London open: U.S. government debt downgrade catches traders on the hop

London stocks dropped at the start of the session after a downgrade of the U.S. government's long-term credit rating caught traders on the hop.

Fitch lowered the credit rating from AAA to AA+, saying that: "the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."

The move drew an immediate response from the Biden administration with U.S. Treasury Secretary, Janet Yellen, who said that "Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong."

As of 0844 BST, the FTSE 100 was down by 0.94% to 7,594.77, alongside a 0.69% swoon on the second-tier index to 18,935.35.

Cable was little changed, edging up by 0.13% to 1.2793.

Just the day before, the U.S. Treasury had raised its target for borrowings in the third quarter to $1trn from the $733bn that it had projected in May.

Asian stocks were caught in a downdraft with the Nikkei-225 closing 2.3% lower at 32,707.69. while Hong Kong's Hang Seng gave back 2.39% to 19,533.25.

The U.S. dollar spot index meanwhile dipped 0.16% to 102.14.

Commenting on the news, Lee Hardman, senior currency analyst at MUFG said: "When S&P downgraded the US credit rating in August 2011 it triggered a sharp sell-off in risk assets and boosted safe haven demand for US Treasuries.

"The US dollar reaction was more muted. On this occasion we are expecting the immediate market reaction to be relatively more modest."

Still ahead for later in the session, at 1315 BST consultancy ADP was scheduled to publish its private sector payrolls report for July.

Painkiller maker Haleon and BAE Systems raise guidance

Haleon, the maker of Advil painkillers, sounded a confident note on the outlook after delivering a big rise in revenues and free cash flow. The company added that 55% of its business had gained or maintained market share year-to-date. On an adjusted basis, free cash flow moved into the green to the tune of £369m, after an outflow of -£184m during the year earlier period. Looking ahead, the company guided towards full-year organic revenue growth of 7-8% and of 9-11% for adjusted operating profits at constant currencies.

UK defence manufacturer BAE Systems on Wednesday lifted full-year guidance as the war in Ukraine led to increased demand for weapons, leaving the company with a record order book. Sales guidance was increased by 200 basis points to 5 - 7%, reflecting the accelerated spend profile on the Dreadnought submarine programme and good demand and operational performance across all sectors, while underlying earnings before interest and tax (EBIT) was lifted by the same amount to 6 – 8%.

Taylor Wimpey said that revenues shrank by 21.2% to reach £1.64bn, alongside a drop of nearly 29% in its profit before tax to £237.7m, for earnings per share of 5.0p. Management highlighted what it termed as the company's "resilience" and said its focus in the back half of the year remained on optimising all areas of its operations, calling attention to its "robust" balance sheet and "excellent" landbank. Net cash at period en stood at £654.9m, up from £642.4m in the year earlier period. Its interim dividend was bumped up from 4.62p per share to 4.79p.

Market Movers

FTSE 100 (UKX) 7,571.25 -1.24%
FTSE 250 (MCX) 18,889.46 -0.92%
techMARK (TASX) 4,383.95 -0.83%

FTSE 100 - Risers

BAE Systems (BA.) 991.20p 6.19%
Convatec Group (CTEC) 213.80p 3.89%
Taylor Wimpey (TW.) 118.35p 3.72%
Persimmon (PSN) 1,160.00p 0.35%
Barratt Developments (BDEV) 460.40p 0.24%
BP (BP.) 481.80p 0.01%
Berkeley Group Holdings (The) (BKG) 4,323.00p -0.25%
Shell (SHEL) 2,341.00p -0.45%
Kingfisher (KGF) 245.10p -0.45%
Sainsbury (J) (SBRY) 277.70p -0.47%

FTSE 100 - Fallers

Endeavour Mining (EDV) 1,708.00p -6.67%
Prudential (PRU) 1,025.50p -3.21%
Scottish Mortgage Inv Trust (SMT) 706.60p -3.15%
Ocado Group (OCDO) 908.60p -3.09%
International Consolidated Airlines Group SA (CDI) (IAG) 165.45p -2.79%
Anglo American (AAL) 2,283.50p -2.52%
JD Sports Fashion (JD.) 149.55p -2.41%
Hargreaves Lansdown (HL.) 819.60p -2.41%
Antofagasta (ANTO) 1,613.00p -2.33%
Abrdn (ABDN) 222.80p -2.32%

FTSE 250 - Risers

Ibstock (IBST) 158.90p 4.54%
Virgin Money UK (VMUK) 179.60p 2.22%
Tritax Eurobox (GBP) (EBOX) 53.70p 0.94%
Darktrace (DARK) 369.60p 0.71%
Just Group (JUST) 83.00p 0.61%
Spire Healthcare Group (SPI) 218.50p 0.46%
Marks & Spencer Group (MKS) 208.10p 0.43%
GCP Infrastructure Investments Ltd (GCP) 76.60p 0.39%
Me Group International (MEGP) 156.00p 0.39%
Vistry Group (VTY) 788.50p 0.38%

FTSE 250 - Fallers

Vanquis Banking Group 20 (VANQ) 120.20p -5.35%
Spirent Communications (SPT) 161.20p -4.05%
TUI AG Reg Shs (DI) (TUI) 595.50p -3.80%
Bridgepoint Group (Reg S) (BPT) 181.30p -3.31%
Kainos Group (KNOS) 1,254.00p -3.24%
Bank of Georgia Group (BGEO) 3,180.00p -2.90%
Man Group (EMG) 219.20p -2.88%
easyJet (EZJ) 438.70p -2.88%
Capita (CPI) 26.24p -2.67%
IWG (IWG) 145.10p -2.62%