Mining sinks shares
Falls in mining stocks dragged down British shares yesterday as investors focused on a gloomy economic outlook, turning back some of the boost given to markets by central bank action in Europe and the US.
Germany's Ifo index of business sentiment bucked expectations of a rise to fall for the fifth month running, the latest victim of a run of poor data from major economies. That turned investors' minds back to the longer-term problems both Europe and the US have in generating growth while trying to get public debt back under control.
There was also more scepticism about a third round of quantitative easing by the US Federal Reserve and whether the European Central Bank's bold plan to buy eurozone bonds could put an end to three years of debt crisis.
"There is a deep discussion about how effective these stimulus measures will be and we'll have to wait for the next few data releases to get some feel for that," said Darren Winder, head of strategy for Oriel Securities.
"There is a general belief that the outlook is improving as a result of these measures, but we need to see some hard evidence," Winder added.
Miners knocked 10 points overall off the FTSE 100 index, with Anglo American a big casualty, down by 3.1% as Bank of America Merrill Lynch cut its rating for the firm to "neutral" from "buy" with a reduced target price of 2400 pence.
"Anglo shares present deep value. However, with continuing union-related labour unrest in South Africa, which particularly affects the group's key platinum division, we do not see shares outperforming the broader sector or the market in the near term," Merrill said.
ENRC was also a big faller, down by 4.6%, with the UK's Sunday Telegraph reporting that the Kazakh mining conglomerate had shelved plans to split in two as a result of market conditions and lower production.
Overall, the mining sector has fallen by about 5% since the release of dull manufacturing data from China, the world's top consumer of metals, late last week.
JP Morgan Chase recommended pocketing recent gains in the sector because the effect of stalling global growth momentum was offsetting the modest boost generated by a new US Federal Reserve asset buying programme.
The bank said it would avoid Anglo American and Kazakhmys, with its top-sector picks being Rio Tinto, Antofagasta, Fresnillo and BHP Billiton.
Falls by banks dragged on the blue chips. The sector reversed more of a summer rally.