The FTSE 100 slid as fresh signs of continued low interest rates in the US and worries over tensions between Russia and the Ukraine competed to dictate sentiment.
The UK's main index dropped 17 points, or 0.3%, to 6,567 after a solid session in US markets following comments from US Federal Reserve chairman Janet Yellen that low inflation remained a key concern and support for the economy would continue for some time to come.
‘With inflation running at 1%, I think the risk is greater that we should be worried about inflation undershooting our goal and getting inflation back up to 2%,’ she said.
Fears over technology stocks in the US took some of the shine off a Yellen-inspired surge in US markets, with Google Inc (GOOGL.O) slumping and IBM (IBM.N) also reporting disappointing results.
Upcoming talks in Geneva between the West and Russia conspired to dampen sentiment at the open of UK markets, offsetting any optimism from the US. ‘With no-one quite clear what is going on on the ground in the Ukraine following numerous reports of gun battles, mass defections, building occupations and tank thefts, it’s unlikely that traders will want to put on large positions going into a long weekend when the expectations for the talks are so low,’ said Jonathan Sudaria, dealer at Capital Spreads.
Diageo (DGE.L) was the biggest faller, shedding 76.5p, or 4%, to £18.24 as the drinks manufacturer reported disappointing performance in its third quarter. Organic net sales declined by 1.3% in the three months to the end of June, compared to 0.9% in the first half of its financial year, despite the company having predicted a ‘small’ improvement in the second half. Fresnillo (FRES.L) fell by 33p, or 3.7% to 854p, despite the miner releasing production numbers for the first quarter of the year in line with market expectations.
St James’s Place (SJP.L) notched up the biggest gains, adding 22.5p, or 3%, to 781p, as it was buoyed by a note from Berenberg that helped to lift stocks across the life insurance sector. Analyst Matthew Preston said the financial sales force was likely to receive a boost from changes to pension rules announced in the Budget that will remove the need for many to buy an annuity. ‘In our view, SJP is likely to be a key beneficiary of the recent changes to the annuity landscape, with its retention levels set to rise as clients stay invested for longer,’ he said.
UK life insurers have come under pressure in recent weeks, as the hit to the annuity market was followed swiftly by the announcement the City regulator was to investigate past pension sales. Prudential (PRU.L), which Preston backed to escape the full brunt of the fallout due to ‘the dominance of its Asian and US operations’, rose 16p, or 1.2%, to £13.08.
Resolution (RSL.L), a closed-book insurer which was particularly badly hit by revelations of the regulator’s plans and has shed more than £1 billion of its market value in a month, rose 4.4p, or 1.6%, to 286.2p. Preston upgraded the insurer from ‘sell’ to ‘hold’, arguing there was ‘limited downside risk’ for the stock, and ‘upside potential once clarity on the outlook for back-book consolidation emerges’.
ITV (ITV.L) was another strong riser, adding 6.8p, or 3.8%, to 186.5p, as traders dismissed the threat posed by reports Discovery and Sky were close to sealing a deal to buy Channel 5. ‘We do not think it changes the picture for ITV – Five is a niche channel and, even with Sky and Discovery backing it, is likely to remain so,’ said Liberum.
RSA Insurance Group (RSA.L) added 2.1p, or 2.3%, to 94.7p as the general insurer sold three of its Baltic operations together with its Polish operation for £300 million.