U.K. stocks retreat on Plosser stimulus warning, Spain concern

September 26, 2012 04:45 AM
Spanish riots cause markets to retreat

U.K. stocks declined the most in three weeks as Federal Reserve Bank of Philadelphia President Charles Plosser said a third round of bond buying may not boost growth or hiring and concern over Europe’s debt crisis deepened.

Rio Tinto Group and BHP Billiton Ltd. led mining companies lower as copper fell. Barclays Plc and Lloyds Banking Group Plc lost more than 3 percent. ICAP Plc retreated 4 percent after forecasting a revenue decline. Shanks Group Plc slid the most in 2 1/2 years after the waste-management company said earnings will miss estimates. Domino’s Pizza Group Plc tumbled the most in six months as Numis Corp. downgraded the shares.

The FTSE 100 Index sank 75.7 points, or 1.3 percent, to 5,784.01 at 2:12 p.m. in London, the largest drop since Sept. 4. The benchmark gauge has still rallied 9.7 percent from this year’s low on June 1 as European Central Bank President Mario Draghi pledged to protect the euro and the Fed unveiled further quantitative easing. The FTSE All-Share Index also fell 1.3 percent today, while Ireland’s ISEQ Index lost 0.9 percent.

“The FTSE 100 has been knocked back sharply as investors take fright from some unexpected Fed comments,” said Chris Beauchamp, a market analyst at IG in London. “Unease has been apparent in global markets for a few days now, as indices struggle to make upward progress despite having the backing of global central banks. Investors don’t like to see the QE rescue plan questioned.”

Fed Credibility

Plosser said after U.K. markets closed yesterday that a new round of bond buying announced by the Fed this month will probably fail to boost growth and hiring and may jeopardize the central bank’s credibility. The Standard & Poor’s 500 Index posted its biggest drop in three months.

The Fed said Sept. 13 that it will buy mortgage-backed securities at a pace of $40 billion per month until the labor market improves. Policy makers have turned to unconventional tools to attack unemployment that has stayed above 8 percent since February 2009.

In Spain, yields on 10-year government bonds climbed to more than 6 percent as unions and protest groups demanded a referendum on austerity measures proposed by Prime Minister Mariano Rajoy. Thousands of protesters gathered around the Parliament in Madrid late yesterday to oppose spending cuts and tax increases.

Budget Minister Cristobal Montoro will unveil the 2013 budget tomorrow and Economy Minister Luis de Guindos will present additional measures required by the European Commission as part of efforts to bring down Spain’s borrowing costs.

Public- and private-sector workers in Greece are holding a 24-hour general strike today.

Riot Footage

“We have footage of rioting in Spain, which brings to mind similar images from Greece over the past two years,” said Beauchamp. “The prospect that Spain might prove as truculent as Athens on the subject of reforms is a particularly uncomfortable one.”

A gauge of mining shares listed on the FTSE 350 Index dropped 2.5 percent as copper fell 1.6 percent in London trading. BHP Billiton, the world’s largest mining company, lost 2.1 percent to 1,914 pence. Rio Tinto, the third-biggest, slipped 2.8 percent to 2,858.5 pence. Anglo American Plc slid 3.8 percent to 1,828 pence.

Barclays retreated 4.4 percent to 213.5 pence, Lloyds declined 3.9 percent to 39.03 pence and Standard Chartered Plc slipped 2.6 percent to 1,419 pence. HSBC Holdings Plc, Europe’s biggest bank, decreased 1.5 percent to 575 pence.

ICAP Drops

ICAP slid 4 percent to 330.2 pence after the world’s largest broker of transactions between banks said first-half revenue will be 14 percent lower than a year earlier because of “subdued” capital markets.

Shanks tumbled 9.2 percent to 81.95 pence, the biggest drop since March 2010. The company said “market conditions in the U.K. and Dutch solid waste markets have deteriorated significantly” and forecast that full-year results will be “slightly below” analysts’ current estimates.

Domino’s sank 3.8 percent to 541.5 pence, the largest decline since March 28. Numis lowered its recommendation on the shares to add from buy and Liberum Capital trimmed its estimates for the company’s 2012 and 2013 earnings.

Imagination Technologies Group Plc, a U.K. designer of parts for Apple Inc.’s iPhone, slumped 8.7 percent to 474.9 pence, the lowest price in two months, after Texas Instruments Inc. said it will spend less on its products for smartphones and tablet computers.

Royalty Outlook

Texas Instrument’s announcement is a “material negative” for Imagination, Investec wrote in a report, adding that it’s reviewing its share-price estimate for the company. Liberum Capital said it will have a “negative impact on Imagination’s royalty outlook over the longer term.”

BAE Systems Plc dropped 1.8 percent to 322.3 pence after a German lawmaker questioned the company’s proposed merger with European Aeronautic, Defence & Space Co. EADS Chief Executive Officer Tom Enders wasn’t clear on the benefits of the takeover when addressing a parliamentary hearing in Berlin to discuss the deal, Kerstin Andreae, a Green Party lawmaker and deputy head of the Economic Affairs Committee, said.

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