FTSE hits new four week low as investors caution against potential correction

The FTSE 100 fell over 1% on Tuesday to hit a new four-week low and threatening a break below the 5800 level as risk aversion weighed on heavyweight stock sectors in Europe on concerns over the Greek PSI deadline and a slowdown in global growth.

The PSI in the Greek debt swap seems to be progressing slowly, with only 20% of the swap taken up thus far and with a March 8th deadline looming, this is raising a bit of concern in the markets. At the same time, the last few sessions have seen important economic data largely disappoint, with US factory orders and UK services data both missing targets yesterday whilst this morning we have seen a confirmation of the fact that the eurozone economy contract 0.3% in Q4, albeit in line with expectations.

With US jobs data out later this week and the cut in Chinese growth targets yesterday, investors have been enticed into protecting their gains and this is weighing on stock markets across Europe today.

The FTSE 100 has now lost 2.4% from its recent highs and its failure to break through psychological resistance at the 6000 level, despite both the Dow Jones and S+P both overcoming their own psychological resistance hurdles, is convincing that a potential correction of 5%-10% in UK stocks could be due. A small price correction is nothing to fear and can be helpful in maintaining the near term bullish momentum in stock markets if it can attract bargain hunters who may be enticed to buy stocks at what they perceive to be cheaper levels.

That said, the timing of the recent falls in the FTSE 100 is somewhat uncomfortable, given that at this time last year having surpassed the 6000 level, the UK index then proceeded to fall nearly 8% in the space of a week to trade back towards the 5600 level. In this sense, traders should be mindful of history repeating itself.

Much of the FTSE’s 1% losses have been focused on selling in the three heavyweight stock sectors; the miners, oil firms and banking stocks, with all three respective FTSE 350 sectors losing over 1% by mid morning trade. On the upside is pharmaceutical and utility stocks, which exemplifies the risk averse tone that trading has switched to in the last 24 hours.

Fresnillo shares bucked the bearish trend in trading however to rally 2% to the top of the FTSE leader board after seeing core profits rise 63% to $1.54billion last year and boosted its dividend by 40% to 102.85 cents.

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