UK Market Hits Year Low As Euro Fears Continue
There was no let up for UK shares, or their international counterparts, on Thursday as sovereign debt concerns raged
The FTSE 100 index hit a new low for 2010, briefly tumbling to within a fraction of a point of the 5,000 mark before recovering slightly to close down 80.2 points or 1.6% at 5,077.9. The FTSE 250 index was harder hit, however, lacking the upward force of heavyweight oil stocks that the top tier benefited from. The mid-cap index dropped 231.1 points or 2.4% to close at 9,439.5. European indices suffered similar losses and Wall Street indices opened around 2% behind—the latter under the additional pressure of disappointing economic data.
Initial US unemployment claims were worse than expected, rising 25,000 to 471,000 versus economists’ forecast for a 4,000-strong fall. The latest week's unemployment data further shook investors' confidence in economic recovery amid worries that job market improvement is a long time away. Meanwhile, the US leading indicators index slipped a worse-than-expected 0.1% in April, the first fall since March 2009. Only four of the ten leading indicators rose in April, adding to fears that the recovery could lose steam.
In the UK, the latest figures from the retail sector revealed the recovery continues but at a slower pace in April than the previous month. Retail sales volumes increased 0.3% in April versus 0.5% in March but excluding fuel sales, the overall figure represented a rise of just 0.1%.
In continental Europe, ahead of tomorrow's EU meeting, at which ministers are expected to prepare for June’s G20 summit, German chancellor Angela Merkel continued to stoke fears of strict financial regulation with calls for an international financial tax to show politicians have a firm grip on the markets. Meanwhile, the UK’s new collation government unveiled the full details of its Conservative-Liberal Democrat agreement, including plans to impose a banking levy and rein in bankers’ bonuses. Among currencies, a fresh round of selling sent the euro downward as investors reigned in risk-taking.
On the FTSE 100, oil & gas heavyweights minimised overall index losses as BP rebounded from the sell-off that was spurred by concerns over the cost of its oil spill clean-up challenge. BP shares topped the (short) list of risers to close 1.0% higher, tracked by peer Royal Dutch Shell, up 0.1%.
Elsewhere, 95% of the benchmark index closed in the red, with miners the main drag, in part on the back of a downbeat sector note from BofA Merrill Lynch, in which analysts downgraded a handful of London-listed stocks and highlighted the potential impact on the sector of monetary policy in China and debt problems in Europe. Eurasian Natural Resources fell back 5.9%, Rio Tinto lost 5.8% and Xstrata shed 4.3%, among others.
But it was National Grid that led the casualties lower, slumping 7.0% after announcing plans to raise £3.2 billion via a rights issue of over 990 million shares at 335p apiece. NG shares had closed at 620p each on Wednesday.
SABMiller was another underperformer, down 6.0% as its earnings failed to please. The brewer’s chief executive, Graham Mackay, commented on the “uneven” nature of the recovery and said consumer spending isn’t expected to recover until late in the year.
