FTSE falls back to retest pivotal level

There’s been another push lower seen in the FTSE 100 this morning with the market falling more than 40 points and price trading back close to the breakout level from last month at 7600. The Pound has been fairly subdued on the day with no sustained moves ahead of a speech later this afternoon from Bank of England Governor Carney.

Miners and Banks weigh on the broader index

The worst performing blue-chips come from the mining and banking sector with several notable decliners on the day. Anglo American is the biggest faller, off by more than 2.5%, with the drop coming the day after the firm announced its exit from the South African coal market. Today’s declines could well be attributed to simply some profit taking after an impressive rise of more than 30% since the beginning of December. The sale of the New Largo asset was deemed by many as a positive step, with a fee of £57M seen as a fair price for the sale which allows Anglo to progress further with their strategy of focusing more on sustainable mining methods.

Smaller but notable declines can also be seen in Glencore and BHP Billiton as the sector as a whole experiences some selling. Financials are also in the red with Barclays, RBS and LLoyds lower by around 1.5% and whilst there is no sector-specific negative developments here - similar to the Miners - a fairly sharp drop on Wall Street last night could have soured investors appetite somewhat.

Flush in US stocks a cause for concern?

The S&P500 closed lower by 0.67% last night, which marked the largest drop since the 5th September for the US stock benchmark. A decline of less than 1% is hardly symbolic of panic selling but given that the index had gone a remarkable 99 consecutive days without a 0.6% loss - its longest ever streak - Monday’s declines can be seen as fairly significant. Futures contracts continued lower throughout the Asian session and the market is now almost 40 points below Sunday night’s opening level. The sell-off could well be due to month-end rebalancing and it will be interesting to watch the price action closely in the coming days to see whether this is just a temporary slide as funds allocate a greater proportion of assets into bonds rather than equities or the start of something bigger.

The extension of the stock market rally and the recent fall in bond prices means that for a fund to maintain a fixed ratio of equity:bond investments they will have to sell the former and buy the latter. The US 10-year Treasury yield briefly touched it highest level since April 2014 yesterday and this fall in bond prices (yields are inverse to price) as well as the recent rise in stocks will have skewed asset managers ratios away from their prior holding levels.