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London open: Stocks caught in downdraft from Wall Street
The Footsie started the session sharply lower, caught in the downdraft from the sharp falls seen on Wall Street last Friday, alongside big losses for the main Asian equity indices on Monday.
All eyes were expected to be on what the three Fedspeakers scheduled for Monday had to say, especially Fed governor Lael Brainard.
Atlanta Fed president Dennis Lockhart and Minneapolis Fed chief Neel Kashkari would precede her.
Up and until now, Ms. Brainard had been considered a ‘dove’, so any hint that she might be turning more hawkish might go a long way towards cementing expectations of another rate hike in 2016, some analysts and traders said.
There were also some reports to be seen early on Monday morning that the Bank of Japan was looking at ways to steepen the country´s interest rate curve.
As of 0824 BST the Footsie was 96.97 points or 1.43% lower to 6,679.27, led by falls in miners.
Overseas, the Shanghai Stock Exchange´s composite index retreated 56.88 points or 1.85% to 3,021.98, while Japan´s Topix erased 20.56 points or 1.54% to finish at 1,323.40.
Commenting on Friday´s price action on Wall Street, CMC Markets’ Jasper Lawler said: “[…] Friday was the worst day for US stocks since June 24, the results day for Britain’s EU referendum. Sticks in the United States might have sold off the most on Friday but the trigger seems to have been European.
“Global bond markets, including US treasuries jolted on Thursday when ECB president Mario Draghi said the governing council did not discuss extending its asset purchase program. Bondholders suddenly didn’t like the idea of holding onto a negative-yielding asset which could fall in price if there’s no central banking buying alongside them.”
Overnight, US Minneapolis Fed president Neel Kashkari reportedly argued in favour of immigration and tax reform as the most useful tools to boost growth in the States, cautioning against raising the central bank´s inflation target or “massive” increases in government spending as alternatives.
For its part, the BCC argued Westminster needed to make up its mind on big infrastructure projects in the UK more quickly in order to buttress the economy against the headwinds from Brexit.
In corporate news, the Financial Conduct Authority hiked the minimum amount of regulatory capital required of Aberdeen Asset Management, in effect raising its total regulatory requirement to roughly £475m.
Following the FCA’s periodic review, the regulator decided to eliminate the benefit of insurance mitigation when modeling operational risk for Pillar 2 purposes while adding an allowance, or so-called scalar, to cover any unsighted and unquantifiable risks that might emerge.
However, Aberdeen´s available capital was already comfortably above the new requirement, the fund manager said in a statement.
Indeed, the fund manager had already been applying its own self-imposed scalar, equal to £100m, which it would now deduct from that imposed by the FCA.
Associated British Foods said it expected full year earnings to be slightly ahead of last year’s, with revenues from its Primark retail business up 11% and sales from the grocery and sugar arms modestly higher.
Although a previous surplus has morphed into a £200m pension deficit and currency moves had a mixed effect, the 53 weeks to 17 September were mostly rosy for AB Foods, with operating profit ahead of last year and earnings per share marginally ahead.
Property developer John Laing Infrastructure Fund said it expects to see a slowdown in market activity due to the Brexit vote, as the company reported a rise in profit due to international expansion and project divestments.
For the six months ended 30 June, profit before tax rose significantly to £72.3m from £14.5m last year, due to an increase in the company’s portfolio, positive exchange rate movements, a reduction in discount rates and profits from disposals of two projects.
