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FTSE 100 weekly: Fed’s Bernanke sparks mammoth sell-off

Published: 17:00 22 Jun 2013 AEST

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The FTSE 100 suffered its biggest daily fall in a year-and-a-half this week as Fed chairman Ben Bernanke poured cold water over a global stock market rally.

His comments that the Fed will soon begin take its foot off the asset purchase pedal – and suggestions of ending bond buying altogether by mid-2014 – sent investors running for the hills, with £48bn wiped off the Footsie on Thursday.

The index ended the week at 6,135, having finished last week on 6,308.

“The US Fed Chairman threw kerosene on the correction barbeque this week, daring to express optimism in the US economy and markets taking fright at a potential tapering of QE3 soon, even turning off of printing presses mid next year (data depending of course),” said Mike van Dulken, head of research at Accendo Markets.

“Normally this would be good news…but the fact that markets are lower highlights how unconvinced they are in US data being good enough, nor the economy strong enough to move forward under its own steam.

“They’d much rather the US stayed hooked up to the $85bn/month drip,” he concluded.

You didn’t need to be Warren Buffett to work out that precious metals miners took the brunt of the slump as the gold price plummeted to near-three year lows.

Gold producer Polymetal (LON:POLY), which is soon leaving the Footsie, was the biggest faller, down 20%, followed closely by silver miner Fresnillo (LON:FRES) and Randgold Resources (LON:RRS).

Other heavyweight miners, such as Glencore Xstrata (LON:GLEN), BHP Billiton (LON:BLT) and Anglo American (LON:AAL), were hit by some gloomy manufacturing numbers from China, the world’s fastest growing superpower.

They pointed to a sharper economic slowdown from China than expected, dealing a double blow to the mining sector.

The nationalised banks were also in focus after the Chancellor fired the starting pistol on the re-privatisation of Lloyds (LON:LLOY) and said he would consider splitting Royal Bank of Scotland (LON:RBS) in two.

George Osborne’s plans, revealed at the Lord Mayor’s dinner at the Mansion House on Wednesday, were set out as it emerged Britain’s lenders may need to raise around £27bn to fill a funding black hole.

However, Lloyds, which is reported to require an £8.6bn fillip, said it is making significant progress towards strengthening its capital position.

BNP Exane Paribas’s Tom Rayner agrees and thinks the work will lead to an early resumption of dividend payments.

“With the group’s capital position and non-core run-off both ahead of schedule, we see little to prevent an early return to dividend payments,” said the analyst.

His estimates for dividend per share rise from 2p in 2013 to 2.5p in 2014 and from 3.5p to 5p the year after, sending his target price up from 65p to 75p.

The marked improvement in Lloyds’ financial health bodes well for the group as the yoke of state ownership is loosened.

It was the only bank to end the week in the black as RBS slumped 10.5% and Barclays lost 5%.

Investors rushed to defensive stocks on Friday, with Diageo (LON:DGE) the tipple of choice. The Johnnie Walker whisky and Smirnoff vodka maker is waving goodbye to chief executive Paul Walsh, who is joining catering company Compass (LON:CPG) as chairman.

Speaking of departures, BT (LON:BT.A) gave chief executive Ian Livingston a guard of honour as it was revealed he is leaving in September to take up a job alongside David Cameron as Minister of State for Trade and Investment.

Cruise ship operator Carnival (LON:CCL) shares were just about afloat as the oil price slump played into its hands. It also helped out airlines easyjet (LON:EZJ), British Airways owner IAG (LON:IAG) and TUI travel (LON:TT.), the company behind Thomson and First Choice.

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