The recent increasingly bullish mood in London's equity market ground to a halt yesterday as renewed weakness in many of the TMT (technology, media and telecoms) stocks, plus a sell-off in drugs and the oil majors, more than offset a resurgence of interest in financials.
The market moved to a more defensive stance ahead of the publication this morning of the Bank of England's regular quarterly inflation report.
Many economists expect the report to confirm the benign inflationary outlook that has seen the Bank of England's monetary policy committee leave British interest rates on hold for the past six months. But there is still a view among some market observers that there could be one more increase in the current cycle.
In the background was the niggling worry that the US Federal Reserve might still move to nudge interest rates higher after the August 22nd meeting of its open market committee. Although the Federal Open Market Committee (FOMC) will meet again in October, most observers reckon that, without a move on August 22nd, there will be no change in rates until after the US presidential election on November 7th.
London never looked comfortable yesterday, slipping away from the outset despite an impressive overnight performance from Wall Street, where the Dow Jones Industrial Average pushed up just short of a three-figure gain and the Nasdaq put on 75 points. A disappointing showing by far eastern markets, especially Hong Kong, was put forward as one reason for London's early disappointing performance.
The FTSE 100 index ended an erratic session a net 29.7 lower at 6,358.1, only its second decline during the past seven sessions.
The other FTSE indices were similarly erratic. Impressive performances from stocks such as Smith & Nephew, which released interim figures, and transport stocks such as Arriva and First Group propped up the FTSE 250 index, which settled 11.8 higher at 6,744.5.
But the FTSE SmallCap was finally 1.4 easier at 3,383.9 and the Techmark 100 fell 15.10 to 3,471.99. Dealers offered little hope of any dramatic market moves in the short term and as the holiday season reaches a peak.
"The general view is that US rates will remain on hold and the investment flow means that the money has to go somewhere. But there is not much to go for in the tech stocks, so the best we can hope for is more stock and sector rotation," said one UK market-maker.
Turnover of 1.33 billion shares looked impressive but was inflated by the 258 million shares traded in Vodafone Group and 54 million traded in BP.
