Faced with the unpleasant combination of a U.S. debt negotiations stalemate, fresh talks of a credit rating downgrade in peripheral Europe, and disappointing U.S. GDP growth for the second quarter of 2011, London-listed equities spent Friday where they were for the better part of the trading week – below breakeven.
Ultimately, the FTSE 100 index shed 1.0% or 58 points on Friday to 5,815, bringing the blue chip index’s weekly losses to 1.5%. The FTSE 250 index dipped 0.6% or 64 points to 11,552, losing a total of 2.3% on the week.
A lack of progress in the U.S. fiscal policy negotiations in Washington was once again among the main concerns on investors’ minds. While many financial experts, including Morningstar’s own securities analysts Dave Sekera, maintain that a last-minute deal will be struck, markets have suffered from a considerable amount of volatility and loss of risk appetite amid the U.S. political game of chicken.
Adding insult to injury, Moody’s said it had placed Spain on warning for a credit rating downgrade today, citing the likelihood of Spain’s budget being under pressure as the country’s economic growth loses momentum. Meanwhile, Spain’s Prime Minister Jose Luis Rodriguez Zapatero called for parliamentary elections in November. The cost of Spanish borrowing soared on the news.
Across the Atlantic, the first estimate of U.S. GDP growth in the second quarter came in at a lower-than-expected 1.3%. In addition, growth for the previous quarter was revised lower. The 1.3% figure falls comfortably in the 1% to 2% range of expectations that Morningstar’s director of economic analysis Bob Johnson shared earlier in the week. He expects to see a strengthening in U.S. growth in the second half of the year.
Against this macroeconomic backdrop, heavyweight financials and miners ranked among the biggest losers on the FTSE 100.
Ahead of announcing results next week, Barclays (BARC), Lloyds Banking Group (LLOY) and Standard Chartered (STAN) lost 2.2%-3.8%.
Hit by risk aversion, miners Anglo American (AAL), BHP Billiton (BLT) and Xstrata (XTA) also fell, down 1.9%-3.3%.
On the flipside, upbeat corporate news and quarterly results supported a handful of gainers. Vodafone (VOD) ranked first among them, up 4.0% on the news that the company’s Spanish arm has been successful in a bid for new mobile band spectrum for a total consideration of EUR 518 million.
Second on the list of winners, Financial Times-owner Pearson (PSON) was up 3.1% after raising its profits outlook and exceeding first-half earnings expectations. International Continental Airlines Group (IAG), up 2.0%, also gained on an upbeat earnings announcement.
Elsewhere, Fresnillo (FRES) was among the few miners to buck the sector’s losing trend, moving 2.2% forward as investors sought shelter in precious metals.
