London midday: Macro fears drag stocks to 10-month low

dl finance markets investing trading generic unsplash — Sharecast / Nick Chong via Unsplash

Macroeconomic concerns meant UK stocks were registering heavy losses on Friday morning, with the FTSE 100 dropping to its lowest level in over ten months.

B&M European Value Retail S.A. (DI)

390.30p

17:15 05/11/24

-0.74%

-2.90p

Tobacco

31,977.91

16:59 05/11/24

0.88%

279.47

London’s benchmark index was down 0.8% at 7,250 just before the midday mark. The FTSE 100 has not closed below this level since 3 November 2022.

“Whether it’s the brewing crisis in the Chinese property market, the surge in US bond yields on fears rates will stay higher for longer or the big drop in UK retail sales, things are starting to look a bit ugly out there,” said AJ Bell investment director Russ Mould.

Macro concerns hit risk appetite

China Evergrande, the heavily indebted property group and once the country's second developer, filed for chapter 15 bankruptcy in New York – allowing it to protest its assets in the US as it works to restructure its debt and renegotiate with its creditors.

The Guangzhou-based group, which is thought to hold over $300bn in debt, defaulted on its repayments back in 2021, prompting a string of defaults at other building companies.

The latest news – just days after Country Garden told investors it could register a loss of $7.6bn in the first half of 2023 as it struggles to make its own bond repayments – will raise concerns about contagion to the wider financial services sector.

Back on home shores, data on Friday revealed that UK retail sales fell 1.2% in the month of July compared with June, official data showed on Friday, further than estimates as wet weather and the cost-of-living crisis hit volumes. Economists had forecast a fall of 0.5%, after a 0.6% increase in June.

“A weak UK retail sales figure provided a brief period of downside for the pound this morning, with traders wondering whether this could be indicative of a slowdown in spending as a result of tightening monetary policy and rising prices,” said analyst Joshua Mahony from Scope Markets.

Stock futures on Wall Street were also falling after 10-year Treasury yields hit a 15-year high on the back of expectations of higher-for-longer interest rates. US markets are expected to be volatile on Friday as stock option contracts with a notional value of $2.2trn will expire, according to Dow Jones.

Miners lead markets lower

Stocks sensitive to the Chinese economic outlook were under the most pressure on Friday morning, with Antofagasta, Burberry and Prudential registering the sharpest declines.

A disappearance of risk appetite was attracting investors to defensive sectors like utilities, insurers and tobacco – if that can still be classed as a defensive play in 2023. British American Tobacco and Imperial Brands were posting small gains, along with SSE, National Grid, Phoenix Group and Aviva.

The latter was extending gains, albeit modest, after the insurer’s interim results on Wednesday impressed the market. Broker Berenberg refreshed its estimates for the company on Friday following the results, lifting its target price on the stock from 481p to 493p – indicating huge upside potential from the current 382p level.

B&M European Value Retail was pulling back after recent gains on the back of rumours that it has made a bid for struggling rival Wilko, which fell into administration last week.

On the FTSE 250, Bank of Georgia was posting heavy losses, as investors took profits following a strong performance the day before on news of a jump in half-year profits and a new share buyback programme.

Market Movers

FTSE 100 (UKX) 7,249.55 -0.83%
FTSE 250 (MCX) 18,134.73 -1.21%
techMARK (TASX) 4,205.81 -0.52%

FTSE 100 - Risers

British American Tobacco (BATS) 2,509.50p 0.90%
SSE (SSE) 1,589.50p 0.76%
BAE Systems (BA.) 963.00p 0.75%
Phoenix Group Holdings (PHNX) 511.60p 0.67%
National Grid (NG.) 952.60p 0.66%
Ocado Group (OCDO) 769.40p 0.26%
Imperial Brands (IMB) 1,754.50p 0.17%
Aviva (AV.) 381.60p 0.13%
Tesco (TSCO) 246.80p 0.12%
WPP (WPP) 738.20p 0.05%