LONDON MARKETS: U.K. Stocks End Lower As Capita's 48% Plunge Rattles Nerves

01/31/18 12:30 PM EST

By Sara Sjolin and Victor Reklaitis, MarketWatch

FTSE 100 suffers 2% drop for January

U.K. stocks finished in the red Wednesday, as investors remained nervous after a recent global equity selloff that has left the FTSE 100 at a more-than-one-month low.

Off the main benchmark, a 48% plunge in shares of outsourcer Capita PLC after a profit warning rattled investors. The warning comes only weeks after its rival Carillion PLC said it was entering liquidation.

At the same time, a stronger pound weighed on the London index's many international companies.

What are markets doing?

The FTSE 100 shed 0.7% to end at 7,533.55, closing at its lowest level since Dec. 20, according to FactSet data. For the month, the benchmark gave up 2%, erasing part of its 4.9% rally from December and cutting its 12-month gain to 6.1%.

The pound rose to $1.4190 from $1.4149 late Tuesday in New York.

See:Ebullient pound scores its best month since 2010--but will the rally last? (http://www.marketwatch.com/story/ebullient-pound-scores-its-best-month-since-2010-but-will-the-rally-last-2018-01-31)

What is driving the market?

Investors have been digesting the late-January equity selloff that was largely driven by a rise in global bond yields. Higher returns on bonds typically make stocks and other assets perceived as riskier less attractive to investors.

Bond yields in the U.S. were higher on Wednesday (http://www.marketwatch.com/story/treasury-yields-edge-lower-ahead-of-data-fed-policy-update-2018-01-31), while the yield on 10-year U.K. gilts was up to 1.512%.

The stronger pound weighed on the London benchmark, as it cuts into earnings made by overseas companies, when they convert their profits back into the U.K. currency. About 75% of the FTSE's revenue is generated outside Britain, so the index is particularly sensitive to sterling fluctuations. Sterling is on track for a 5% January gain against the dollar. That would be its biggest monthly rise since May 2009, when it jumped 8.8%, according to FactSet data.

Miners were also taking a hit after an official gauge of China's factory activity fell for a second straight month in January (http://www.marketwatch.com/story/china-official-manufacturing-pmi-falls-to-513-2018-01-31). China is a major user of natural resources so any sign of a slowdown in the country's manufacturing sector tends to weigh on the resource sector.

What are strategists saying?

"With cable back teasing $1.42, the FTSE failed to make any headway," said Connor Campbell, financial analyst at Spreadex, in a note.

While Capita isn't actually part of the FTSE 100, the stock's plunge following its "bad news hat-trick--profit warning, dividend suspension, GBP700 million cash call--seems to be informing the index's early decline, especially since it comes so soon after the Carillion collapse," Campbell added.

Which stocks are in focus?

Shares of Capita PLC (CPI.LN) tanked 48% on the FTSE 250 index after the outsourcing company said it would suspend its final dividend (http://www.marketwatch.com/story/capita-suspends-final-dividend-plans-share-issue-2018-01-31-3485857) and plans to issue shares as part of a restructuring plan. The announcement comes after contractor Carillion PLC (CLLN.LN) earlier in January collapsed after failing to reach an agreement (http://www.marketwatch.com/story/carillion-collapses-after-rescue-talks-with-creditors-uk-government-fail-2018-01-15) with lenders to restructure its debt.

Also on the FTSE 250 index, shares of Wizz Air Holdings PLC (WIZZ.LN) lost 3.2% after the low-cost airline said pretax profit fell 56% in the third quarter of fiscal 2018 (http://www.marketwatch.com/story/wizz-air-profit-falls-56-on-higher-costs-2018-01-31), as higher costs offset rising revenue.

Back on the FTSE 100, home builders posted some of the biggest losses. Shares of Taylor Wimpey PLC (TW.LN) dropped 2.3%, Berkeley Group Holdings PLC (BKG.LN) lost 2.1% and Persimmon PLC (PSN.LN) gave up 2.7%.

Among miners, shares of Anglo American PLC (AAL.LN) fell 0.5% and Rio Tinto PLC (RIO)(RIO) (RIO) lost 0.9%.

 

(END) Dow Jones Newswires

January 31, 2018 12:30 ET (17:30 GMT)

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