The FTSE 100 remained firmly in the red despite weaker-than-expected US jobs figures cooling fears of an early hike to interest rates in the world's biggest economy.
The UK blue-chip index pared losses after figures from the US Department of Labor showed 209,000 jobs were created in July, less than the 230,000 expected by investors. The FTSE 100 traded 50 points, or 0.7%, lower, at 6,680 points, an advance on its 1% decline this morning.
In the lead-up to the data release the index had flirted with a loss of 100 points as anxious investors feared a strong jobs figure, coupled with news earlier in the week that the US economy grew 4% in the second quarter, would compel the Federal Reserve to act on rates.
However, a cooling of jobs growth, down from June's 298,000 figure, combined with increasing unemployment - up from 6.1% to 6.2% - and a rise of just 2% in average employee earnings compared to a year ago, have calmed those worries.
'Even if the economy is booming, if wages are not rising at a reasonable rate to help boost incomes, and there are no signs of worrying inflationary pressures in the labour market, it's hard to see how an argument for raising interest rates can be won,' said Chris Williamson, chief economist at Markit.
FTSE drops as investors fear the worst over US jobs
10:22 The FTSE 100 has fallen as anxious investors await US jobs data they fear could signal earlier interest rate rises in the US.
The FTSE dropped 70 points, or 1% to a three-week low of 6,660 as data released yesterday showing US labour costs recorded their biggest gain in more than five-and-a-half years led traders to fear the worst about jobs figures released later today.
‘It’s likely to be an anxious wait,’ said Jonathan Sudaria, dealer at Capital Spreads. ‘The “worst” case scenario that is getting the bulls trembling is a repeat of last month’s data releases. If we have another surprise sharp drop in the unemployment rate and another forecast smashing payrolls figure then there can be no doubting the trajectory of the US economy is on the up.
‘Unfortunately for the bulls, this will only solidify the speculation that monetary tightening is on the up.’
In a broad-based slump of the index, all sectors were down, with cyclical stocks such as basic materials and technology hit hardest. Randgold Resources (RRS) fell 153p, or 2.9%, to £49.69, Rio Tinto (RIO) fell 89p, or 2.6%, to £33.06, Anglo American (AAL) dropped 36.5p, or 2.3% to £15.62 while Glencore (GLEN) shed 8.6p, or 2.4% to 351.6p.
Outsourcing group Capita (CPI) dropped 33p, or 2.7% to £11.68 after analysts at Credit Suisse cut their rating on the stock from ‘outperform’ to ‘neutral’, reducing their target price from £12.50 to £12.15.
Weaker-than-expected UK manufacturing survey data added to the gloom. The purchasing managers’ index reading for the sector hit 55.4 in July, down from 57.2 in June, despite expectations it would stay flat month-on-month. Any reading above 50 indicates expansion.
‘It is possible that concerns over potential Bank of England interest rate rises are weighing a little, as they clearly were on this week’s consumer confidence number, while the Ukraine situation may also be making firms a little nervous about expanding output,’ said James Knightley, economist at ING Bank.
Smith & Nephew (SN) was one of only five stocks to rise as the medical technology group added 15p or 1.5% to £10.41 after reporting a 10% rise in profits in the second quarter.