FTSE falls back below 5900 on US Fiscal Cliff jitters

The FTSE 100 fell 0.6% in early morning trade on Monday as investors scaled back positions in heavyweight financial stocks such as banks and insurers on concerns over the US Fiscal Cliff.

By 11.00am, the FTSE 100 was trading at 5885, losing 36pts or 0.6% and tracking similar losses across broader European trade.

We are getting into the quiet periods in the market now being one week before Christmas and the time that most investors take a leave of absence from the markets. Volumes are getting lower and lower in the underlying market, meaning that prices are becoming increasingly susceptible to spikes when trades of above normal market size take place. This can create an additional edge of volatility that traders need to be wary of.

Indeed the US Fiscal Cliff negotiations is continually the leading headline being attributed to most moves in the market and this is likely to continue into the year end. Talks continue but it seems negotiations remain some distance from finding a middle ground between spending cuts and tax rises despite the recent Republican lead U-turn to consent to some tax rises for those earning over $1m. The Democrats maintain that tax hikes should take place for those earning over $250,000 a year and so this U-turn from the Republicans has failed to entice a Democratic U-turn of their own.

The Fiscal Cliff talks will likely drag on into the year end. The Fiscal Cliff has the power to send the US economy into a recession and so with the stakes getting higher and higher the more talks drag on, investors are becoming more than happy to reduce their market exposure until the definitive output from the talks is clarified.

In terms of individual shares that are moving early on, we have Aggreko amongst the worst fallers today, with the firms shares losing 16% after reporting a profit warning. The power provider cautioned that it was difficult to provide a definitive view on the trading pattern for 2013, increasing shareholder uncertainty over the firms likely performance. A lack of clarity on the numbers is escalating market fear over the potential performance and it is this uncertainty, alongside a number of brokers who have downgraded their views on the stock performance, that is forcing the firms share price heavily lower today.

Vodafone is another stock seeing weakness this morning, with the telecom giants shares losing more than 2% to trade close to a new 16 month low. There is a concern amongst shareholders and investors in Vodafone that the cost of the new 4G mobile networks is escalating after an auction for Dutch networks saw prices rise so high that KPN – the Dutch market leader – was forced into cutting dividends to afford the licenses.