LONDON MARKETS: FTSE 100 Suffers Worst Week Since April As Bond Yields Spike
By Sara Sjolin, MarketWatch
Capita rebounds slightly, but still set for 55% weekly plunge
U.K.'s benchmark stock index dropped for a fourth straight day on Friday, extending its weekly loss, after bond yields spiked following a better-than-expected reading on the U.S. labor market.
BT shares slumped on the back of a disappointing earnings report.
What are markets doing?
The FTSE 100 index gave up 0.6% to close at 7,443.43. For the week, it logged a 2.9% slide, its biggest weekly slide since April 2017, according to FactSet data.
The pound fell to $1.4118 from $1.4261 late Thursday in New York.
What is driving the market?
It's been a tough week for stocks globally as concerns over a potential rapid rise in inflation sent bond yields rallying. U.S. benchmark Treasury yields rose to their highest level since early 2014, while European yields also climbed to multiyear highs, extending gains on Friday after American jobs data came in better than expected (http://www.marketwatch.com/story/us-adds-200000-jobs-worker-pay-rises-at-fastest-pace-since-2009-2018-02-02).
The rate on 10-year U.K. gilts jumped 5 basis points on Friday to 1.571%, around a level not seen since May 2016, according to Tradeweb.
Higher returns on debt securities typically dull investors' appetite for stocks and other assets perceived as risky.
The FTSE 100 was also weighed down by a 2.2% loss for BT Group PLC (BT.A.LN) . The British telecoms company reported earnings that missed forecasts after revenue fell in the third fiscal quarter (http://www.marketwatch.com/story/bt-earnings-miss-expectations-as-revenue-falls-2018-02-02).
What are strategists saying?
"Markets participants found themselves in the rare position of witnessing falling prices this week. It has naturally sparked questions of whether a larger correction is in store," said Jasper Lawler, head of research at London Capital Group, in a note.
"[The weekly losses] are relatively small moves and based on recent experience, the mostly likely scenario is dip-buyers step in to send markets back up again. However, maybe this time will be different. The market has reached some new extremes in sentiment during January and certain risk-factors, notably the rise in bond yields, could point to further stock market declines. It's conceivable that the Bitcoin bubble bursting has meant retail equity investors were meeting less margin calls," he added.
Which other stocks are in focus?
Shares of home builders moved lower after data on the U.K. construction sector showed activity slowing. Markit's purchasing managers' index for the sector dropped to a four-month low of 50.2 in January, down from 52.2 in December. Economists had expected a reading of 52, according to FactSet estimates. A level above 50 signals expansion and while below 50 means contraction.
Shares of Barratt Developments PLC (BDEV.LN) gave up 1.7%, Taylor Wimpey PLC (TW.LN) fell 1.7%, and Persimmon PLC (PSN.LN) lost 0.5%.
AstraZeneca PLC (AZN.LN) (AZN.LN) erased an earlier loss and ended up 3.1% even after the U.K. drugmaker said pretax profit fell 81% in the fourth quarter (http://www.marketwatch.com/story/astrazeneca-pretax-profit-slumps-on-higher-costs-2018-02-02), citing increased costs.
Outside the FTSE 100, shares of Capita PLC (CPI.LN) rose 2.3%, slightly trimming their weekly loss to 55%. The contractor's shares on Wednesday plunged 48% after Capita issued a profit warning (http://www.marketwatch.com/story/capita-suspends-final-dividend-plans-share-issue-2018-01-31-3485857), suspended dividends and announced plans to issue more shares.
(END) Dow Jones Newswires
February 02, 2018 12:41 ET (17:41 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.