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FTSE 100 Well Below 4,000

We are looking at a nightmare scenario for leading stocks in the sense that even after the 1.5% base rate cut earlier this month, which as the Bank of England minutes revealed yesterday could have been 2%, the FTSE 100 is well below 4,000. The trigger yesterday apart from the record fall in US consumer prices was the revelation from the Federal Reserve minutes that it expects the recession there to last well into the summer of next year. The effect of this has been for bulls of stocks to readjust their expectations to the downside, something which they were doing anyway given that earlier in the week the US Treasury hinted that the $700 billion bailout may not be all that it was promised to be.

As far as stock highlights were concerned it was the usual suspects on the downside, with miners especially hard hit as an economic proxy. The losses for leading protagonists such as Rio Tinto (RIO) and Billiton (BLT) were of the order of 5% and more. With no end in sight to the falling price of crude oil the FTSE 100 was also hurt by shares of oil majors. This took the form of 1% - 2% losses for the likes of BG Group (BG.), BP (BP.) and Royal Dutch Shell (RDSB), but nothing like the hammering that some financials were taking.
A notable loser was spreadbetter IG Group (IGG) which delivered the first truly bad news of the down cycle in admitting that there has been a rise in bad debts from last month. What can be said in relation to the price action of last month is that it was so volatile it would have been miraculous if this had not been the case. Still the shares were down over 15%.
Another chunky loser in the financial area was insurer Aviva (AV.) also down nearly 15% as fears once again resurfaced regarding the effect of a falling stock market on its balance sheet. Fellow insurer Prudential (PRU) was also down 10% in sympathy.
To add to the gloom in the “real world” the unemployment figures will be added to in the UK by another 2,000 in the wake of engineer Rolls Royce’s (RR.) job cuts today. 4% of its workforce is to go, with the shares dipping and then bouncing off year lows under 250p.

Head of Research at Blue Index, specialists in trading

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20/11/08

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