FTSE 100 falls on doubts over deals for Greece and Glencore
MINERS dragged Britain’s top share index lower yesterday, after doubt surfaced about Glencore’s potential merger with Xstrata, while banks waned in the absence of a debt deal for Greece.
The FTSE 100 index ended down 8.87 points, or 0.2 per cent, at 5,892.20, remaining near six-month highs after strong US jobs data boosted appetite for cyclical stocks. It had risen four per cent over the previous four trading days.
“The bears have effectively had to remove themselves from the field after Friday’s macro data and only a retracement to 5,800 by the FTSE 100 would give them any real encouragement,” Silverwind Securities trader Darren Sinden said.
Sinden said the prospect of a so-called golden cross on the weekly chart between the 20-day and 50-day moving average lines, as the faster moving line (20-day MA) closes in on its slower moving peer from below, will encourage the bulls longer term.
Having led the FTSE 100 higher so far in 2012, miners were the top fallers.
Glencore, which had risen 17 percent over the previous three trading days, fell 4.5 per cent as brokers said the commodities trader might have to pay a premium of up to 20 per cent to satisfy shareholders in its proposed $80+ billion merger with Xstrata.
UBS estimated synergies at around $1bn between the two firms and said: “These are sufficient for Glencore to pay around a 20 per cent premium on the undisturbed price of Xstrata”.
Xstrata, which had jumped 20 per cent since news of the takeover talks, fell 1.7 per cent after reports that Glencore would offer 2.8 new shares for each Xstrata share, an eight per cent premium.
HB Markets downgraded Xstrata to “sell”, saying: “The premium is on the light side, but we struggle to see that Glencore would agree to any significant upward revisions. And given recent price action, most of the upside is therefore priced in.”
Banks, which have risen 18 per cent this year, ebbed with doubts resurfacing over Greece’s ability to strike a deal to avoid a chaotic default, which could cripple the financial system.
German Chancellor Angela Merkel told Greece yesterday to make up its mind fast on accepting terms for a new EU/IMF bailout. Greek political leaders responded by delaying their decision for another day.
“It is easy to see where this caution is coming from. The sovereign crisis last year was, we reckon, quintessentially a piece of hard to price macro risk,” analysts at BofA Merrill Lynch said. “It would be the sign of a die-hard optimist of Bruce Willis-esque proportions to be willing to rule out similar ‘macro’ angst this year.”
Lloyds Banking Group, however, bucked the weaker trend, up 2.6 per cent with traders citing a positive readacross from a Halifax report which showed British house prices rose 0.6 per cent in January.
Defensives dominated the risers list as risk appetite waned with dividend favourite Vodafone up 1.6 per cent and Imperial Tobacco 0.8 percent higher.
Oil major BP rose one per cent ahead of results, while oil explorer Cairn climbed as it commenced trading without rights to a 160p per share cash distribution, and post completion of the 13-for-33 share consolidation.
Randgold Resources rose 2.2 per cent after saying profit in 2011 leapt 259 per cent to $433m and it would double its dividend to 40 cents.