Greater London, England -- (SBWIRE) -- 09/13/2010 -- Joshua Raymond, Market Strategist, City Index commented:

“European stocks lost ground after two days of strong gains as investors locked in profits ahead of an important ruling on bank liquidity over the weekend. Weak commodity prices have pressurised key mining and energy stocks which have been the key drag on European Indices today.

Strong buyer demand has helped to charge the FTSE 100 to a new 4 month high yesterday and what we have seen today is more of a pause for breath, with many traders choosing to lock in some gains ahead of the bank capital requirement rules which are set to be decided upon this weekend. I wouldn’t say that investors are trading in fear of this weekend’s banking announcement but certainly there is a degree of calm anticipation in case there are any surprises. That said, there is an air of confidence that the so called Basel III rules will not mean significant changes for the main UK banks, which have traded strongly today with much of the uncertainty focused on their European peers after speculation of a €9bn capital raising from Deutsche Bank.

Most of the weakness in the FTSE 100 is being focused on selling in the energy and mining sectors, which are both lower by over 0.5%. Tullow Oil, BG Group and Cairn Energy are all key fallers. The defensive sectors such as pharmaceutical and tobacco firms are higher in trading, which suggests that traders are diversifying some of their trading risk into safer haven asset classes.

The FTSE has met some resistance around the 5500 level where we have started to see some broader selling coming into the markets. If we get a surprise from the Basel III meeting over the weekend or if investors start to believe that the speculated Deutsche Bank capital raising has more to do with meeting liquidity requirements than funding for more growth, there is every chance that the FTSE could see weakness next week. A break above 5600 could convince that the bulls remain in charge and this would inevitably have traders setting their targets back to the 6000 level.”

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