FTSE pulled lower by banks as Covid fears temper optimism
The main market dropped 0.49%, or 34 points, moving below the 7,000 level to 6,993 as UK equities failed to follow US counterparts, which have brushed off concerns about the economic recovery.
Richard Hunter, head of markets at Interactive Investor, said the US economy is expected to reveal growth of 8.6% when its GDP figures are reported later this week, while an inflation reading of ‘around 3.7% could also test the US Federal Reserve’s mettle in sticking with its current strategy’.
Although stimulus is likely to stay in place in the short term, Hunter said ‘tapering is now on the table for discussion’.
Concerns about the economic recovery in the UK continue to hold back stock markets despite coronavirus infections falling for five consecutive days for the first time since February. The figures do not yet include the impact of last Monday’s lifting of English restrictions, and markets continue to fear the spread of the delta variant.
Financials pulled the blue chips lower ahead of a half-year reporting season that will see big banks release their latest numbers.
Prudential (PRU) was the biggest loser on the index, falling 2.1%, or 29p, to £13.35 and was joined by all the banking giants in the top 10 fallers:
- NatWest (NWG) down 1.8%, or 3p, at 195p.
- Barclays ((BA)RC) down 1.8% or 3p, at 164p.
- Standard Chartered (STAN) down 1.7%, or 7p, at 424p.
- Lloyds (LLOY) down 1.5%, or 0.7p, at 45p.
- HSBC (HS(BA)) down 1.4%, or 5p, at 395p.
Hunter said there ‘could be further large release of impairment provisions as economic recovery has proved stronger than expected, lessening the levels of bad debts’ when reporting gets underway.
Those names with investment banking arms could also benefit from heightened merger and acquisition activity and stock market flotations.
‘In any event, given that the banks are each strongly capitalised going into the numbers, strong earnings could prompt further dividend increases, particularly with the regulatory shackles having been lifted,’ said Hunter.
The FTSE 250 slipped 0.2%, or 48 points, to 22,835 although there was what looked to be a dramatic tumble in the shares of Templeton Emerging Markets (TEM) investment trust.
Shares in the closed-ended fund slumped 80%, or 786p, to 190p as it completed its share split that means each ordinary share of 25p will be split into five ordinary shares of 5p each, following an impressive recovery from the pandemic crash that drove the shares sharply higher.
Ultra Electronics (ULE) slid 4.4%, or 144p, to £31.26 after the defence group became the latest target of private equity buyers. The £2.6bn approach from Advent came through Cobham, another defence group the investors bought last year.
Shares in Ultra had surged 32% on the news of the £35.00 per share offer, which is being backed by the board.
Templeton wasn’t the only investment trust pulling down the mid-caps this morning, as Fidelity China Special Situations (FCSS) dropped 4.3%, or 16p, to 355p and Baillie Gifford China Growth (BGCG) fell 5.2%, or 23p, to 432p, as a meeting between the US and China got off to a tense start this morning.
China’s vice foreign minister Xie Feng said talks were in a stalemate and the relationship between the two countries faces serious difficulties.
In other investment trust news, BlackRock Throgmorton (THRG) rose 0.7%, or 6p, at 960p after reporting a 31% rise in its net asset value in the six months to end of May, beating the 27.7% rise in the benchmark.