- £50bn wiped off the FTSE 100 in three trading session as sell-off intensifies
- European bourses close lower as oil prices tumble after IEA report
- Pound posts sharpest fall since Bank of England rate cut after UK inflation data
- UK inflation data holds steady in August
- China stocks end flat despite upbeat economic data
- Eurozone employment rises to highest level since 2008
After a summer lull, Joshua Mahony, of IG, said it seems “volatility is back with a bang”. “Despite a perceived hawkish shift from some Fed rate setters, driving a flight out of stocks and into the dollar, September still seems too early for the next US rate increase and it is still a coin toss whether one will happen in 2016.”
European bourses also faltered. The German DAX lost 0.4pc, the CAC in Paris fell 1.2pc and the Spanish IBEX ended the day 1.6pc lower.
On the currency markets, softer-than-expected inflation data in the UK prompted spurred the pound’s steepest fall since August 4, when the Bank of England cut interest rates. The annual rate of consumer price inflation was unchanged at 0.6pc in August, falling short of consensus forecasts for it to increase to 0.7pc. Following the economic data release, the pound fell by as much as 1.2pc in intraday trade to a two-week low of $1.3168 against the dollar.
Returning to equities, oil majors were among those worst impacted after Brent crude fell by as much as 2.7pc to $47.03 a-barrel after the IEA said the oil market will be oversupplied at least through the first six months of 2017. BP tumbled 8.2p, or 1.9pc, to 420.6p, Royal Dutch Shell B shares skidded 23p to £19.07, mid-cap stock Tullow Oil lost 9.4p to 217.5p and Amec Foster Wheeler closed at 531p, down 22.5p on the day.
Mining stocks found themselves at the bottom of the blue chip index as copper prices retreated from a three-week high as nervousness heightened ahead of next week’s Fed meeting. Three-month copper on the London metal exchange dipped to $4,644.50 a tonne. In its wake, shares in Anglo American dropped 35.7p to 783.8p, Glencore slipped 3.8p to 177.1p, BHP Billiton surrendered 22.9p to close at 968.1p, Rio Tinto shed 37.5p to £22.57 and Antofagasta fell 9.2p to 480.7p.
Meanwhile, Primark owner Associated British Foods also wallowed among the FTSE 100 laggards for a second consecutive trading session after its suffered a slew of rating downgrades. On Monday, the group said the pound weakness following the Brexit vote would hurt Primark’s profit margins during the next financial year, as it would not raise prices to offset the impact.
The comments sent the stock price into a spin, plunging 10.8pc. However, yesterday it extended its losses, falling a further 75p, or 2.7pc, to £27.40 after Jefferies slashed its rating to “underperform” and revised its target price lower, down from £26 to £26. Following clear indications by Associated British Foods of accelerating Primark margin pressure in the second half of the year and into the next financial year, the US investment bank sees “double-digit downside to the stock”.
James Grzinic, of Jefferies, said: “A sharper value offering at a time of accelerating, fx-driven sourcing pressures sees us downgrade our earnings before interest and tax estimates by between 7pc and 10pc.” JP Morgan also cut its target price from £37 to £33 and broker Numis downgraded its rating from “add” to “hold”,
Elsewhere, Citigroup revised HSBC’s rating to “neutral”. The “great summer rally” has eroded any upside, analysts said, after the divergence between its earnings and share price “accentuated” in the past three months. Shares in the FTSE 100 bank closed down 6.3p at 559.3p.
A bearish note on the UK real estate sector spurred a slide in shares. The German bank remains “cautious on London Office” where macro and political risks are concentrated. Oliver Reiff, of Deutsche Bank, said: “We believe it is premature to be relaxed on the potential impact of Brexit”. As a result, it slashed the ratings of Derwent London and Intu Properties from “hold” to “sell”, Land Securities from “buy to hold” and revised the target prices of British Land and Hammerson lower. Shares in Derwent London tumbled 72p to £25.73, Intu Properties slipped 6.2p to 289.2p, Land Securities dipped 25p to £10.14, British Land dropped 17.5p to 628.5p and Hammerson was 9.5p lower at 566.5p.