UK Stocks Closing : British blue chips dipped on Thursday, edging down towards recent six-month lows as a surge in Spanish bond yields to record highs cast the spotlight back onto the problems in top trading partner the euro zone.
Uncertainty ahead of Greek elections at the weekend – which may decide whether the country stays in the euro zone or opts for an exit with unpredictable contagion risks for the rest of Europe – kept investors on edge and on the sidelines.
Moody’s slashed its rating on Spain by three notches, saying the newly-approved euro zone rescue plan for its banks will increase the country’s debt burden. Spain’s 10-year bond yields hit a euro area record of 7 percent – a psychologically key level, whose breach for Greece, Portugal and Ireland was followed by bailout requests.
The FTSE 100 closed down 0.3 percent, or 16.76 points, at 5,467.05, wiping out its gains from earlier in the week, and just over 200 points above its June 1 trough around 5,230, which was its lowest since late November 2011.
The truth lies in the performance of the peripheral European bond yields, said Jeremy Batstone-Carr, strategists at Charles Stanley.
The UK won’t escape unscathed because we too have a very high debt to GDP ratio.
Fund managers have stepped up their net underweight on UK to 16 percent from 9 percent in tandem with turning more negative on the euro zone, according to the latest monthly survey from Bank of America Merrill Lynch.
Technicals also pointed to more weakness, with strategists at SEB highlighting 4,800 to 5,000 as the next target area.
MERGERS, GAMES
Heavyweight miners led the retreat on Thursday, as investors fretted about the impact of the crisis on global economic growth and thus demand for metals.
Glencore and Xstrata fell 4 and 2 percent, respectively, weighed down by concerns about whether they will be able to pull off a plannned merger.
With major Xstrata shareholders having publicly voiced their dissatisfaction to these proposed remuneration packages, we see heightened risk that the merger may be voted down if voted on in its current configuration, strategists at Liberum Capital said in a note this week.
If the deal breaks and Xstrata trades back to parity with the sector, we believe a 30 percent fall for Xstrata shares and a 10 percent fall for Glencore is feasible.
Also among the top fallers was hedge fund manager Man Group , which fell 3.6 percent ahead of its last day in the FTSE on Friday, and BSkyB, which dropped 3.2 percent.
The satellite broadcaster paid more than expected to broadcast most of the English Premier League soccer matches in a new three-year deal. Shares in telecoms operator BT, which won the right to show some of the games and competition from which was seen as the reason for the higher price tag, fell 3.3 percent.
This (deal) outcome comes as a negative surprise and we believe market expectations were for a favourable outcome. With increased competition from BT and downside risk to estimates, we would expect a negative reaction in the share price, strategists at UBS said in a research note.
