London midday: Banks pace decline after Wall St selloff

London stocks were still firmly in the red by midday on Friday, with banks tracking a selloff on Wall Street, as investors mulled better-than-expected UK GDP data and looked ahead to the release of the non-farm payrolls report.

The FTSE 100 was down 1.7% at 7,745.77. In the US, the Dow closed 1.7% lower, while the S&P 500 and the Nasdaq slid 1.9% and 2.1% respectively, as bank shares tumbled.

The selloff was sparked by tech-focused bank SVB Financial, which plummeted 60% after it announced plans to raise more than $2bn in capital to help offset losses on bond sales.

On home shores, data out earlier from the Office of National Statistics showed that the UK economy returned to growth in January, raising hopes that a recession will be avoided.

GDP grew 0.3% on the month following a 0.5% contraction in December, coming in ahead of consensus expectations for 0.1% growth.

Growth was driven by the services sector, which expanded 0.5% after a 0.8% contraction in December. The biggest contributors were education, transport and storage, human health activities, and arts, entertainment and recreation activities, all of which rebounded after falls in December.

ONS director of economic statistics, Darren Morgan, said: "The economy partially bounced back from the large fall seen in December. Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.

"The main drivers of January's growth were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month."

Russ Mould, investment director at AJ Bell, said: "An earthquake in Silicon Valley led to aftershock on Wall Street and the tremors could still be felt in London on Friday morning.

"Lending to tech start-ups is at the racier end of finance and in that context Silicon Valley Bank’s announcement of a $2.25 billion rescue share issue, after a period when appetite from lenders and investors towards this part of the market has dried up, should not have come as a major surprise.

"However, in a heavily interconnected banking industry it’s not so easy to compartmentalise these sorts of events which often hint at vulnerabilities in the wider system. The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns.

"Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable - the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings.

"The FTSE 100 was firmly lower thanks to a slump in the banking sector and strength in the pound after a bounce back for the UK economy in January hit the relative value of its dominant overseas earnings.

"Growth in January was flattered by some one-off impacts in December like strikes and the World Cup in Qatar, and a resulting pause in Premier League football, unwinding. You could look at in two ways, neither of which are that favourable for markets. Either a recession will be avoided but rates will stay higher for longer than hoped or a downturn is still coming and the data is essentially just background noise."

Looking ahead to the rest of the day, the payrolls report for February is due at 1330 GMT, along with the unemployment rate and average earnings.

In equity markets, banks were the standout losers on the FTSE 100, with HSBC, Standard Chartered, Barclays and Lloyds all sharply lower.

Schroders was under the cosh after a downgrade to ‘neutral’ from ‘outperform’ at Credit Suisse, while Segro was hit by a downgrade to ‘equalweight’ at Barclays.

Transport operator FirstGroup reversed earlier losses to trade up after it lifted annual guidance as passenger traffic on its buses and trains continued to recover from Covid pandemic levels.

Outside the FTSE 350, recruiter Robert Walters ticked higher as it reported record profits, driven by the tight labour market and surging wage inflation, as it announced that its long-standing chief executive was stepping down.

Market Movers

FTSE 100 (UKX) 7,745.77 -1.70%
FTSE 250 (MCX) 19,310.40 -1.94%
techMARK (TASX) 4,593.31 -1.38%

FTSE 100 - Risers

National Grid (NG.) 1,057.00p 1.29%
BT Group (BT.A) 148.80p 1.02%
SSE (SSE) 1,734.50p 0.49%
Vodafone Group (VOD) 99.18p 0.49%
Berkeley Group Holdings (The) (BKG) 4,040.00p 0.10%
London Stock Exchange Group (LSEG) 7,376.00p -0.14%
Centrica (CNA) 106.00p -0.19%
Severn Trent (SVT) 2,764.00p -0.29%
BAE Systems (BA.) 932.40p -0.30%
Reckitt Benckiser Group (RKT) 5,788.00p -0.41%

FTSE 100 - Fallers

HSBC Holdings (HSBA) 591.20p -4.81%
Hargreaves Lansdown (HL.) 796.20p -4.67%
Legal & General Group (LGEN) 251.90p -4.29%
JD Sports Fashion (JD.) 171.85p -4.10%
Standard Chartered (STAN) 744.40p -3.95%
Ocado Group (OCDO) 464.50p -3.75%
Ashtead Group (AHT) 5,532.00p -3.56%
InterContinental Hotels Group (IHG) 5,470.00p -3.49%
Prudential (PRU) 1,236.50p -3.36%
DCC (CDI) (DCC) 4,501.00p -3.35%

FTSE 250 - Risers

Drax Group (DRX) 648.00p 2.37%
FirstGroup (FGP) 108.10p 1.89%
National Express Group (NEX) 136.70p 1.56%
Watches of Switzerland Group (WOSG) 808.00p 1.19%
Spire Healthcare Group (SPI) 222.00p 1.14%
Tritax Eurobox (GBP) (EBOX) 64.10p 1.10%
Babcock International Group (BAB) 326.60p 0.93%
Digital 9 Infrastructure NPV (DGI9) 81.10p 0.75%
Domino's Pizza Group (DOM) 261.80p 0.69%
Hunting (HTG) 269.50p 0.56%

FTSE 250 - Fallers

Molten Ventures (GROW) 315.00p -14.17%
ASOS (ASC) 836.00p -8.03%
Bridgepoint Group (Reg S) (BPT) 226.00p -6.38%
Baltic Classifieds Group (BCG) 143.60p -5.65%
Just Group (JUST) 89.75p -5.33%
Aston Martin Lagonda Global Holdings (AML) 251.40p -5.13%
Ascential (ASCL) 264.60p -4.61%
Carnival (CCL) 738.60p -4.57%
Intermediate Capital Group (ICP) 1,333.00p -4.55%
Moonpig Group (MOON) 126.40p -4.24%