LONDON, Sept 22 (Reuters) - Britain's leading shares were sharply lower across the board on Thursday, tracking hefty falls on Wall Street and in Asia after the U.S. Federal Reserve gave a downbeat assessment of the economy, saying it faced "significant downside risks".
The Fed's cautious comments came as it, as expected, unveiled fresh economic stimulus measures, dubbed "Operation Twist" by the financial markets, which will see it buy more long-term Treasury securities in an effort to lower borrowing rates.
"Investors are sceptical that forcing down long term rates will spur activity in the stagnant housing sector as the problem seems to lie in prospective home buyers not being able to obtain the necessary borrowing. This is exacerbated by the banks' cautiousness to lend due to the dire unemployment situation," said Jordan Lambert, a trader at Spreadex.
Specialty miners and integrated oils led the sell-off as base metal and crude oil prices CLc1 tumbled on fears over future demand, with the Fed's gloomy statement exacerbated by data showing more evidence of a slowdown in top commodity consumer China.
HSBC's China Flash PMI survey showed factory output fell for a third consecutive month in September, pointing to a slowdown in the world's second largest economy.
The data suggested that China, the engine room of global growth in recent years, may not be able to provide much of a counterweight to flagging U.S. and European growth.
By 0755 GMT, the FTSE 100 index had dropped 172.49 points, or 3.3 percent to 5,115.92, having registered a 1.4 percent drop on Wednesday.
U.S. blue chips dropped 2.5 percent on Wednesday, suffering their worst fall in a month, while Asian Pacific shares outside Japan dropped 4.5 percent to hit a 14-month low on Thursday.
British banks fell in London, tracking big falls by their U.S. peers which also suffered after Moody's downgraded the credit ratings of Bank of America , Citigroup and Wells Fargo on the conclusion that the government was less likely to provide support for a faltering bank.
Insurers were weak too, led by Prudential down 5.7 percent, with the sector having been one of the hardest-hit in New York as traders said "Operation Twist" could threaten the earnings of some of the country's largest insurers for years to come.
"Insurers are heavily exposed to U.S. bond markets, so this "twist" by the Fed could have a negative impact on sector earnings," said Mic Mills, head of electronic trading at ETX Capital.
Investec Securities also cut target prices for UK insurers, including Prudential, to reflect the recent equity market correction, though it said the changes were generally modest.
"We are mindful that a sell off post "Operation Twist" would be likely given the previous nature/outcome of this policy procedure," said Atif Latif, director of equities and derivatives at Guardian Stockbrokers.
"Corporate earnings are still beating expectations and these are now being discounted as investors are looking at the bigger macro picture, but in the case of a recovery, mining plays will be interesting to watch on the upside along with those with progressive, sustainable dividends that are increasing," Latif added.
On the macroeconomic front, only September's CBI orders trends report will be released on Thursday, at 1000 GMT, to provide any domestic direction.
Source: www.reuters.com
The Fed's cautious comments came as it, as expected, unveiled fresh economic stimulus measures, dubbed "Operation Twist" by the financial markets, which will see it buy more long-term Treasury securities in an effort to lower borrowing rates.
"Investors are sceptical that forcing down long term rates will spur activity in the stagnant housing sector as the problem seems to lie in prospective home buyers not being able to obtain the necessary borrowing. This is exacerbated by the banks' cautiousness to lend due to the dire unemployment situation," said Jordan Lambert, a trader at Spreadex.
Specialty miners and integrated oils led the sell-off as base metal and crude oil prices CLc1 tumbled on fears over future demand, with the Fed's gloomy statement exacerbated by data showing more evidence of a slowdown in top commodity consumer China.
HSBC's China Flash PMI survey showed factory output fell for a third consecutive month in September, pointing to a slowdown in the world's second largest economy.
The data suggested that China, the engine room of global growth in recent years, may not be able to provide much of a counterweight to flagging U.S. and European growth.
By 0755 GMT, the FTSE 100 index had dropped 172.49 points, or 3.3 percent to 5,115.92, having registered a 1.4 percent drop on Wednesday.
U.S. blue chips dropped 2.5 percent on Wednesday, suffering their worst fall in a month, while Asian Pacific shares outside Japan dropped 4.5 percent to hit a 14-month low on Thursday.
British banks fell in London, tracking big falls by their U.S. peers which also suffered after Moody's downgraded the credit ratings of Bank of America , Citigroup and Wells Fargo on the conclusion that the government was less likely to provide support for a faltering bank.
Insurers were weak too, led by Prudential down 5.7 percent, with the sector having been one of the hardest-hit in New York as traders said "Operation Twist" could threaten the earnings of some of the country's largest insurers for years to come.
"Insurers are heavily exposed to U.S. bond markets, so this "twist" by the Fed could have a negative impact on sector earnings," said Mic Mills, head of electronic trading at ETX Capital.
Investec Securities also cut target prices for UK insurers, including Prudential, to reflect the recent equity market correction, though it said the changes were generally modest.
"We are mindful that a sell off post "Operation Twist" would be likely given the previous nature/outcome of this policy procedure," said Atif Latif, director of equities and derivatives at Guardian Stockbrokers.
"Corporate earnings are still beating expectations and these are now being discounted as investors are looking at the bigger macro picture, but in the case of a recovery, mining plays will be interesting to watch on the upside along with those with progressive, sustainable dividends that are increasing," Latif added.
On the macroeconomic front, only September's CBI orders trends report will be released on Thursday, at 1000 GMT, to provide any domestic direction.
Source: www.reuters.com
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