A series of natural disasters in Japan on Friday added to sustained concerns over Europe’s sovereign debt and the Middle East’s political stability, dragging UK equities lower so that the FTSE lost 2.7% over the week as a whole.
On Friday, the FTSE 100 index fell 0.4% or 23 points to 5,829 and the FTSE 250 index dipped 0.9% or 108 points to 11,410.
At 05:46 GMT, Japan was hit by an 8.9-magnitude earthquake--the strongest in the history of the country. A subsequent tsunami has caused further damage; the death toll and economic impact of the disaster are yet to be known.
In the aftermath of the quake, investors rotated out of insurance companies that might be exposed to the cost of destruction in Japan. In London, RSA Insurance Group (RSA), Legal & General (LGEN) and Prudential (PRU) closed down 1.9%-2.7%.
Oil took a respite from its upward gallop as economic growth worries factored in. Supportive of softer oil prices was also the fact that the ‘Day of Rage’ planned by critics of the Saudi Arabian government did not result in any major disruptions or violence.
Copper and most agricultural commodities also traded lower, impacted by worries of demand slowing down as the world’s fourth largest economy recovers from the earthquake and China tackles increasing inflation. Chinese consumer prices came in above expectations today.
Concern about peripheral Europe remained dominant on European bond markets, with Portugal’s cost of borrowing still at its highest levels since the country adopted the euro. Without a sharp drop in yields, it is inevitable that Lisbon applies for a bailout, commented Gain Capital Research Director Kathleen Brooks. “This scenario has been priced in by the market already, and a bailout for Portugal would not cause euro-area assets to stutter,” she added.
On currency markets, the Japanese yen appreciated against the dollar, the euro and the pound as investors expect yen-denominated investments to be made towards Japan’s recovery.
Returning the focus to London, among individual market movers, Carnival (CCL) fell after the company slashed its current-year earnings forecast on fuel price and currency woes.
On the flipside, commodity majors BG Group (BG.), Tullow Oil (TLW) and Antofagasta (ANTO) gained 1.8%-2.9% after a sell-off in the previous trading session this week, in spite of concerns regarding raw materials demand following the Japan earthquake.
