The FTSE 100 closed doqn 76 points to 7,334, ending a torrid week for the blue-chip index which has seen it plunge to four-month lows amid turmoil in the banking sector.
James Knightly, Chief International Economist at ING said: “It has been a remarkable few days in financial markets.
“As recently as 7 March, Fed Chair Jerome Powell opened the door to a 50bp rate hike, citing concerns that “unacceptably high” inflation could last for longer given the tightness of the jobs market. Just two days later and troubles at Silicon Valley Bank prompted fears of contagion and turmoil, leading to a collapse in rate hike expectations for both the 22 March FOMC meeting and the future path of interest rates. In fact, from pricing 100bp of cumulative hikes, we were looking at a potential 75bp of cuts by the end of the summer at one point.”
“For a long time, we have been on the more dovish end of expectations for interest rate moves in 2023. The concern was that this has been the most aggressive monetary policy tightening cycle for 40 years and by going harder and faster into restrictive territory you naturally have less control over the outcome.
“In such an environment we need to be alive to the risk of economic and/or financial stress and Silicon Valley Bank is a clear example of this. SVB and the failure of Signature Bank could be viewed as special cases but Credit Suisse’s woes are intensifying the nervousness that is rippling through the industry.“
It’s looking like a bleak end to a turbulent week for London’s main stock index.
The FTSE 100 is falling further in afternoon trade after investors resumed selling banking stocks, wiping out an earlier rally for the sector, as general worries about the sector took over from specific relief at the rescue of First Republic Bank in the US.
A more bearish mood kicked in toward the start of US trade and took hold as American stock markets in the Wall Street morning.
By the mid-afternoon in the City, the FTSE 100 was down by 95 points, or 1%, to 7314.95, a drop of over1.3% to a four-month low. Th decline was also broad, with only 10 of its constituents not showing declines for the day. Most of them featured defensive properties, including precious metals miner Frenillo, up 11p to 709p and cigarette maker Imperial Brands, which lit up the leaderboard with a 21p rise to 1883p, up 1%.
London’s banking and financial stocks were drawn into a global sell-off in the sector that resumed with the start of US trade, wiping out earlier gains and leaving the FTSE 100 under pressure at the end of a fraught week.
Intermediate Capital, the asset manager, was the biggest single faller on the index – down almost 6% at 1155p, a drop of 6% – with Abrdn down by 10p, or nearly 5% at 201p. HSBC, the rescuer of Silicon Valley Bank’s UK arm, fell 3% to 542p, a loss of 3%.
Overall the FTSE 100 was down 60 points at , 7,350.19, a drop of 0.8%.
With banking stocks back under pressure, the Europe-wide Stoxx 600 index hit its lowest level of the day.
After a turbulent week on the markets with pressure centred on financial companies, worries about the next phase of potential problems set the tone to trade. The concern took over from a sense of relief after the recent spate of rescues, from America’s SVB Bank and its UK arm to First Republic Bank in the US and Credit Suisse in Europe, which was back under pressure this afternoon after securing a backstop from Switzerland’s central bank this week.
The relief rally among US banks after the rescue of First Republic Bank ended in opening New York trade, with financial stocks back under pressure as attention shifted to the sectors broader problems from the specifics of the lasest rescue.
Amid a cautious feel to trade, the S&P 500 shed around 15 points to 3,945.70, a decline of 0.4%. First Republic Bank itself was the biggest single faller, with its shares down by over 20%. There were declines of around 3% and 4% for other regional lenders and national names from the sector.
Among them, US Bancorp was down 4% and Bank of NY Mellon fell 3%.
iCapital Chief Investment Strategist Anastasia Amoroso says there is a system issue in the US banking system unearthed by the collapse of Silvergate and Silicon Valley Bank which suggests it didn’t face wholly unique problems.
She told Bloomberg: “I don’t think those are idiosyncratic issues — I think there is a broader problem.
She added: “There are some very specific things that went wrong at those two banks but …this is systemic, or at least it’s broad-based and that’s why the market is having a hard time saying ‘yes, this is it, this is over.’”
Wall Street stocks looked set for opening declines on Friday, as the relief rally at the rescue of First Republic Bank gave way to wider worries about the problems faced by financial stocks.
In Europe, shares in Credit Suisse were back under pressure after their sharp recovery on news earlier in the week of a multi-billion pound support package from the Swiss central bank was also caught in the wider sense of worry.
Credit Suisse’s shares were down over 11% to SFr1.80.
New York’s S&P 500 was expected to fall 0.9% to 3957.75.
London’s main stock index returned to the flatline on Friday, as the shockwaves from another banking rescue in the US stoked a cautious feel to trade and left investors unwilling to keep backing a modest rally.
Gains for resource stocks that led the move higher gave way to falls for fund managers an insurance stocks, some of the areas most exposed to the drop in the value of government bonds that has taken a toll on balance sheet of banks.
Overall, the FTSE 100 was down by around 3 points overall in mid-session exchanges at 7407.47, leaving it unchanged on the day. Fund managers Abrdn and M&G were among the biggest fallers.
James Hughes at Scope Markets said: “Sentiment right now does seem to be souring. That’s arguably no surprise following another US regional bank rescue last night.”
Ann Summers founder Jacqueline Gold has died at the age of 62.
The businesswoman died Thursday evening following a battle with breast cancer, with family members by her side.
Her sister Vanessa, who is CEO at lingerie and sex toy chain Ann Summers, said: “Jacqueline courageously battled stage 4 breast cancer for seven years and was an absolute warrior throughout her cancer journey.
“In life she was a trailblazer, a visionary, and the most incredible woman, all of which makes this news that much harder to bear.
Shares in engineering firm Bodycote made the best gain on the FTSE 250 after it eased concern about the profitability of high energy users, reporting rising profits and covering rising costs in 2022.
The Cheshire company provides heat treatments that strengthen a range of industrial parts including turbine blades in jet engines. It said today that labour and general cost inflation were ‘fully recovered” and that it “completely recovered energy cost inflation” in the second half of the year. That was a turnaround after a “shortfall of £5 million” in the first half.
Its chief executive Stephen Harris called it “a key achievement” to use surcharges to cover the impact of spiking energy costs, with permanent prices rises in place for other forms of inflation.
“While there are near term macroeconomic uncertainties, we expect underlying volume to continue to grow ahead of the background markets, and margins are expected to expand as surcharges moderate,” he said.
For the whole of 2022, Bodycote’s revenue rose by over a fifth to almost £744 million, with headline operating profit for the year also up a fifth to over £112 million.
Its stock rose 29p to 610p, a rise of almost 5%.
