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Banks push FTSE lower; US debt deal remains elusive
Lloyds (LLOY.L), Barclays (BARC.L) and RBS (RBS.L) led the FTSE 100 below 5,900 as world markets fell amid political gridlock over a US debt deal and weak economic data.
Weakness in a key gauge of the US manufacturing industry further tested investors’ already frayed nerves on Wednesday afternoon as global markets were pulled lower by the continued political gridlock over a deal on US debt.
The FTSE closed 1.23%, or 73 points, lower to 5,856, led down by the banks. In the US, the S&P 500 fell 1.19% to 1,316, the Dow 0.87% lower at 12393; and in Europe French and German equity markets slid 1.53% and 1.48% respectively.
US Republican leaders were last night forced to delay a vote scheduled on their plan to raise the nation’s borrowing limit, as Congressional budget officials said the plan did not deliver the promised savings. The New York Times reported that Congressional leaders ‘alternately voiced optimism, determination and a haggard frustration’ as a plan to raise the debt ceiling before the 2 August, and avert a default, didn’t appear forthcoming.
Reuters earlier reported that 30 of 53 economists it surveyed this week reckon the US will lose its top AAA credit rating from one of the three big ratings agencies.
Meanwhile, in another blow to the eurozone, Moody’s ratings agency slashed the bond ratings on Cyprus’s sovereign bond ratings from A2 to Baa1.
Gold, a safe haven amid the European and US debt crises, remained near all-time highs, trading at $1,617 an ounce, having reached $1,628 earlier in the day. 'The world's main safe havens, what should be perhaps named the "risk-off basket", Gold, Swiss Franc and the Yen, are all having another bumper afternoon', commented Will Hedden of IG Index.
In a further sign of the extent of concern in world markets, insurance on US government debt got more expensive with one-year US credit default swaps reaching a record high 85 basis points, according to data company Markit. This is higher than the peak hit during the 2008 global financial crisis.
The US durable goods report added to fears about the prospects for the US economy. Mike Englund of Action Economics said: ‘The US durable goods report undershot expectations across the board… we have trimmed our Q2 GDP [gross domestic product] forecast to 1.5% (was 1.7%) in response to today's data.’
There was also downbeat data in the UK, with the CBI’s July Quarterly Industrial Trends Survey showing that optimism among UK manufacturers regarding the general business situation has fallen for the first time in two years. Manufacturers are ‘reappraising their business plans’ the survey revealed.
Banks were again taking the brunt of investors’ debt fears. Lloyds Banking Group (LLOY.L) fell 4.28% to 43.3p and Barclays (BARC.L) fell 3.38% to 222.7p. Royal Bank of Scotland (RBS.L), which was ordered by the US Federal Reserve to improve oversight of its US operations and tighten its risk-management practices, dropped 3.2% to 35p.
Scottish and Southern Energy (SSE.L) was the biggest loser on the blue chip index, dropping 5.28% to £13.29 after going ex-dividend. The energy sector was also subject of tough words from regulator Ofgem, which fined Centrica’s British Gas £2.5 million for customer complaint handling failures.
Technology stocks were among the top risers on the FTSE, with shares in Sage Group (SGE.L) and Autonomy Corp (AUTN.L) benefiting from upbeat financials published by both companies this morning. Sage finished the day 1.55% higher to 281.4p while Autonomy added 3.86% to £17.20.
Shares in Holidaybreak (HBR.L), jumped 3.7%, or 15.5p, to 427p after Indian tour operator Cox & Kings confirmed it would buy the provider of educational and activity trips for children for £312 million.
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