Stock prices in London tumbled on Wednesday, as reverberations from Fitch downgrading its credit rating for the US were felt in equity markets on both sides of the Atlantic.
The FTSE 100 index slumped 104.64 points, 1.4%, at 7,561.63. The FTSE 250 tumbled 252.78 points, 1.3%, at 18,812.88, and the AIM All-Share was down 6.54 points, 0.9%, at 758.09.
The Cboe UK 100 ended down 1.5% at 753.11, the Cboe UK 250 lost 1.3% at 16,495.81, and the Cboe Small Companies fell 1.0% to 13,739.56.
The CAC 40 in Paris slumped 1.3%, and the DAX 40 in Frankfurt ended down 1.4%.
Stocks in New York were also on the decline. The Dow Jones Industrial Average was down 0.7%, the S&P 500 fell 1.2% and the Nasdaq Composite shed 2.0%.
XTB analyst Walid Koudmani said: ‘Fitch Agency surprised everyone at the beginning of August by deciding to lower the US’s credit rating from the highest possible AAA, down to AA+. This marks the first time in just over 10 years that a second rating agency has decided to downgrade the credibility of American debt, causing limited market movements but at the same time significant outrage among US authorities. What stands behind Fitch’s decision? Will other agencies decide to review their ratings? What does it mean for markets and should other countries also fear potential problems.’
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.
It is the first such downgrade by a major ratings company in more than a decade and the events evoke memories of 2011, when another debt ceiling impasse in 2011 saw S&P lower Washington’s AAA rating.
The euro stood at $1.0940 at the time of the European equities close on Wednesday, down against $1.0961 on Tuesday. Against the yen, the dollar was trading at JP¥143.32, slightly lower compared to JP¥143.41.
The US economy created more jobs than expected last month, according to the latest employment report from payroll services provider ADP on Wednesday.
Private sector employment increased by 324,000 in July, according to ADP, beating the FXStreet cited consensus of 189,000 but cooling from June’s downwardly revised 455,000. June’s figure was initially reported as 497,000.
‘The economy is doing better than expected and a healthy labour market continues to support household spending,’ ADP analyst Nela Richardson commented.
It was leisure and hospitality leading the charge in July, though the interest rate-sensitive sector of manufacturing struggled, ADP explained, shedding jobs for the ‘fifth straight month’.
Service providers added 303,000 jobs, 201,000 in leisure and hospitality. Goods producers added 21,000 jobs, despite manufacturers alone cutting 36,000.
The official nonfarm payrolls data is reported at 1330 BST on Friday. According to FXStreet cited consensus, the numbers are expected to show that job creation has eased to 200,000 from 209,000.
The pound was quoted at $1.2707 late Wednesday afternoon in London, lower compared to $1.2742 at the equities close on Tuesday.
Sterling was on the back foot ahead of Thursday’s Bank of England interest rate decision.
The BoE announces its interest rate decision at 1200 BST on Thursday. A press conference with Governor Andrew Bailey follows at 1230 GMT. Market consensus is predicting a 25 basis point hike to interest rates, according to FXStreet.
At the last meeting in June, the BoE raised UK interest rates by 50 basis points, taking the benchmark bank rate to 5.00% from 4.50% previously.
It had dug deep into its arsenal with a half-point hike after a hotter-than-expected May UK inflation reading.
At this meeting, however, the bank will be considering June’s cooler-than-expected inflation print. According to data from the Office for National Statistics last month, consumer prices rose by 7.9% in June, easing from an 8.7% jump in May.
In London, only a handful of FTSE 100 stocks ended higher. Stocks exposed to the ebbs and flows of the economy were among those worst-hit by the uncertain mood on Wednesday.
Lender Barclays fell 3.3%, miner Anglo American lost 3.8% and retailer JD Sports declined 3.0%.
Shielded from the US debt cut turmoil was BAE Systems, rising 5.4%.
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 the year prior.
Revenue from continuing operations totalled £11.0 billion in the half, up 13% from £9.74 billion the previous year.
Looking forward, 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.
The company now expects sales growth of between 5% and 7% in 2023, up from previous growth guidance of 3% to 5%, and underlying Ebit growth between 6% and 8%, up from previous guidance of 4% to 6%.
Hochschild Mining jumped 18%. 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.
Brent oil was quoted at $83.09 a barrel late Wednesday, down from $84.79 late Tuesday. Gold was quoted at $1,934.77 an ounce, lower against $1,942.88.
Aside from the BoE decision, Thursday’s economic calendar has a slew of PMI readings, including the eurozone at 0900 BST, the UK at 0930 and the US at 1445. The latest US jobless claims reading is reported at 1330 BST.
The local corporate diary has a trading statement from retailer Next and half-year results from FTSE Russell owner London Stock Exchange Group.
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