UK blue-chips extended recent losses on Friday to record a drop of 2.8% over the week under pressure from fears of a financial sector overhaul and concerns China’s monetary policy will tighten demand for commodities.
The FTSE 100 index shed 32.1 points or 0.6% to end the week 5,303.0, while the FTSE 250 index lost 92.9 points or 1.0% to 9,325.2. Other European markets and Wall Street also suffered in the wake of President Obama’s announcement on Thursday that he plans to impose stricter regulations on banks’ risk taking. Comments from Prime Minister Brown on Friday in support of the proposals raised concerns that similar methods could be adopted in the UK, creating uncertainty about the future of the financial system and therefore hitting market sentiment.
“What is clear is that President Obama is trying to prevent another financial crisis that excessive bank risking taking played a major part in causing,” commented Joshua Raymond, market strategist at City Index, “what is not clear is how much of an implication will stricter regulation on risk taking have on the banks’ ability to return to stable growth and it is this uncertainty that is really hurting market confidence and banking shares.”
On the FTSE 100 index, Barclays continued its decline with a 4.1% fall, while Royal Bank of Scotland lost 1.8%, HSBC slipped 0.2% and Standard Chartered was 0.1% lower. Lloyds Banking Group made weak attempts at a rebound, however, rising 0.6%.
The main casualties on Friday were broader financial plays such as interdealer broker ICAP, which dropped 6.6%, exchange operator London Stock Exchange, down 4.3% and life insurers Resolution and Legal & General, 3.8% and 3.0% behind, respectively.
Elsewhere, natural resource stocks put in a mixed performance as commodity prices fell substantially in early deals but recouped some of their losses in later trade. Industry traders’ concerns are currently two-fold: that the Chinese authorities to slow economic growth will impact on demand for commodities, and also that stricter regulations on banks will restrict the flow of funds into the natural resources arena.
Fresnillo, Randgold Resources and Antofagasta each lost 0.7% to 2.1% but, having suffered substantially in recent weeks, other industry names such as Xstrata, Eurasian Natural Resources and Kazakhmys attracted bargain-hunters and subsequently closed between 1.1% and 2.4% higher.
This market commentary, as well as equity analysis, funds research and personal finance articles, can be delivered direct to your inbox on a daily basis with Morningstar's daily newsletter.
