FTSE 100 at six-week low as strong data fuels tapering talk

By David Brett

LONDON (Reuters) – Miners and oil companies led the FTSE 100 lower on Tuesday, as strong economic data prompted investors to bet that equity-friendly central bank stimulus would soon be scaled back.

The FTSE 100 was down 39.33 points, or 0.6 percent, at 6,556.00 points at 3:26 p.m. The blue-chip index has fallen roughly 2 percent over the past month, lagging a small rise for the STOXX Europe 600.

Resources stocks, which account for 25 percent of the index’s weight, took off 11 points as metals prices fell. Traders pinned the decline in metals to stronger-than-expected U.S. economic data on Monday.

Antofagasta led the fallers, down 4 percent, as UBS cut its earnings forecasts for the firm by 8 percent for 2014 on concerns over the outlook for precious metals, citing an expected withdrawal of U.S. quantitative easing as a factor.

Financials fell too as investors trimmed positions in risk assets. HSBC led banks lower, taking 4.5 points off the FTSE 100 as Nomura cut its rating on the lender to “neutral”, citing regulatory risk to its dividends.

A robust economy usually means better corporate profits and rising stocks. But recent improvements to the economic outlook could lead to an early reduction in the U.S. Federal Reserve’s monthly bond-buying, which has supported the long rally in equities and curtailed returns from other assets.

“The important risk heading into 2014 is that growth will be too strong. That means we will have a revision in the timing of any interest rate hikes, which is likely to be brought forward,” said William de Vijlder, chief investment officer for strategy at BNP Paribas Investment Partners.

“For investors on a medium-term horizon, the good data is still a relief, but at the margin investors are looking at where they can make money in the short term.”

From a technical standpoint the FTSE 100 broke below its 50-day moving average on Monday, a bearish signal, and is now targeting support at its 200-day moving average of 6,507.

Growing momentum in the British economy has also given investors pause.

Sterling reached its highest in more than two years after the closely-watched construction PMI survey hit its strongest level since August 2007. That indicated forex traders were beginning to price in a rate hike sooner rather than later.

RETAIL GLORY

Some sectors, notably retailers, are likely to benefit as Christmas approaches. High-street names as Next, Sports Direct and Debenhams rose as much as 2.4 percent, reflecting expectations that sales will rise in December and into January.

Next was lifted too by some bullish comment from Oriel Securities, which upgraded the stock to “buy” from “hold” with a target price of 6,200 pence, a 12 percent premium to its current share price.

“We believe UK cash and credit customer recruitment will remain strong and with international online sales set to double in the next two years, material upside remains,” Oriel said.

UBS meanwhile upgraded bookmaker William Hill to “buy” and raised its earnings forecasts, citing the stronger economy. Its shares climbed 1.9 percent, getting a further boost from peer Betfair’s release of first-half results.

Markus Huber, a senior trader at Peregrine & Black Capital, believes the economic environment will help the FTSE rally to 6,900 points by mid-2014 and then 7,150 points by the year-end.

“I think good economic data is overall positive for stocks, mainly because I think the Fed will only take drastic steps once a sustained improvement in the economy is visible,” Huber said.

(Editing by Catherine Evans)

FTSE 100 at six-week low as strong data fuels tapering talk