European stocks fell sharply on Wednesday as bonds sank, and the oil price rose amid renewed concerns in the Middle East.
In London, the FTSE 100 index ended down 83.19 points, 0.8%, at 10,458.50. The FTSE 250 fell 178.58 points, 0.7%, to 24,036.75, and the Aim all-share shed 7.64 points, 1.0%, to 775.98.
In European equity markets on Wednesday, the Cac 40 in Paris ended down 1.4%, as did the Dax 40 in Frankfurt. In New York, markets were lower. The Dow Jones Industrial Average was down 1.1% at the time of the closing bell in London. The S&P 500 was 0.6% higher, while the Nasdaq Composite was down 0.7%.
Bond yields soar amid worries
Bonds fell once more, and yields soared, amid worries in Europe and the Middle East. Bank of France head Emmanuel Moulin said that France’s economic situation is serious, given the rise in its borrowing costs, but the country does not at this point need help from the European Central Bank.
“Risk sentiment is deteriorating further,” said Kathleen Brooks, research director at XTB, who added Mr Moulin’s comments are “spooking investors and triggered this sell off”.
“Although French and Italian bonds are at the epicentre of today’s sell-off, UK yields are playing catch-up,” she said. “The UK 10-year yield is higher by 10bps on Wednesday and the yield on the 30-year gilt is back above 6%, although there are signs that this level is attracting decent buying interest.”
Wednesday’s UK debt sale auction attracted healthy demand, with investors bidding for around four times the securities on offer at sales of both the 2028 and 2031 gilts.
Currency and oil moves
The yield on the US 10-year Treasury was quoted at 5.32% on Wednesday, hitting a 24-year high, stretched from 5.27% at the same time on Tuesday. The yield on the US 30-year Treasury was quoted at 5.69%, widened from 5.63%.
The risk-off mood supported the dollar, which recouped some of Tuesday’s losses. The euro fell to 1.1187 dollars from 1.1264 dollars. Against the yen, the dollar was trading at 158.13 yen, up from 158.07 yen. The pound was quoted at 1.3210 dollars on Wednesday, down from 1.3280 dollars at the same time on Tuesday. Against the euro, sterling strengthened to 1.1807 euro from 1.1791 euro.
David Morrison, analyst at Trade Nation, said: “Investors continue to favour the greenback, although much of this love comes from it being the cleanest shirt in the laundry. This is plain to see given the relatively dismal outlooks for the economies of France, Germany, the UK and Japan.”
Mr Morrison said much of the euro weakness is driven by concerns over the state of the French economy, although Germany, the former Eurozone manufacturing powerhouse, is also struggling, economically and politically. Sterling is holding up relatively well, he said, although “it too has its own problems, and investors are girding their loins ahead of what is likely to be a difficult budget next month”.
After the London close, the US Federal Reserve will release minutes of the September Federal Open Market Committee meeting. According to the CME’s FedWatch Tool, there is a 78% probability that the FOMC keeps rates unchanged at its October meeting, although there remains an 85% chance of at least one 25-basis-point rate hike before the year-end.
A fresh rise in the oil price also kept investors sidelined amid fresh concerns about Middle East supplies following a warning that Iran appeared to be stepping up attacks in the Strait of Hormuz. Brent oil was quoted at 101.77 dollars a barrel in London on Wednesday, up from 98.37 dollars late on Tuesday.
Chris Weston, head of research at Pepperstone, told AFP that “reports of increased flows across the (Middle East) region have offered some downside pressure on crude, but this has been offset by varying reports around the scale of attacks on vessels moving through the Strait”. “For now, the market remains highly sensitive to headlines and geopolitical risk,” he added.
FTSE 100 movers
On the FTSE 100, financials bore the brunt of the falls, with lenders Standard Chartered, HSBC, NatWest and Barclays down 4.5%, 4.4%, 2.8% and 3.4% respectively, while insurer Prudential slid 4.7%.
Asia-focused bank HSBC said consultations were under way, after the Financial Times reported that hundreds of jobs were at risk from the bank’s adoption of artificial intelligence. “We are currently in a consultation period,” a spokesperson told AFP after the FT reported HSBC “is planning sweeping job cuts in its UK wealth management business… as part of a push to use AI to help serve wealthy clients”.
Bucking the weaker trend, JD Sports rose 3.9%. The advance came as Frasers Group took an 8.8% stake in sportswear brand Under Armour. Frasers closed up 2.8%.
Also in the green, consumer goods firms Reckitt Benckiser and Haleon were up 2.6% and 2.5%, respectively, after positive comments from broker Goldman Sachs. The investment bank upgraded Reckitt Benckiser, which owns brands such as the painkiller Nurofen and throat sweets Strepsils, to “buy” and called Haleon’s valuation “compelling” in a positive sector outlook. Haleon owns brands such as Sensodyne oral care products and Panadol painkillers. Goldman analyst Olivier Nicolai said consumer health is an “attractive category with scope for consolidation”.
On the FTSE 250, military and law enforcement protection equipment manufacturer Avon Technologies soared 15% as it said it expects annual results to be ahead of market expectations. Adjusted operating profit margin is expected to be “comfortably above” the guided range of between 14% and 16%. It was 13% a year earlier. Return on invested capital is also expected to beat guidance of over 17%, compared with 19% a year earlier.
But water company Pennon plunged 20% after it announced a heavily discounted rights issue and said it was cutting its dividend to support increased investment plans. Chief executive Keith Haslett said it’s clear that Pennon has “real strengths, but there are areas where we need to improve and deliver better outcomes”.
Dan Coatsworth, head of markets at AJ Bell, said: “Investors are not going to like this news one bit.” He pointed out that investors typically buy shares in utility companies for their dividends, seeing them as a reliable source of income and a bit of capital growth on top. “It’s possible that some people will take the dividend cut as the final straw and close the taps on this investment,” he added.
But others were more positive. Citigroup analyst Jenny Ping said it could potentially be the start of the turnaround story at Pennon, while JPMorgan analyst Pavan Mahbubani sees a “buying opportunity” at these levels.
Gold was quoted at 4,109.52 dollars an ounce, down from 4,163.00 dollars.
The biggest risers on the FTSE 100 were JD Sports Fashion, up 3.16p at 83.5p, Reckitt Benckiser, up 129.0p at 5,106.0p, Haleon, up 8.4p at 342.4p, British American Tobacco, up 85.0p at 4,084.0p and Vodafone Group, up 2.65p at 127.75p.
The biggest fallers on the FTSE 100 were Prudential, down 43.2p at 881.0p, Standard Chartered, down 102.0p at 2,151.00, HSBC Holdings, down 64.2p at 1,408.0p, Weir, down 102.0p at 2,560.0p and Investec, down 23.0p at 595.0p.
Thursday’s local corporate calendar has half-year results from grocer Tesco and a trading statement from student accommodation provider Unite Group. Thursday’s global economic calendar has German trade data, UK house price figures and initial jobless claims in the US.
