Headline UK equity markets slumped on Wednesday, hit by both Moody’s warning that the UK may lose its AAA sovereign credit rating and a statement by US Federal Reserve Chairman Ben Bernanke suggesting the end of QE2.
UK-listed shares started the day below breakeven after late on Tuesday afternoon Ben Bernanke made a statement acknowledging that US economic growth remains “frustratingly slow” but stopped short of suggesting a continuation of the Fed’s quantitative easing programme.
Exacerbating investors’ worries over the global and local recovery, rating agency Moody’s said the UK could lose its top tier sovereign credit rating if domestic growth continued at its current sluggish pace or the Coalition Government slowed down its fiscal consolidation plans.
Gilt yields climbed and the pound tumbled on the news. “The British Pound remains at risk of facing additional headwinds over the near-term, and the sterling may struggle to hold the narrow range carried over from the previous week as the Bank of England looks to carry its wait-and-see approach into the second-half of the year,” commented David Song, currency analyst at DailyFX. Song did not rule out the chance of additional monetary easing in the face of Britain’s lethargic recovery.
Elsewhere in Europe, the German government fuelled sovereign debt worries when it suggested that Greece should offer all Greek sovereign bond holders a seven-year maturities extension and essentially involve owners of Greek debt in the stabilisation of Athens’ fiscal position.
Ultimately, the FTSE 100 index fell 1.0% or 56 points to 5,809 and the FTSE 250 index lost 1.2% or 138 points to 11,871.
The biggest blue-chip casualties were miners, with Antofagasta (ANTO), Kazakhmys (KAZ) and Vedanta Resources (VED) shedding 2.6%-4.7%. In addition to global growth concerns, a trading update weighed on Antofagasta’s performance. Speaking at the company’s annual meeting, Chief Executive Marelo Awad disclosed that final production from the company’s soon-to-be-acquired Esperanza copper mine might fall short of earlier estimates.
Also on the bottom, Associated British Foods (ABF) and Johnson Matthey (JMAT) slipped 2.3% and 3.5%, respectively, after trading ex-divided.
Among the short list of FTSE 100 risers, Lloyds Banking Group (LLOY) bounced back 2.3% from recent lows after the sale of Hill Hire Plc.
Also marking a limited advance, Royal Dutch Shell (RDSB) gained 0.2% in a day when crude oil prices took a nose dive during a closely watched meeting of OPEC ministers and eventually jumped sharply after the meeting failed to reach a consensus. OPEC member countries could not agree on output target quotas for oil and Saudi Arabian oil minister Ali Naimi called the OPEC meeting one of the worst meetings ever.
Further down the market cap scale, Punch Taverns (PUB) moved 6.8% forward after third-quarter trading update showed a rise sales growth in the company’s managed division.
