The FTSE 100 was hit by the double whammy of Moody’s threat to downgrade Spain’s Aa2 debt rating and another setback in US debt negotiations.
The latest news on the debt crises in Europe and the US spooked investors, prompting them to dump riskier assets and erasing yesterday’s gains on the back of better than expected US data.
The UK’s blue chip index dropped 52.5 points (0.9 percent) in morning trade, falling to 5,820 by early afternoon.
The Republican-controlled US House of Representatives postponed a vote on Speaker John Boehner’s plan to raise the debt ceiling after it faced opposition within his own party. Republican conservatives are calling for steeper cuts to budget expenses than envisaged by Boehner’s plan.
US lawmakers are facing the 2 August deadline to raise the country’s borrowing limit or risk a debt default.
“We are approaching crunch time now and investors need to see progress being made in the next few days or we could face the previously unthinkable event of the US suffering a default,” said chief market strategist at City Index Joshua Raymond.
“If we don’t see in-roads made between the two parties in the US over the weekend, both stocks and forex markets could be set for a volatile opening on Sunday evening and Monday morning.”
Banks were among the heaviest losers in the FTSE 100 this morning, dragged down by concerns over their exposure to European debt problems.
Part-nationalised bank Lloyds (LON:LLOY) was at the bottom of the FTSE 100 pile, falling 3 percent to 43.65 pence. Sector peer Standard Chartered (LON:STAN) dropped 2.7 percent to 1,555 pence. Barclays (LON:BARC) followed, retreating 2.3 percent to 222.6 pence.
Telecom major Vodafone (LON:VOD) did better, rallying 4.2 percent to 172.4 pence after announcing that it was due for a £2.8 billion payout from its 45 percent owned Verizon Wireless.
Wall Street preview
Likewise, US equities are expected to fall when trading opens on Wall Street today.
Futures for the Dow Jones Industrial Average (DJIA) dipped 57 points (0.45 percent) in pre-market, while futures for the broader S&P 500 index fell 6 points (0.45 percent).
Stocks in New York were on the rise last afternoon after the Labor Department reported that initial jobless claims dropped below 400,000 for the first time since April last week. Later in the session, the National Association of Realtors said that pending home sales climbed in June.
However, the main stock market indexes dived late in the session following the delay of the House debt plan vote.
Today’s US data will include the first reading of second quarter US GDP from the Commerce Department, the University of Michigan’s consumer confidence index for July and the Chicago PMI index.
Notable movers in pre-market included Yahoo (NYSE:YHOO), which rallied 5.3 percent. Noble Energy (NYSE:NBL) and CONSOL Energy (NYSEL:CNX) also did well with both companies advancing 2 percent. Starbucks (NYSE:SBUX) climbed 1.4 percent.
Motorola Mobility (NYSE:MMI) dropped 6.5 percent in pre-market trade. Newmont Mining (NYSE:NEM) declined 2.4 percent, as did TJX Companies (NYSE:TJX).
UK corporate news
This morning saw a flurry of financial report from FTSE 100 constituents.
Shares in Pearson (LON:PSON) climbed 11 pence (1 percent) to 1,150 pence after the Financial Times publisher announced that its sales climbed 6 percent to £2.4 billion, while profits jumped 20 percent to £208 million.
Pearson said that it now expects sales and margin growth for the full year, based on good trading momentum, particularly in its digital businesses and emerging markets. The group anticipates earnings per share of 80 pence for the full year, up from 77.5 pence in 2010.
Fellow blue chip BSkyB (LON:BSY) told investors that revenues in the year to 30 June rallied 16 percent to £6.6 billion and earnings were up 19 percent at £1.4 billion.
The UK's largest pay TV broadcaster has also announced a 20 percent dividend increase and launched a £750 million share buyback programme.
Shares in BSkyB were flat at 715.5 pence, while mining major Anglo American (LON:AAL) saw its share price decline after reporting that copper sales volumes were down 12 percent in the first half of the year as production decline due to lower grades and bad weather.
Anglo American dropped 58 pence (2 percent) to 2,940 pence.
The mining conglomerate’s revenues rose 22 percent year on year to US$18.3 billion and pre-tax profits increased 68 percent to US$6.6 billion.
Another mining company Vedanta Resources (LON:VED) reported record quarterly earnings of US$1.05 billion achieved in the three months to end June, driving its shares up 36 pence (2 percent) to 1,804 pence.