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World Bank and Lufthansa cast shadow over FTSE
by Gavin Lumsden on Jun 11, 2014 at 14:03
The FTSE 100 slid 37 points or 0.5% to 6,836 as a profits warning from German airline Lufthansa spooked investors after the World Bank cut its growth forecast for the global economy.
British Airways owner IAG (ICAG) led the blue chip index lower, falling 19p or 4.5% to 394p in response to the alert from Lufthansa (LHA.DE). Its shares plunged 14% after saying a price war on its main European and US routes would prevent it from reaching its profit targets in the next two years.
In London Easyjet (EZJ) followed suit with a 3.8% fall to £15.32.
Rolls-Royce (RR) dropped 23p or 2.2% to £10.53 after Dubai’s Emirates airline cancelled its order for 70 A350 jets, for which the company makes the engines. In France Airbus (AIR.PA) tumbled 3% at the loss of 9% of its order book.
The World Bank darkened the increasingly cautious mood among investors by revising this year’s global growth forecast to 2.8% from 3.2%, with the US cut to 2.1% growth from the 2.8% level it saw in January.
UK unemployment figures provided some good news, with the jobless rate falling to 6.6% in the three months to April, down from 6.8% in the first quarter, as more employers hired staff.
The pound responded to this latest sign of the strengthening economy by rising to $1.6785 against the dollar while the price of UK government bonds, or gilts, fell as their 10-year yield advanced to over 2.7%.
This induced another bout of anxiety among investors over the pressure building on the Bank of England’s monetary policy committee to raise interest rates ahead of the election next May.
Philip Shaw of Investec Economics said: ‘Unless labour market trends begin to moderate, the case for an interest rate rise at some stage later on this year will become more and more compelling and less easy to dismiss.’
Sainsbury (SBRY) bucked the downward trend, however, rallying 2% to 336.6p as chief executive Justin King served his last results before stepping down. The supermarket posted its second consecutive fall in quarterly sales as shoppers watched their spending and turned to discounters Aldi and Lidl.
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