FTSE 100 falls 43pts as emphasis turns to valuations

<p>The FTSE 100 fell 39pts or 0.7% in early trading on Monday as investors started to refocus their attentions back towards valuations as the US […]</p>

The FTSE 100 fell 39pts or 0.7% in early trading on Monday as investors started to refocus their attentions back towards valuations as the US earnings season kicks off tomorrow night with Alcoa after the US closing bell.

By 10am, the FTSE 100 had tracked broader losses across European trading where the DAX and CAC both lost 1.3%.

Most of the early losses were concentrated in the heavyweight mining and financial sectors, which echo’s a risk off theme to trading. Both the mining sector and banking FTSE 350 sectors lost 1.7%, the heaviest in the early parts of the trading session.

There is no visible trigger to today’s early losses. Clearly European investors are tracking similarly bearish sessions in Asia trading early this morning but the start of the third quarter US earnings season is also being watched closely by investors this week as they start to focus back towards valuations. With the S&P 500 trading just 4pts short of its four and a half year high, investors are now starting to gauge whether the soon to be announced earnings justify existing stock valuations.

It’s natural for investors to scale down their portfolios ahead of an earnings season and so there is perhaps nothing to read too much into today’s market falls. The falls in benchmark indices has not taken place alongside a rise in sovereign bond yields for Spain or Italy, whilst Chinese HSBC PMI data continued to recover this morning too with services hitting 54.3 in September. The positives from this reading was cooled however after the World Bank to cut economic growth forecasts for East Asia and the Pacific region, highlighting a significant slowdown for China this year and could accelerate further. This bearish view of a crucial market place for resources demand has dampened sentiment in Europe somewhat, yet still I get the sense many are simply waiting for the People’s Bank of China to make their move on the stimulus front to curb the slowdown.

The US earnings season starts slowly this week, with Alcoa announcing after the US closing bell tomorrow night. The important part of the earnings season in the US starts on Friday with JP Morgan and next week when the major US banks report.


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