The repercussions from the collapse of Enron, the US energy trading company, weighed on sentiment yesterday and sent the FTSE 100 back down below 5,200. To add to the gloom, there were worries about the financial position of Argentina, which imposed controls on cash withdrawals over the weekend to try to stem a run on the banking system. And investors were also concerned about the escalation of violence in Israel.
Nor was there much encouragement from the domestic economic data. The purchasing managers index for the manufacturing sector fell to 45.6 from a revised 46.5 in October, indicating that activity remained weak. Any figure below 50 implies contraction.
"Overall another weak report, but it is not bad enough to prompt the Bank of England into cutting rates again this week," said the global economics team at ING Barings.
The collapse of Enron, which filed for Chapter 11 bankruptcy protection, weighed most heavily on the banks. While the immediate impact on most UK banks appears limited, investors seem concerned about the knock-on effects on Enron's trading partners. In a trading statement, Barclays did not mention Enron but said that bad debt provisions had risen in the third quarter.
The other main corporate news came from Cordiant, the advertising group, which announced further job losses in the face of lower-than- expected revenues. When Wall Street opened, the Dow Jones Industrial Average quickly slumped to a triple-digit loss, affected by the Enron, Argentina and Israel news.
However, US economic data were quite encouraging with the purchasing managers' index jumping to 44.5 from October's 38.9, while personal spending rose 2.9 per cent and construction spending 1.9 per cent, respectively, in October.
The FTSE 100 reached its low for the day of 5,152.3, down 51.3, shortly after the Wall Street opening but recovered modestly to close 39.0 lower at 5,164.6. The other indices were all lower with the FTSE 250 dropping 24.8 to 5,824.7, the SmallCap 10.1 to 2,584.3 and the Techmark 100 14.05 at 1,487.86.
The UK market has now dropped back into the 5,000-5,200 range it occupied for most of October. The impetus of lower interest rates seems to have faded.
