Amid disappointing corporate results and yet another instalment of soft economic data from the U.S., what few bulls there were left on the London Stock Exchange capitulated and the FTSE 100 plummeted to an 11-month low.
On Wednesday both the U.K. blue chips and mid-caps hit year-to-date lows but these were extended Thursday. The FTSE 100 index plunged 3.4%, shedding 190 points to 5,393, reaching its lowest level since September 2010. The FTSE 250 index lost 3.8% or 421 points to 10,573, also a low the index had not seen since September 2010.
Amid the market downturn, interest rate announcements from the Bank of England and the European Central Bank attracted little attention. Threadneedle Street resolved, predictably, to keep interest rates at their current lows and introduced no change to its asset purchase programme. Over in Frankfurt, President of the ECB Jean-Claude Trichet also announced that ECB rates will remain unchanged this month.
Of more significant note, the eurozone’s central bank resolved to conduct a “supplementary refinancing operation” for “approximately six months” in an effort to calm market tensions surrounding peripheral debt. It also became clear from Trichet’s statement that the Bank entered secondary debt markets on Thursday in order to purchase more of the embattled peripheral sovereign bonds. Held hostage to negative market sentiment, however, Italian and Spanish bond yields continued to increase.
Across the pond, weekly U.S. initial jobless claims came in below expectations and just above the level that indicates labour market growth, but investors shouldn’t hold their breath for robust job growth figures when the U.S. government releases its monthly report tomorrow. Although there might be a few pockets of strength in July's employment report, the job-growth engine is likely still in neutral, according to Morningstar's Bob Johnson and Vishnu Lekraj.
Most damaging to risk appetite on the LSE, however, were disappointing results from several FTSE 100 companies.
Satellite operator Inmarsat (ISAT) plummeted 19.3% straight to the bottom of the blue-chip index after cutting growth expectations on its key maritime business as interim results showed that a move to next-generation broadband terminals has challenged growth.
Meanwhile, Lloyds Banking Group (LLOY) shed 10.2% on the back of a £2.3 billion first-half loss. The bank pointed to the weak U.K. economy and one-time payment protection insurance (PPI) charges as reasons for its soft performance. Peers Barclays (BARC) and Royal Bank of Scotland (RBS) lost 7.8% and 6.1%, respectively. Sector sentiment also knocked Standard Chartered (STAN), which slipped 2.8% though it still outperformed the wider market. The Asia-facing bank reported better-than-expected net profit, but weakness in its Indian operations today.
Taking the FTSE 100 deeper into negative territory, miner Rio Tinto (RIO) lost 5.4% after expressing concern over sovereign debt exposure in the U.S. and Europe and rising cost pressures in its interim earnings statement. Rio’s update combined with global growth concerns to push Kazakhmys (KAZ), Vedanta Resources (VED) and Xstrata (XTA) 8.3%-9.4% lower.
As is often the case with bearish trading days, precious metal miners and utilities companies made up the short list of FTSE 100 risers. Randgold Resources (RRS) gained 6.7% as investors’ pursuit for shelter in gold was combined with the company releasing better-than-expected net profit and gold output figures for the first half of 2011.
Unilever (ULVR), up 2.7%, was also able to benefit from both the loading off of risky assets and forecast-beating quarterly sales growth.
