FTSE flat as traders eye developments in Europe ahead of Summit

The FTSE 100 closed flat on the day after a choppy trading session that saw some investors move to diversify their equity risk by offloading holdings in banks and miners and recycling those funds into defensive sectors such as pharmaceutical and tobacco stocks in a defensive move in case of a Summit disappointment.

The FTSE 100 in fact outperformed broader European indices largely thanks to the heavyweight bearings on the UK Index from pharmaceutical stocks, which were the main gainers on the day. The German DAX fell 1.27% whilst the French CAC fell 0.7% on the day.

The move by ratings agency Standard & Poor’s last night to place 15 of the 17 single currency states on a negative watch for a potential downgrade in ratings over the next 90 days depending on the outcome of the EU Summit did put a bit of a dampener on trading today. Whilst the move was of little surprise given the importance of the Summit in Brussels, it did give both politicians and traders a timely reminder as to just how high the stakes are for the output of the Summit itself and whether it does enough to convince investors that the crisis is being managed.

Indeed, much could depend on whether or not a fiscal compact can be reached, and if this is enough to trigger the ECB into action.

Trading on the day was particularly choppy, with the FTSE 100 swinging between a narrow trading range of just 1% as investors mostly sat on the sidelines awaiting developments out of the euro region that may help them to gauge the likely output of the Summit at the end of the week.

Wolseley was the top performing stock of the day, with shares rallying 3.6% after the building services firm reported a 16% rise in first quarter profits. This triggered brokers into upgrading their stances on the firms’ shares, with Seymour Pierce re-rating the firm as a buy from an original hold stance, citing a stronger than expected performance in the US.

Closely following Wolseley were shares of Sage, which rose 2.2% and Weir Group, whose shares rallied 2.1% on the day.

Antofagasta and GlaxoSmithKline, the heavyweight pharmaceutical firms, benefitted the most from investors recycling their portfolio risk out of mining and banking stocks, with both firms’ share prices seeing gains of 2%.

The biggest faller on the day was Meggitt, after investors sold out of the aerospace and defence firms shares following a Credit Suisse ratings cut to underperform from outperform. The broker cited that whilst they expected robust full-year results for the year, they were more cautious about the firm’s civil aftermarket and military end markets in 2012 and 2013, which contributes roughly 70% of revenues. Shares fell 4.4% on the day as a result.