Late rally helps FTSE to close flat after mixed data

European markets started the last trading session of the week in a broadly negative sideways trading manner before a late rally into the close helped the FTSE to finish flat on the day. Worries about the Eurozone resurfaced and a mixed bag of US data left the markets uncertain over the prospect of further stimulus, though a letter from Bernanke helped to calm investors nerves.

Here in the UK the FTSE managed to close flat on the day having traded as low as 5739. The morning session saw second quarter UK GDP upwardly revised to a contraction of 0.5% from a deeper preliminary reading of -0.7%. The revision resulted in a small pickup in the stock market but as the news was expected the overall reaction from investors was minimal.

The FTSE saw downward pressure from the heavy weight mining sector after Anglo American was downgraded from “buy” to “hold”. The miner’s shares finished the day 2.9% lower whilst sector peers Eurasian Natural Resources shed over 3.5%. The banking sectors also dragged heavily on the FTSE with Ashmore leading the downwards move after Citigroup turned bearish on the stock. Ashmore finished the day down 4.3%.

Shares in Marks and Spencers topped the leaderboard, rallying 4.2% on speculation the retailer could be a bid target for private equity firm CVC.

However, news coming out of Europe continued to disappoint investor’s today. Firstly Spain’s deputy prime minister affirmed that the government was not in talks with the Eurozone over financial assistance to lower their borrowing costs.

And secondly, Greek Prime Minister Antonis Samaras meet with Angela Merkel in Berlin where he was looking for an extension to the original timetable to implement agreed reforms. Although Merkel said she wants Greece to remain in the Eurozone, she repeated the fact that she wants to see a report from the troika next month before European leaders decide whether or not to give Greece more time to implement the measures. This is likely to kick the can further down the road but in truth, there has not been any change in rhetoric from the German Chancellor on this and so there was little reaction shown by investors to her comments today.

Speculation that the ECB may now push back details of any plans to buy government bonds until Germany rules on Europe permanent rescue fund on September 12th also hurt sentiment somewhat. Despite this, Reuters quoted central bank sources as saying this was on the table and being discussed.

To this end, the markets may have to wait for clarity from Mario Draghi at the next ECB conference on 6th September. The Jackson Hole economic symposium at the end of next week will also be a key element investors will watch for evidence of further stimulus.

In US trading, the recent optimism over potential stimulus faded following US durable goods data which rose 4.2% in July but weakened in other sectors. Consequently the markets dipped lower until a letter was released from Bernanke saying that he thought the impact of Operation Twist is still working its way through the economy but policy must be set in light of a forecast of future performance.

As we have seen now on so many occasions the markets have reacted with somewhat of a knee jerk to comments from leading figures such as Ben Bernanke. Yet when one digests the language, it perhaps does not hint towards anything new.