Stocks in Europe were rocked by Fitch lowering its US rating on Wednesday, evoking memories of S&P doing the same almost 12 years ago to the day.
Stocks suffered then, and they similarly struggled now. Barely a handful of London’s 100-strong flagship large-cap benchmark were on the up, with BAE Systems among those shielded by the fallout after it boosted guidance.
‘There is a saying that when the US sneezes, the rest of the world catches a cold. That is certainly true with how the US government’s credit rating downgrade has troubled markets globally,’ said Laith Khalaf, head of investment analysis at AJ Bell.
The FTSE 100 index was down 99.49 points, 1.3%, at 7,566.78. The FTSE 250 was down 238.77 points, 1.3%, at 18,826.89, and the AIM All-Share was down 4.93 points, 0.6%, at 759.70.
The Cboe UK 100 was down 1.3% at 754.73, the Cboe UK 250 was down 1.2% at 16,514.52, and the Cboe Small Companies was down 0.4% at 13,816.96.
The CAC 40 in Paris was down 1.1%, and the DAX 40 in Frankfurt was down 1.3%.
In Asia on Wednesday, the Nikkei 225 index in Tokyo closed down 2.3%. In China, the Shanghai Composite closed down 0.9%, while the Hang Seng index in Hong Kong closed down 2.5%. The S&P/ASX 200 in Sydney closed down 1.3%
The Fitch announcement was made after the New York market close on Tuesday, but Wall Street is expected to follow Asia and Europe lower on Wednesday. The Dow Jones Industrial Average is called to open down 0.6%, the S&P 500 index down 0.8%, and the Nasdaq Composite down 1.1%.
Fitch cited a growing federal debt burden and an ‘erosion of governance’ that has manifested in the recent debt limit stand-offs between the two political parties in Washington.
Simply put, by AJ Bell’s Khalaf, the downgrade is saying ‘the US is now higher risk than previously thought’.
It is the first such downgrade by a major ratings company in more than a decade. A debt ceiling impasse in 2011 saw S&P lower Washington’s AAA rating, drawing bipartisan outrage.
In the FTSE 100, there were just three companies in the green in early afternoon dealings.
BAE Systems was among the best of the bunch, jumping 4.5%.
The defence, aerospace and security company reported a pretax profit of £1.20 billion in the six months ended June 30, up 54% from £779 million a year prior. Revenue from continuing operations totalled £11.0 billion in the half, up 13% from £9.74 billion the previous year.
BAE Systems said the strong set of half-year results gave it the confidence to increase its annual guidance for sales and underlying earnings before interest and tax.
Shore Capital’s Jamie Murray said the results came in better than it had expected and that looking ahead, ‘the macroeconomic landscape remains favourable to BAE’.
ConvaTec rose 4.7%.
The Reading, England-based medical products and technology company said pretax profit in the six months ended June 30 surged by 65% to $76.0 million, from $46.1 million a year prior. Revenue rose 1.1% to $1.06 billion, from $1.04 billion.
On the back of the results, ConvaTec upped its full-year guidance for revenue growth.
The last blue-chip stock in the green before the sea of red was Taylor Wimpey, adding 3.3%, despite reporting a fall in interim profit and revenue.
The High Wycombe, England-based housebuilder said pretax profit in its half year ended July 2 fell 29% to £237.7 million, from £334.5 million. Revenue in the first half declined 21% to £1.64 billion, from £2.08 billion a prior year.
However, Taylor Wimpey declared an interim dividend of 4.79 pence per share, up 3.4% from 4.62p the year before.
On the other side of the index, Endeavour Mining lost 6.6%.
The gold miner, with assets in nations including Senegal and Burkina Faso, said pretax profit in the second quarter to June 30 declined to $155 million from $266 million a year prior. For the whole of the first half, it fell to $207 million from $294 million.
Revenue in the second quarter fell to $524 million from $532 million. In the first half, it declined to $1.00 billion from $1.10 billion.
Smaller gold miner Hochschild Mining jumped 17%, however. It has operations in North and South America, including as well in southern Argentina and in Brazil.
It said it has been awarded a long-awaited environmental approval for its Inmaculada mine in southwest Peru. The wait had been depressing the stock since mid-April due to worries about the permitting process in Peru.
In the FTSE 250 index, Spirent Communications shed 11%.
The Crawley, England-based automated test and assurance solutions provider said in the six months to June 30, pretax profit fell by 88% to $4.8 million from $40.3 million a year prior, as revenue dropped by 20% to $223.9 million from $295.5 million the year prior.
Chief Executive Officer Eric Updyke said: ‘In both the near and long term, we remain confident in our strategy, our high-quality operating model and the diversified strengths of our portfolio that leave us well positioned to deliver growth and value.’
On AIM, Deltex Medical plummeted 83%, after its shares resumed trading.
The Chichester, England-based maker of blood circulation monitoring systems said it has completed a £1.9 million fundraising and capital reorganisation programme.
Deltex said the fundraising will allow it to implement its updated strategy, which focuses on creating recurring revenue streams, promoting its new monitor, and developing its non-invasive suprasternal device.
The pound was quoted at $1.2771 at midday on Wednesday in London, higher compared to $1.2742 at the equities close on Tuesday. The euro stood at $1.0973, up against $1.0961. Against the yen, the dollar was trading at JP¥142.71, lower compared to JP¥143.41.
Brent oil was quoted at $85.25 a barrel at midday in London on Wednesday, up from $84.79 late Tuesday. Gold was quoted at $1,948.88 an ounce, higher against $1,942.88.
Still to come on Wednesday’s economic calendar, there is the US ADP jobs report at 1315 BST, a precursor to Friday’s nonfarm payrolls.
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