Britain’s markets slipped on Friday morning as US bank JP Morgan posted a shock $2 billion loss, unnerving investors and sparking a sell-off of risky assets.
The FTSE 100 fell 0.71%, or 40 points, to 5,504 and the Mid-250 index lost 0.38%, or 43 points, to 10,901. See the FTSE’s performance and the index’s top risers and fallers.
International Consolidated Airlines (IAG.L) shed 3.4p, or 2%, to 159.5p after it made an operating loss of £200 million in the first three months of the year owing to rising fuel costs and economic headwinds in Europe.
Sales increased 7.8% to £3.14 billion in the quarter, but setbacks and strikes at its Spanish airline, Iberia, saw the division post a £136 million loss. The group is forecast to break even for the full year.
JP Morgan loss weighs on markets
Further evidence that growth in China may be slowing emerged as the country’s consumer price index, which measures inflation, reduced to 3.4% in April from 3.6% the year before.
Asian markets slid and European banking stocks were badly hit as JP Morgan revealed that it lost $2 billion in a failed hedging strategy that was designed to help protect the bank from risks.
The losses are linked to a trader nicknamed the ‘London Whale’ who built up a position that hedge funds bet against.
Jordan Lambert, trader at Spreadex, said of the losses: ‘This has dragged down the entire US banking sector with it and permeated to the wider market as investors and spread bettors assess the possible systemic risk adding another layer of caution to the fragile trading environment.
‘When such shocks occur it is wise to err on the side of caution, and consider whether it is a possible "tip of the iceberg" scenario, especially when one contemplates the interconnectedness of the banking system.’
In the eurozone Greek politicians are still struggling to form a coalition, which could lead to a fresh round of elections in mid-June.
European markets opened to track overnight losses: Germany’s DAX index reversed 0.7% to 6,740, France's CAC 40 index gave up 1.06% to 3,097, and the FTSEurofirst 300 index of top European shares lost 0.91% to 1,009.
Miners and financials drag down FTSE 100
Risky assets were sold off as miners and financials weighed on the FTSE 100: Barclays (BARC.L) shed 5.5p, or 2.7%, to 203.2p; BHP Billiton (BLT.L) dropped 44.5p, or 2.4%, to £18.27; Eurasian (ENRC.L) gave up 12.5p, or 2.4%, to 524p; and Rio Tinto (RIO.L) retreated 78p, or 2.5%, to £30.69.
British Gas owner Centrica (CNA.L) slipped 1.2p, or 0.4%, to 309p as it announced that UK wholesale gas prices are expected to be 15% higher next winter, adding £50 to the average household fuel bill, as a result of higher commodity prices.
Travel group Thomas Cook (TCG.L) shed 0.5p, or 2.4%, to 21p after raising £183 million by selling and leasing back 17 of its aircraft.