Sovereign Debt and Data Concerns Come to the Fore
S&P's downgrade of Ireland's credit rating and more weak data from the US hit markets once again on Wednesday
The FTSE 100 index shed 46.6 points or 0.9% to close at 5,109.4, a fall of almost 6% from its August high of 5,418. The FTSE 250 index suffered a similar fate, down 77.4 points or 0.8% on the day to 9,623.6.
The US Commerce Department said single-family home sales dropped more than 12% in July to an annual rate of 276,000, which failed to meet even naysayers’ forecasts. June’s new home sales figure was also revised downwards, to an annual rate of 315,000. Meanwhile, there was further evidence of a weak manufacturing sector too. US durable goods orders excluding transportation slumped 3.8% in July, while overall orders rose 0.3% following a revised 0.1% fall in June. “These latest statistics … will further place into question the prospect of a sharp return to trend growth in the US,” commented Scott Corfe, economist with the Centre for Economics and Business Research. Friday’s GDP data and next week’s unemployment rate will now both be closely eyed for further colour on a gloomy US picture.
On this side of the Atlantic, Ireland suffered a downgrade of its debt rating from Standard & Poor’s, down one notch to AA- with a negative outlook. As such, concerns about the health—or ill health—of public finances in Europe’s periphery nations returned to the fore, overshadowing upbeat economic news from Germany. The Ifo business sentiment index hit its highest level in more than three years this month, but the news fell on deaf ears given the developments elsewhere.
Unsurprisingly, investors further lost their risk appetite on Wednesday, and instead opted for ‘safe-haven’ investments. Gold and precious metal producers Randgold Resources and Fresnillo outperformed the broader market, rising 0.2% and sliding 0.3%, respectively.
Serco was the top FTSE 100 riser, up 4.8% after reporting first-half pretax profits increased by more than 20% in spite of the Government’s proposed austerity measures. The outsourcing company was followed in second place by Admiral, shares in which added 2.7% on the back of the car insurance group’s upbeat trading statement.
The blue chip leaderboard was otherwise dominated by defensive plays, such as utility providers Severn Trent and Centrica, 1.0%-1.3% higher, and Big Pharma firm GlaxoSmithKline, 0.5% firmer.
Elsewhere, the vast majority of London-listed blue chips traded in the red, led by energy stocks and financials. Barclays, Old Mutual and Schroders were among the main fallers, 2.8%-3.6% lower each, while Antofagasta and Anglo American represented the mining casualties, with respective falls of 3.4% and 2.8%.
BHP Billiton was also among the red-listers, 2.0% weaker, as investors looked beyond its strong full-year results to its cautiously-toned outlook statement, while also awaiting developments in its quest to conquer PotashCorp. Morningstar analyst Mark Taylor has described BHP’s $39 billion hostile bid as a “digestible bite” for the company.
