Interactive Investor

FTSE 100 bows under global pressure

9th December 2014 16:26

Rebecca Jones from interactive investor

The FTSE 100 fell 2.1% on Tuesday as a further fall in the oil price, Chinese stock losses and Greece's shock early election all weighed on the index.

The UK's premier large-cap index tumbled from 6,680 at market close on Monday to just 6,529 by end of trading on Tuesday as the UK market digested a number of global upsets.

Chief among these was a further slide in the price of Brent crude oil, which tumbled 5% to a five year low of $66.19 on Monday, sending shares in a number of the FTSE's oil and gas companies lower on Tuesday.

Smaller firms including Enquest and Nostrum Oil and Gas, whose shares fell over five% to 40p and 517p respectively, were hit hardest while mining giants Rio Tinto, BHP Billiton and Glencore saw more modest falls of between 1.4 and 2.5%.

Sell-offs within Chinese markets also had a negative impact on the index as some of China’s major oil and bank stocks fell up to 10% - the daily limit allowed by Chinese regulators.

Meanwhile, news that Greece's current government plans to call an early election threw doubts over the country’s financial stability, prompting Greek markets to record their biggest one day loss since 1987.

Closer to home beleaguered UK supermarket Tesco issued its fourth profit warning this year, sending shares tumbling as much as 17% from 187p at close of trading on Monday to just 155p on Tuesday morning.

According to David Madden, market analyst at IG, all of this has weighed heavily on the Footsie: "The London market is suffering from a broad selloff. Retail, natural resources and financials are in the red today as all the negative news has come at once.

"The Greek government is trying to bring some political stability to the country, but all it has done is bring financial uncertainty to the entire European banking sector while a sharp swing into the red in Hong Kong has renewed fears that China's cracks are beginning to show," he says.

The FTSE 100 fall is largely in line with other global indices including France's CAC-40 and Germany's DAX, which also fell over 1% on Tuesday while futures for the US's Dow Jones and S&P 500 indices both fell 0.3%.

However, Samuel Tombs, UK economist at Capital Economics argues that unlike other global indices, the FTSE 100 is likely to trend higher in the longer term: ‘We believe that the FTSE 100 should outperform other global indices over the next two to three years.

"British companies are set to deliver strong earnings growth in 2015 and 2016 which, combined with lower equity valuations than those in the US and some parts of Europe, should drive the index over 7,500 by the end of 2016," he says.

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