Global economic outlook concerns hit markets
A plethora of economic reports and comments from international institutions put the economic outlook at the forefront of investors' minds on Wednesday
The FTSE 100 index had lost just over 1% or 42.8 points by close of play to 4,144.2, while the FTSE 250 index fell back 104.1 points or 1.4% to 7,214.4.
Across the pond, US indices also dipped into the red, while closer to home, European markets suffered a similar fate.
The International Monetary Fund today said the global economy is showing signs of improvement but that recovery will be slow and government policies must support the gradual process. The IMF raised its forecast for a 2010 growth rate of 2.5% versus the 1.9% it predicted in April.
These comments echoed those of Banc of America Securities-Merrill Lynch economists who in their Global Economic Mid-Year Update today said they believe governments will inject additional doses of fiscal stimulus into their respective economies well into 2010. The broker has upgraded its global GDP growth forecast to a rate of 3.7% next year from 3.2% previously expected.
Meanwhile, as the G8 summit got underway in Italy, Eurostat this morning confirmed that gross domestic product declined by 2.5% in the eurozone in the first three months of the year following a 1.6% contraction in the final quarter of 2008.
Draft documents from the G8 summit reveal world leaders continue to see significant risks to economic stability and are urging for stimulus packages to be proven effective before calling for additional measures.
In UK equities, fears over the economic outlook combined with new plans to regulate the financial market to cause a wide-spread sell-off of financials that hit all subsectors. The UK Treasury has unveiled plans to tighten its supervision of the financial markets, which include formalising the tripartite system—under which the Financial Services Authority, the Bank of England and Treasury share the power to regulate banks and other financial institutions, annual FSA reports on banks that don’t comply with regulations, FSA-enforced limits on how much banks can lend, and higher capital and liquidity buffers.
As such, sector losses encompassed banks, such as Royal Bank of Scotland (-4.5%), and life insurers, including Legal & General (-8.7%), as well as interdealer broker ICAP (-4.4), London Stock Exchange (-3.3%) and asset manager Man Group (-2.7%).
Oil & gas producers turned around in late deals as the price of crude fell another $2 in US deals to less than $63 a barrel. BP, which had enjoyed a speculative rally that helped minimise index losses earlier in the session, closed down 0.6%, while Royal Dutch Shell and BG Group also lost 0.6%, and Cairn Energy dropped 1.9%. Peer Tullow Oil, which was more than 3% lower by the end of the day, was also hurt by its mixed trading and operating update. The group reported pleasing progress in Ghana but a delay to a major project in Uganda and downgraded its overall output guidance.
Miners were also under the cosh, tracking weaker metals prices, with the precious yellow metal more than 1% lower, down $20 an ounce.
Fresnillo, Lonmin and Vedanta Resources were the worst off in the sector, each shedding 3.9%-4.5%.
Unsurprisingly, the list of 11 stocks that were still in positive territory by market close was dominated by defensive plays. Pharmaceutical giant GlaxoSmithKline climbed 1.5% higher, retailer Next added 0.9%, tobacco firm Imperial Tobacco took on 0.8% and heavyweight Vodafone gained 0.7%.
In other economic news, the Halifax house price index this morning revealed prices fell half a percent in June bringing the total fall over the last 12 months to 15%, while the Nationwide consumer confidence index rose to 58 last month from an upwardly revised 54 in May.
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