UK Stocks closing : A toxic cocktail comprising a grim economic outlook from the U.S. Federal Reserve and downbeat data in China left Britain’s top shares nursing a near 5-percent drop on Thursday, as investors pinned some hopes on this week’s G20 meeting.
Commodity stocks, sensitive to data showing a stuttering recovery, were the biggest fallers by some margin, led by Vedanta Resources , down more than 13 percent, as metal and crude prices
Markets were fearful over future demand as a gloomy statement from the Fed was compounded 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.
After the Fed said the economy faced significant downside risks, a Group of 20 meeting in Washington this week will be watched for any further policy response in tackling the global slowdown and euro zone debt crisis.
The likelihood is that nothing will come out of it but, having said that, you really don’t want to be positioned the wrong way just in case they do pull a rabbit out of the hat, Michael Hewson, analyst at CMC Markets, said.
The FTSE 100 slid 246.80 points, or 4.7 percent, to 5,041.61, hitting a five-week closing low and registering its biggest one-day percentage fall since early March 2009.
The UK benchmark saw 64 billion pounds ($98 billion) wiped off its value on Thursday.
There were no blue-chip gainers, while the FTSE 100 volatility index jumped nearly 17 percent — evidence that nervousness is growing.
The demand for put options from investors has increased, in an indication that there is still further downside risk being priced into the market, a trader said.
Now of interest is the small premiums being paid for being short compared to a few weeks ago, Atif Latif, director of equities and derivatives at Guardian Stockbrokers, said.
British banks fell in London, tracking big falls by their U.S. peers which suffered after Moody’s downgraded the credit ratings of Bank of America , Citigroup and Wells Fargo saying the government was less likely to provide support for troubled lenders.
Insurers were weak too, with Prudential among the worst off, down 7 percent, as traders said the latest U.S. stimulus package could threaten the earnings of some of that country’s largest insurers for years to come.
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.
In technical analysis, if the index breaches a flag pattern that has defined its price action for the last few weeks, this would greatly increase the chances of a further test of last month’s lows at 4,791, Charles Stanley’s Bill McNamara said.
He said 4,800 is a hugely important level for the UK index. Not only was it the low point of this sell-off, it was also the low of the summer of 2010, and the point at which the FTSE has retraced 50 percent of the rally which began in March 2009.
If it were to give way, the implication would be that the bulls were jumping ship altogether, which could lead to a rapid drop to around 4,480, at which level the index would have retraced fully 61.8 percent of the aforementioned uptrend.