After moving sideways for much of May, UK stocks have sunk to their lowest in over seven weeks following events both in the US and over here. Our City writer has the latest.
Debt ceiling worries and a flight from rate-sensitive stocks today combined as a wake-up call for investors after a run of serene progress by global markets.
The FTSE 100 index retreated 1.75% to a level last seen at the end of March, with builders and insurers including high-yielding dividend stocks Barratt Developments (LSE:BDEV) and Aviva (LSE:AV.) among those 5% lower.
Stocks with exposure to the US economy such as corporate merchandise firm 4imprint (LSE:FOUR) and cruise ship operator Carnival (LSE:CCL) were leading fallers in the second tier, as traders began to question the assumption that a debt ceiling deal will be done.
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The so-called X-date when the US Treasury can no longer make timely payments on all its obligations is seen as 1 June, meaning that President Joe Biden and House Speaker Kevin McCarthy are running out of time to come up with a deal that allows for three days of congressional debate.
Deutsche Bank strategist Jim Reid said this morning: “It’s true that both sides are still talking and the mood music sounds (mostly) positive, but we might only be days away from the deadline in early June, and any deal that’s reached is still going to need to be passed through both houses of Congress.
“So there are real concerns that this could go right down to the wire, and investors are slowly gearing up accordingly.”
That’s been reflected in the upward direction of the Vix volatility index, which is up by 13% in the past week to a level still short of the peak seen in the March banking crisis.
Tuesday’s session saw the S&P 500 index fall by more than 1%, with fears over the previously unthinkable prospect of a default by the world’s biggest economy also knocking confidence in markets across Europe.
The latest evidence from the UK that interest rates will have to stay higher for longer to deal with persistent levels of core inflation also contributed to the risk-off mood.
Worries over the demand impact of more rate rises meant the likes of Taylor Wimpey (LSE:TW.) lost more momentum, having risen from 105p to 128p over the first four months of the year on signs that the housing market is more resilient than expected. It now trades on a prospective yield of 7.6%.
Other big fallers in the top flight included the global business information group Informa (LSE:INF), transatlantic retailer JD Sports Fashion (LSE:JD.) and luxury goods group Burberry Group (LSE:BRBY).
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Only five blue-chip stocks were in positive territory by lunchtime, with quality assurance provider Intertek Group (LSE:ITRK) providing London’s stand-out performance after it reported revenues above £1 billion for the first four months of the year.
That reflected like-for-like sales growth of 6.5%, driven by a strong rebound for its business serving China’s export and domestic market since the Lunar New Year.
The company, which has more than 1,000 laboratories and offices in over 100 countries, still expects mid-single digit like-for-like revenue growth at constant currency for the year. It added: “We continue to make progress on our margin and cash priorities and are on track to deliver our 2023 guidance.”
BT Group (LSE:BT.A) shares were broadly unchanged, but this performance masked another significant session for the telecoms stock in the aftermath of last week’s annual results.
Shares fell sharply after those figures, prompting French telecoms tycoon Patrick Drahi to take advantage of the weakness as he yesterday disclosed an increased stake of 24.5%. BT was again in the spotlight today after Ofcom ruled that price rises by regulated division Openreach are not anti-competitive.
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