The FTSE 100 slid this morning as Budget plans for an overhaul of pensions legislation continued to take their toll on insurance companies and hints from the US Federal Reserve of an earlier-than-expected rise in interest rates unnerved markets.
The FTSE 100 was down 0.9%, or 57.8 points, at 6,515 following the path of global markets, which dropped overnight after Fed chair Janet Yellen hinted interest rates could rise 'around six months' after the ending of quantitative easing (QE).
Yellen last night announced further tapering of the Fed’s stimulus programme, reducing its monthly purchase of US treasuries and mortgage-backed securities from $65 billion to $55 billion. She said QE could end in the autumn.
Azad Zangana, European economist at investment group Schroders, said markets were reacting to Fed projections of 1% interest rates by the end of 2015, 'which is more aggressive than investors had anticipated'.
But he said some of those fears had been allayed by Yellen's 'fairly dovish assessment' of the US economy. 'Yellen acknowledged the improvements in the economy, but was clear in communicating her intention to keeping monetary policy accommodative while inflation is below the Fed's long-term objective, and while unemployment remains high,' he said.
Insurance group Resolution (RSL.L) was the largest FTSE 100 faller, dropping another 23p, or 6.9% to 311.9p. It plunged 15% yesterday in response to the Budget's pension reforms which will remove the need for many people to buy an annuity when they retire. Annuities are an important product for several insurers, although Standard Life (SL.L) and Legal & General (LGEN.L) rose slightly after their falls yesterday.
Resolution struck a defiant tone, insisting to the market that while the pension changes would have a ‘negative implication’ for new annuity business, the products would continue to be ‘an important product for those who value the guaranteed income through increasingly long retirement periods’.
Specialist annuity providers outside the FTSE 100 continued to slide. Partnership Assurance (PA.L) dropped another 11.7%, or 16.8p to 127p after its share price halved yesterday. Just Retirement (JRG.L) fell 8.5p, or 5.5%, to 146p after a similar battering yesterday.
Online stock broker Hargreaves Lansdown (HRGV.L) meanwhile dropped 49p, or 3.3% to 1,455p, after having enjoyed a 14.5% spike in its shares yesterday following the Budget announcement of the launch of a new ‘super’ ISA, allowing savers to shelter up to £15,000 each year.
Drugs group GlaxoSmithKline (GSK.L) dropped 34p, or 2.1%, to £16.21, after the trial for a lung cancer drug failed. Panmure Gordon analyst Savvas Neophytou said the news was disappointing, but that it was unlikely to trigger major downgrades. ‘In our view therapeutic cancer vaccine MAGE-3 could have been one of three particularly transformative pipeline opportunities ,’ he said, but added: ‘We believe consensus forecasts for this product are heavily risk adjusted.’