By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- The U.K.'s FTSE 100 index posted its
worst monthly performance since June on Friday, tracking a wider
selloff in Europe, where lower-than-expected euro-zone inflation
data spurred fears of deflation.
The FTSE 100 index dropped 0.4% to 6,510.44, closing with a 2.3%
weekly decline and a 3.5% monthly loss.
Among losers, shares of Diageo PLC (DEO) lost 1.1% after Goldman
Sachs removed the drinks maker from its pan-European conviction buy
list and cut its rating to neutral. The move comes after the owner
of brands such as Guinness beer and Smirnoff vodka on Thursday
flagged volatile demand in emerging markets, with sales in the
Asia-Pacific region dropping 10%.
"We expect the softer performance in [the first half the year]
to continue into 2H and see potential for continued EM challenges
in [full-year 2015]," the Goldman Sachs analysts said in a
note.
"Furthermore, there are no meaningful signs of a [developed
markets] recovery for Diageo, and with competitive intensity
picking up in U.S. vodka, we see a risk that DM growth deteriorates
from here," they added.
BAE Systems PLC (BAESY) skidded 1.6% after Barclays downgraded
the aerospace and defense firm to underweight from equal
weight.
More broadly in London, the benchmark index extended losses
after data showed euro-zone inflation fell to 0.7% in January from
0.8% in December, missing economists' expectations. The data
reignited fears the region is heading for a period of falling
consumer prices, known as deflation, which could derail the
economic recovery.
As a sector, banks added the most pressure. Shares of Barclays
PLC (BCS) lost 0.9%, Royal Bank of Scotland Group PLC (RBS) dropped
2.1% and heavyweight HSBC Holdings PLC (HSBC) gave up 0.5%.
On a more upbeat note in London, shares of BT Group PLC (BT)
added 3.3%, after the telecoms company raised its full-year
outlook, as it reported better-than-expected revenue for the third
quarter.
Burberry Group PLC (BURBY) gained 2.6%, rising with the broader
European luxury-goods sector after an upbeat earnings report from
peer firm LVMH Moët Hennessy Louis Vuitton SA (LVMHF). LVMH shares
closed 7.9% higher.
Tobacco firms were also on the rise after upbeat comments from
Goldman Sachs. The analysts said both British American Tobacco PLC
(BTI), up 0.9%, and Imperial Tobacco Group PLC (ITYBY), rising
1.9%, currently trade on significant price-earnings discounts. The
bank upgraded Imperial Tobacco to buy from neutral and added it to
the conviction buy list, while reiterating a buy rating on BAT.
More must-reads from MarketWatch:
European losses deepen after weak inflation data
How to invest if Europe flirts with deflation
China e-investing sparks 'rate war' with banks
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