Low volumes sees the FTSE lose ground as traders sit on the fence

The FTSE 100 lost some ground alongside European indices, which retraced from recent four-month highs as traders locked in some gains or stayed on the sidelines awaiting developments from Central Banks as the Jackson Hole meeting nears.

The FTSE 100 lost 0.4% in trading, barely moving for much of the day as investor profit taking saw many heavyweight miners fall in trading on dampened stimulus sentiment.

It has been a day of low volumes, with the majority of traders refraining from taking much action. Of the action that was seen in today’s session, much of it was to scale back on the amount or risk added to portfolios over the last three weeks that helped to drive indices towards four-month highs. With much of the risk on rally being as a direct result of optimism towards Central Bank action, eyes are starting to turn to the annual Jackson Hole meeting in Wyoming on 26 August where Central Bankers meet. It is hoped that from this meeting traders may be able to gauge more transparently prospects for additional stimulus.

For now, however, most traders are relying on data to help paint the picture of whether we are to see additional stimulus in the near term or medium term. Data out of the US today showed that US inflation on a year to year basis remained at 1.7% whilst New York State Manufacturing declines surprisingly to minus 5.85 when a reading of seven had been expected by most analysts. US industrial production rose slightly more than expected to 0.6% from 0.4% when a reading of 0.5% has been predicted. Today’s US data is unlikely to dramatically change the Fed’s thinking however.

Earlier in the session UK employment data showed that the amount of unemployment claims surprisingly dropped by 5,900 whilst the unemployment rate also dropped marginally to 8% from 8.1%, giving some cheer to the coalition government. Of course, much of this could be related to higher employment in the run up to the London 2012 Olympics.

The minutes from the previous Bank of England MPC meeting showed that most members wanted to take stock of the impact of the extra £50bn worth of asset purchases before deciding whether to increase QE. This view reinforces the rhetoric from Governor Mervyn King in the recent BoE quarterly inflation report which suggested that if there are more purchases to come, it would likely take place later this year if there is not a bounce back in GDP for the third quarter.

Standard Chartered shares rallied 4% on the day as investors reacted to the news that the bank had reached a $340m settlement with the Department of Financial Services in the US as part of the allegations made by the New York state regulator that the bank had accepted and hidden financial transactions from Iran despite US sanctions. The settlement brings an end to the air of uncertainty surrounding the bank in the midst of the scandal and also helped to draw a line under concerns that they may lose their US or state license. The banks shares have recovered significantly from the earlier lows reached as news of the scandal broke.