The FTSE 100 meandered and the euro hovered near a six-month low on Monday after Standard & Poor's downgraded the credit ratings of a host of eurozone nations, including France and Austria.
The UK index of blue-chip shares inched 0.06%, or four points, higher to 5,640 and the All Share index rose 0.04%, or one point, to 2,901. See the FTSE’s performance and the index’s top winners and losers.
Fears over EFSF
Following a day of market rumours over possible downgrades, S&P cut its ratings for the nations on Friday, citing the monetary union’s failure to ‘produce a breakthrough of sufficient size’ to address its debt crisis. The move heightened fears over the bloc’s rescue fund, which could now lose its own triple A rating.
In early trading on Monday, the euro recovered 0.32% to $1.268 but was still close to the trough to which it sank on Friday, $1.262, its lowest level since August 2010. But the borrowing costs of Spain and France, the countries now at the centre of the crisis, slid, as did those of France.
‘There will be another round of policy action to shore up markets, but policy credibility has been dealt another blow,’ said Dominic Rossi, chief investment officer, equities, at Fidelity Worldwide Investment.
Referring to the bailout fund, he added: ‘Speculation around an [European Financial Stability Facility] downgrade will now grow, complicating its ability to raise capital and displace the [European Central Bank] in the sovereign bond purchasing programme.’
Other stock markets in Europe edged up: Germany’s DAX index gained 0.49% to 6,173, France's CAC 40 index added 0.01% to 3,197, and the FTSEurofirst 300 index of top European shares was 0.2% higher at 1,020.
Meanwhile, shares in Carnival (CCL.L) tumbled as the cruise operator warned that the loss of a ship that capsized off the coast of Italy would mean a $90 million (£60 million) hit to its 2012 earnings.
Carnival shed 401p, or 18%, to £18.50 in the wake of the disaster involving its Costa Concordia ship, in which at least five people were killed. The group said that in addition to the expenses due to losing the ship, it anticipated ‘other costs to the business that are not possible to determine at this time’.
‘At this time, our priority is the safety of our passengers and crew,’ Micky Arison, chief executive, added in a statement.
Greg Johnson, analyst at Shore Capital, pointed to the potential impact on booking yields ‘in an environment where booking patterns remain subdued’, with each 1% change in revenue yields worth about 15 cents to earnings. Tighter operational procedures could also add to annual running costs, he said.
Nonetheless, he added: ‘We have a "hold" stance on Carnival, highlighting the low return on investment and subdued yield environment; however, we would see any weakness in the shares to below 2,000p per share – ie, towards book value – as a potential buying opportunity.’
Banks were among the other biggest fallers on the index, in the wake of S&P’s wave of downgrades. Citywire Top Stocks Barclays (BARC.L) and Lloyds (LLOY.L) fell 3.7p to 197.5p and 0.2p to 29.3p respectively, while Royal Bank of Scotland (RBS.L) slipped 0.2p to 23.9p.