• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

FTSE Drops Again Over US and Oil Fears

Posted on: Friday, 7 October 2005, 12:00 CDT

By Nick Bevens

STOCK markets across Europe continued their downward drift yesterday, on fears that the United States is planning to keep raising interest rates, as high energy prices drive inflation.

Oil prices fell close to the dollars 62 a barrel mark - ostensibly good news - but markets were hit as shares in heavyweight oil giants dropped, still shocked by BP's weak trading statement which continued to feed through to markets on both sides of the Atlantic.

Overnight, the Dow Jones index tumbled 123 points to 10,317 and the FTSE 100 dropped another 54.4 points, or 1.02 per cent, yesterday, to 5,372. On Wednesday it fell 67 points, the biggest daily points fall since the July bomb attacks on London's transport system, making a 2.2 per cent fall in the past 48 hours to hit a two- week low.

Also weighing on the London market are this week's weak manufacturing figures.

Despite a handful of gainers, 90 of the UK's 100 blue-chips succumbed to the downbeat trend, with sweets maker Cadbury Schweppes the heaviest decliner, down 4.8 per cent after warning its profit margin targets for the year would probably be hit by rising costs.

Wall Street's overnight fall was triggered in part by comments from a Federal Reserve official, who said that the central bank needed to stay alert to potential inflation pressures caused by rising energy prices. .

Crude oil's fall towards dollars 61 a barrel was triggered by data showing oil demand in the US dropping below last year's levels. Oil prices have fallen for five straight days, with the New York benchmark contract down about 12 per cent from last month's record high.

Traders were using a vicious circle argument to explain the weakness: high costs are eroding demand for oil, thereby cooling economic growth, thereby eroding demand for oil

Back in Europe, the FTSE was largely unruffled by news on our own interest rates being held at 4.5 per cent. Both the Bank of England and the European Central Bank decided to keep their rates on hold this month.

Yesterday heavyweight oil stocks, which have provided the bulk of the FTSE's strong gains since early May, suffered as oil prices eased and the market continued to digest the statement from BP.

Cairn Energy and BP both lost over 2 per cent and smaller players were also hit hard. Oil and gas explorer Soco International fell 8.2 per cent, followed by drops of about 4 per cent each for Tullow Oil and Burren Energy .

British Airways also managed a 2.8 per cent rise as oil prices touched their lowest level in two months.

Traders said more stock-market falls are likely today, and even into next week. "We've seen a few bad days. It would not surprise me if we see another few bad weeks. But I think before the end of the year there will be a good buying opportunity. I do not see it as the start of any major bear trend. I just think it is a healthy reaction to what has been quite a strong market in recent months," said John Smith, head of investment strategy at Brown Shipley.

Source: Scotsman, The

More News in this Category