A sell-off in telecom stocks, combined with more bad news for the general retailing sector, sent the FTSE 100 index sharply lower yesterday. The blue chip benchmark fell 87 points to 6,083.3, wiping out most of the gain achieved during Footsie's rally over the previous three sessions.
The day's economic news looked as if it ought to push the market higher. The inflation news was better than expected with the annual headline rate dropping to 2.9 per cent in December, from 3.2 per cent in November and the underlying rate (which excludes mortgage interest payments) falling from 2.2 to 2 per cent.
That encouraged the view that the Bank of England might move to cut interest rates when its monetary policy committee next meets in February. Most analysts expect UK rates to fall by around half a percentage point this year (to 5.5 per cent), although they disagree about the timing of the moves.
However, the inflation figures gave no great fillip to the market, and the FTSE 100 drifted steadily lower all morning as investors fretted that Wall Street was set to open lower.
When the US markets eventually opened (having been closed on Monday), the Nasdaq composite suffered an early decline, although the drop was not alarming by recent standards.
The volatile TMT (technology, media and telecom) sectors of the market took a hit in response to Nasdaq's weakness, with shares in Vodafone, the UK market's biggest stock, taking more than 20 points off the FTSE 100. The Techmark 100 index of leading technology stocks fell 48.92 to 2,547.24.
The FTSE 250 and SmallCap indices suffered more modest declines, with the former dropping 25.8 to 6,582.3 and the latter 1.6 to 3,218.4. The losses were cushioned by signs of a shift from TMTs to defensive stocks.
Much of the corporate news once again came from the retailing sector where a slew of companies produced Christmas trading statements. Worst hit was Kingfisher, where brokers downgraded profit forecasts after signs that sales growth was coming from low margin areas. The stock was the worst performer in the FTSE 100.
The other retailers to produce bad news were New Look and Oasis and the gloomy views of those two fashion retailers ensured another sell-off in Matalan, the discount clothing chain.
But supermarket Safeway and department store Debenhams both produced solid Christmas data. The oil stocks, which had helped hold up Footsie on Monday, slipped back on profit-taking ahead of today's meeting of the Organisation of Petroleum Exporting Countries, which is expected to cut production by 1.5 million barrels a day.
