Indices drop 1 as heavyweight miners oil and banks weigh

European Indices fell around 1% in trading on Wednesday, weighed down by losses in heavyweight mining, banking and oil firms, as investors continued to diversify their investments into safe haven asset classes ahead of the holiday season.

It’s been a largely risk off day again in Europe with investors refusing to take on extra risk as we edge closer to the holiday season where volumes retrace significantly.

Yesterday’s FTSE was pushed higher mostly on optimism that perhaps the Fed was willing to start QE3 but this optimism was firmly quashed and we have already seen stocks lose most of yesterday’s gains on the back of this disappointment.

Respective bond auctions from Italy and Germany also kept investors cautious after Italy paid a euro era record yield of 6.47% for €3bn worth of 5yr bonds, an advancement on the same auction a month ago. Germany sold €4.18bn worth of 2yr notes this morning also with an fall in the average yield to 0.29% from 0.39%.

A multitude of negative broker ratings on key retailer stocks also applied pressure on the FTSE 100. ING cut its rating on shares of Tesco to sell, from an original stance of buy, which came hot on the heels of a similar cut in view from Numis yesterday. In the same breath, ING also downgraded their stance on Marks and Spencer’s shares to sell. Citigroup and JP Morgan also sent out bearish notes to their clients regarding the outlook for the retail sector.

Thomas Cook shares fell 4% after the troubled holiday firm missed forecasts for earnings, reporting operating profits of £304m, which missed analyst forecasts of £316m.

Fresnillo shares fall 5% as FTSE rule change
Fresnillo shares fell the most in trading, losing 5% after the price of Silver fell to a new near two month low and as the FTSE Group changed its rules on free float for new IPO’s and existing listed FTSE firms.

The rule change requires companies to maintain a free float of 25%, up from a previous rule of 15%. The move is an attempt by the FTSE Group to address shareholder concerns over clouded corporate governance for firms that have little shares available for free float.

The move means that several resource stocks on the FTSE may need to up their current percentage of free floats including Fresnillo and ENRC. Listed companies will have two years to meet the new criteria.

The move, which comes into effect for new IPO’s from January 1st 2012, is a good one for investors and shareholders of companies whose shareholder hierarchy may have too much centralised power within a few high majority investors. A more diversified shareholder structure, to which these new rules aim to achieve, is likely to increase share liquidity, making it easier for regular shareholders to trade the firms shares, whilst at the same time delegates a degree of power from those few high majority owners. Whilst in truth the new minimum free float threshold of 25% should probably be higher, this is a good step on the right direction.