Financial, Miners Lead UK Decliners

123jump.com Staff
17 Sep, 2008
New York City

Financial and mining stocks in UK plunged as world markets decline for third day this week. The ongoing widening U.S. financial crisis has unnerved major European and Asian investors. The U.S. financial system weakness has spread from brokers to banks to insurance companies. The BoE along with other central bankers took measures to improve liquidity, but measures fell short of calming investors. UK unemployment rate rose in three months to September.

[R]1:00PMNew York, 6:00PM London – UK and European markets fell as the U.S. financial crisis deepens. The Bank of England extends special liquidity scheme till January.[/R]

The UK stocks were no exceptions as financial and commodities stocks declined around the world. UK financial and mining stocks led the benchmark index lower as the U.S. financial crisis dragged the largest insurance company AIG to a near collapse. The U.S. Federal Reserve was forced to extend $85 billion in emergency loans to AIG and provide much needed liquidity and a confidence boost.

The move will help AIG in the short term but failed to convince investors that this will be last capital infusion needed by the insurance company. AIG may need another $50 billion in capital if the housing market fall another 10%.

The U.S. lawmakers and global investors are still grappling with the enormity of the situation and are still in the early stages of strategy formulation. Once unthinkable, the four oldest brokerages houses, widely seen as the pillars of the U.S. financial systems are either bankrupt or sold to commercial banks. JP Morgan purchased at a distressed price Bear Stearns, Bank of America acquired Merrill Lynch, Lehman Brothers has filed bankruptcy protection and AIG is nationalized.

Of the seventy five stock exchanges tracked by 123jump.com, global investors have lost $2.9 trillion since Lehman Brothers bankruptcy filing and since the beginning of the crisis in June of 2007 global investors have lost $20.4 trillion.

Market Sentiment

In London trading FTSE 100 fell 2.25% or 113.2 to 4,912.40. Of the 102 FTSE 100 index stocks 17 rose, 82 declined, and 3 were unchanged. Wood Group led advancers in the index shares with a rise of 5.25%.

BoE Extends Special Liquidity Scheme

The Bank of England today extended the drawdown period for its Special Liquidity Scheme to provide more time for banks to plan their access to the scheme. The drawdown period will end on January 30, 2009.

Separately, the U.S. Federal Reserve reported that it will launch a supplemental funding program to ensure that it has the cash that it needs to provide emergency liquidity support. The U.S. Treasury will be selling bills at the request of the central bank to help manage its balance sheet.

U.K Unemployment Rate Falls in September

The Office of National Statistics reported that the working age employment rate fell 0.2 percentage points to 74.7% in the three months of September, while the number of people in employment declined by 16,000 from previous quarter.

Also the working age employment rate gained 0.2 percentage points from a year ago. The employment level was 29.54 million in the three months to July, reflecting a decline of 16,000 from the quarter to April.

Unemployment rate rose 0.2 percentage point to 5.5% from a quarter earlier and the number of unemployed people advanced by 81,000 over the quarter.

The number of people of full-time employment fell 5,000 to 22.04 million in the quarter to July and the number of people in part-time employment slumped 11,000 to 7.50 million in the same period. In addition, the claimant count surged 32,500 to 904,900 in September from the previous month.

The ONS added that earnings growth rate, including bonuses, was 3.5% per cent, reflecting an increase of 0.1 percentage point from the previous period.

According to the statistics office, workforce jobs soared 26,000 to 31.68 million from the previous quarter in June and gained 142,000 from a year ago.

All sectors, excluding manufacturing and construction, witnessed increases in jobs over the year.

There were 2.87 million employee jobs in manufacturing industries in the three months to July 2008, a fall of 42,000 on the same period a year earlier. In mining, energy and water supply industries jobs increased by 5,000 over the same period to reach 171,000.

On the overall, the total hours worked gained by 3.5 million from the previous month to 947.2 million in the three months to July 2008.

Gainers & Losers

Wood Group led advancers in the FTSE 100 index shares with a rise of 5.25% followed by increases in Ferrexpo Plc of 4.28%, in WM Morrison of 4.06%, in Tesco of 3.96%, and Lonmin of 3.58%.

Barclays gained 3.17% after reporting that it has agreed to buy Lehman Brothers capital markets operation $1.76 billion.

HBOS Plc led decliners in the FTSE 100 index shares with fall of 19.18% followed by losses in Kazakhmys of 10.76%, in Royal Bank of Scotland of 10.42%, in Anglo America of 9.26%, and Xstrata of 8.50%.

HBOS and other financial institutions fell on lingering worries of potential losses in the credit markets.

Commodity stocks fell. Eurasian Natural lost 7.83%, Antofagasta shed 7.64%, BHP Billiton plunged 6.25% and Rio Tinto tumbled 5.73%.

Europe Markets Review

In London FTSE 100 Index closed lower 113.20 or 2.25% to 4,912.40, in Paris CAC 40 Index decreased 87.29 or 2.14% to close at 4,000.11 and in Frankfurt DAX index lower 104.19 or 1.75% to close at 5,860.98. In Zurich trading SMI decreased 78.60 or 1.17% to close at 6,654.33.