FTSE 100 gets a good pasting after China worries

The FTSE 100 fell 109 points today to close at 5,868 on fears that that the Chinese government will be forced to increase interest rates to dampen growth in an economy growing at over 10% in the last quarter of 2010. This meant bad news for commodity stocks on concerns on a fall off of Chinese demand.

Bay day for parts of the portfolio (Sirius, Bowleven, Imagination Tech) as technology and oil stocks were hit hard. On the positive side, Angel mining stayed flat after a weak start and largest holding Xcite finished the day up 7.5p (after rising as much as 16p) in the early afternoon.

Rising commodity prices are beginning to take their toll on some sectors. EasyJet (EZJ) dropped16%, the most in 6 1/2 years, after it said its first-half loss may double after increasing fuel costs due to the high oil price rose and poor weather caused flights to be canceled. Pretax losses for the six months to March 31 will be around £160 million compared with £78.7 million a year earlier. Associated British Foods (ABF) and Dominoes Pizza (DOM), dropped 3% and 6% respectively on fears of the impact of rising food ingredient prices. Prices of many commodities continue to rocket to multi year highs due to bad weather, speculation and the effect of the falling dollar (as many of these commodities are sold in US dollars). Ultimately, this may feed through to rising retail inflation and rising interest rates which will curtail economic growth.

As I predicted in my forecast for 2011, the year would be choppy with many opportunities to buy on corrections and many opportunities to sell on market peaks (see my post on the FTSE and DOW for 2011 http://contrarianinvestoruk.blogspot.com/2011/01/prediction-for-ftse-100-and-dow.html)