The UK benchmark reversed earlier gains amid ongoing European debt fears to close flat on Monday but the mid-cap index, which more closely represents the UK economy, fell into the red once again as the impact of prospective budget cuts weighed.
The FTSE 100 index hit an intraday high of 5,327.5 but by close of play was a third of a point weaker at 5,262.5. The FTSE 250 index, meanwhile, shed 90.9 points or 0.9% to 9,932.0. More pronounced losses were seen in the US, however, where Wall Street indices were around 1.3% lower at last check following an unexpectedly low economic data reading.
The Empire State Manufacturing Index revealed that conditions for New York manufacturing were improving in May but at a lower rate than in April. The index fell to 19.1—any reading over zero indicates expansion but this latest reading was in stark contrast to last month’s 31.9.
Back in Europe, fears that fiscal deficits could lead to a funding crisis not only for European banks but also for those overseas sparked a flight to US and Japanese currencies. As such, the euro remained under pressure, hitting a four-year low against the greenback of $1.2233 mid-session.
On the London markets, Prudential grabbed the headlines after publishing the terms of its rights issue, which had been delayed due to regulatory concerns. The £14.5 billion rights issue is offered on an 11-for-2 basis and priced at 104p per share, a 39% discount to the theoretical ex-dividend rights price based on Friday’s close of 542.5p apiece. The fundraising will help finance the insurer’s purchase of AIG’s Asian arm AIA and the publication of the prospectus means that the UK financial regulatory regime has signed off on the deal that would give Prudential greater reach in to Asian markets. AIG, meanwhile, is expected to use the proceeds from the deal to pay back portions of its government bailout money. Prudential shares closed down 1.5% while AIG shares were trading off 3.6%.
The world’s largest listed hedge fund by market cap, Man Group, was also in the spotlight after announcing its acquisition of GLG New York-based Group. Man expects the deal, which is costing it $1.6 billion, to be earnings neutral in fiscal 2011 and to start adding to earnings the following year. But shares in the hedge fund had dropped 8.9% by the end of Monday’s session as analysts said the price looked high, while investors expressed concern that upheaval could lead to manager exits.
Sticking with the FTSE 100 fallers, travel companies continued to feel the weight of the volcanic ash, with Thomas Cook Group 3.3% behind, TUI Travel down 2.9% and British Airways 1.2% lower. The latter will publish its full-year results later this week.
Not all was doom and gloom, however. Index heavyweight Vodafone, which will also release figures this week, added 1.4%, while oil & has stocks enjoyed a moderate rebound from recent oil spill-related weakness. Cairn Energy, BG Group and Royal Dutch Shell took on between 0.3% and 1.4%. The main culprit, BP, remained out of favour, slipping 0.1%.
