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FTSE drops as fiscal cliff warning eclipses Fed action

by Chris Marshall on Dec 13, 2012 at 08:19

FTSE drops as fiscal cliff warning eclipses Fed action

Neither a deal on a banking union in Europe nor a renewed show of force from the US Federal Reserve were enough to prevent small losses on London’s FTSE 100 index on Thursday morning.

The UK’s blue chip index slipped a few points to 5941, while Europe's Eurofirst 300 made similar minor losses following small falls in the US overnight (the Dow Jones slipped three points to 13,245 and the S&P 500 ended little changed at 1,428) as concerns over a fiscal cliff eclipsed Fed action.

Euro banking union and US stimulus

Investors awoke to the news this morning that eurozone finance ministers had taken a step closer to a banking union, reaching a deal on rules for big banks to be supervised centrally by the European Central Bank. The euro inched higher to $1.3078.

But dampening sentiment was the renewed warning from Federal Reserve chairman Ben Bernanke that monetary policy won't be enough to offset damage from the ‘fiscal cliff’. Commodity prices fell, with Brent crude oil futures 0.5% lower to $109.

Bernanke's comments came after the Fed committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September. It also said it will keep its near-zero interest-rate programme in place until the US unemployment rate falls to 6.5% from its current 7.7%.

Marc Ostwald of Monument Securities commented: 'Perhaps the lack of market reaction reflects not only muted year end market volumes, but also the fact that so much of Bernanke's media conference was spent discussing the 'fiscal cliff' and the fact that the Fed would not be able to do much more, if Capitol Hill fails to reach an agreement to avert the more savage elements of spending cuts and tax hikes.'

Concern over an impending fiscal cliff has prevented any strong equity market rises in recent days, though markets have generally ticked higher. Discussions to avoid the fiscal cliff intensified in Washington yesterday, but U.S. House of Representatives Speaker John Boehner said that ‘serious differences’ remain with President Barack Obama.

Centamin plummets amid mining losses

Mining shares featured among the biggest fallers in London. Roman Abramovich's Evraz (EVRE.L) dropped the most on the FTSE 100, down 2.3% to 257p. Kazakhmys (KAZ.L) and Fresnillo (FRES.L) were both nearly 1% lower at 750p and 1,940p respectively.

FTSE 250-listed Centamin (CEY.L) was the real stand-out though, with shares plummeting by 57% to 23p after the miner announced it had suspended operations at its Sukari mine in Egypt.

Centamin cited an ‘illegal retrospective claim from Egyptian General Petroleum Corporation for c. US$65 million for diesel fuel’ and ‘an unforeseen and arbitrary request from customs officials’ that led to its shipments of gold being halted.

Analysts at Investec kept their 'hold' rating on Centamin shares, commenting: 'We do expect that these issues will be resolved, as previous issues have, but the on-going flow of negative news and negative political overlay are more than offsetting the value upside that CEY offers.'

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