FTSE loses 1 as traders lock in gains ahead of Fed and ECB decision

The FTSE 100 lost 1% in trading to suffer the first negative trading day in four sessions as traders locked in gains after a 3% rally ahead of the Federal Reserve’s and ECB’s policy decision tomorrow night and Thursday.

However, with volumes at just 73% of the 90 day average for a typical trading day, this exacerbated today’s falls.

Financial stocks took the brunt of today’s reversal which is of no real surprise given that this sector has benefitted particularly from the recent rally. The falls in the banking sector is largely being attributed to investors locking in some gains in case the Fed or the ECB fails to deliver.

It is very much a case now, particularly for Mario Draghi, of standing up and delivering after some of the most definitive rhetoric since he took the ECB Presidents office. Yet, the German Minister today continued to distance the country from speculation Europe’s bailout fund could be given a banking licence, keeping tension in the market whether Draghi can manoeuvre enough favour to announce new stimulus on Thursday.

Oil giant BP also suffered falls of 4% which proved to be another heavyweight drag on the UK index after reporting earnings. BP said that it took a $5bn charge in its second quarter results due to the oil spill and rows with its Russian joint venture partners. The oil firm reported a loss of $1.4bn for the quarter as a result which, when adjustments are made for the charges and other one off items left profits at $3.7bn, marking a fall of 35% from a year earlier and missing forecasts of $4.4bn.

Another failure to break consistently above the 5700 to 5720 level today remains a concern for the near term outlook of the FTSE 100. The UK index has continued to fall from this resistance levels and it may well be the case that investors are waiting on news from the Fed and ECB before deciding whether the FTSE can break above this level.