FTSE ends lower by 0 4 as traders downsize risk ahead of EU Summit

The FTSE 100 ended the day lower by 0.4%, weighed down by weakness in mining and banking firms as traders downsized risk ahead of a crucial EU Summit tomorrow and a vote in the German Bundestag about an extension of the EFSF’s new powers.

It has been a fairly choppy trading session today, with investors mostly buying into oil firms on the back of stronger-than-expected results at BP and BG Group, but looking to minimise risk in other heavyweight risky asset class stock sectors such as banks and miners ahead of what could turn out to be a crucial day for Europe tomorrow.

Price action today shows traders are very jumpy
In a perfect example of just how sensitive investors are at the moment with the summit to come tomorrow, stocks were sharply sold off upon hearing that the Econfin meeting that was to be attended by the 27 EU finance ministers tomorrow was set to be delayed, partly due to the fact that there is such a heavy emphasis on the EU leaders summit, but also due to speculation that the meeting needed to be delayed until a clear plan had been agreed upon.

Regardless, the fact that the FTSE 100 lost over 70 points in a matter of minutes upon release of the news shows just how jumpy traders are at the moment.

Whether or not we will actually see a resolution to come from the EU Summit tomorrow remains to be seen and the evidence of the last few months towards such a heightened meeting does not bode well, considering that we have now waited months for EU leaders to come together and agree viable plans to solve the EU sovereign debt crisis.

Previously they had put a self confessed deadline for solutions to be announced at the G20 meeting in Cannes next month and so whilst it is unwanted, we could see leaders kick the can down the road further tomorrow from this meeting if they fail to find a consensus. My worry is that investors may be expecting too much to come from tomorrow and that puts equities at risk of disappointment.

Oil firms lift earnings sentiment
Earnings from oil firms BP and BG Group however helped to improve company earnings sentiment after both firms beat earnings expectations today. BP reported a profit of $5.14 billion, higher than the $5 billion expected, whilst BG Group also announced better than expected earnings of $1.02 billion. BP will naturally take the headlines, with Bob Dudley highlighting the earnings as evidence that the beleaguered oil firm had turned a corner. Shares rallied 4.3% as a result and topped the FTSE 100 leaderboard on the day, proving that the earnings had inspired shareholders too.

US confidence data disappoints
Data out of the US in the shape of consumer confidence did however disappoint, hitting its lowest level in two-and-a-half years. US consumer confidence hit 39.8 for October, marking a sharp fall from last month’s upwardly revised reading of 46.4. The data itself highlights growing fears of the slowdown in US economic activity, considering that around 70% of US activity is reliant upon consumer spending. After the data was released stocks sold off but soon recovered somewhat into the close.