank’s earnings than on those of other UK peers – going some way to explain this morning’s share price underperformance, although speculation over additional capital raisings increased the weight on the company.
HSBC’s share price also traded lower, down around 0.21% at 673.6p, while Royal Bank of Scotland saw its shares retreat 2.2% to 34.55p. The only two banks to buck the negative trend were Lloyds Banking Group and Standard Chartered, which advanced 1.5% to 54.11p and 0.9% to 1442.5p respectively. The majority of European banks tend to conduct less proprietary trading than their US peers, which may help explain why Lloyds and Standard Chartered were predominantly unaffected by last night’s proposals.
Meanwhile ICAP, the world's biggest inter-dealer broker, plunged 6% to 400p on fears that the US proposals will erode revenues.
A weak mining sector also weighed on the FTSE this morning, with losses ranging between 0.08% and 2%. Investors continued to take profits across the sector on fear that China’s policy tightening will weigh on global commodity demand.
Market sentiment was additionally stung by a sluggish rise in domestic retail sales for December, up only 0.3% on the month. This took the annual rate up by 2.1% on the year, undershooting Bloomberg’s median forecasts for a 1.1% monthly increase and year-on-year gain of 3%.
On a positive note, the November retail sales figures were revised to show a 3.1% year-on-year increase, improving on the 2.7% annual gain originally reported.
In the absence of any major economic news, investors will be looking forward to the US fourth-quarter results of General Electric, McDonalds and Schlumberger later today.
