FTSE closes in the red as UK economy data sparks recession fears
The FTSE 100 (^FTSE) fell 0.7% by the end of the day on Wednesday as traders digested data on the UK economy, and the Bank of England’s (BoE) decision to not extend its emergency bond-buying plan.
Wall Street's main indices crept higher but gains were capped after new inflation data came in higher than expected.
The US producer price index climbed 0.4% in September, suggesting the Federal Reserve will need to stick to its plans for raising interest rates.
The S&P 500 (^GSPC) gained 0.2% and the tech-heavy Nasdaq (^IXIC) advanced 0.1% at the time of the European close.
The Dow Jones (^DJI) managed to push higher, up 0.4%,
London's benchmark index was not the only in the red, as the CAC (^FCHI) fell 0.1% in Paris, and the DAX (^GDAXI) closed 0.1% lower in Frankfurt. It came after European stocks fell for the fifth day in succession on Tuesday.
According to the Office for National Statistics (ONS), the British economy unexpectedly contracted for the first time in two months in August, falling by 0.3%.
Analysts had expected economic growth to flatline during the month, however, the surprise decline was driven by a sharp fall in manufacturing and a small contraction in services.
July's growth was also revised down from 0.2% to 0.1% meaning that UK gross domestic product (GDP) is now only 0.5% above its pre-COVID level in the fourth quarter of 2019.
Elsewhere, the BoE confirmed that its £65bn bond-buying programme will end on Friday as planned despite calls for it to be extended.
Last night, governor Andrew Bailey warned pension funds that they had just three days left before the scheme ends, sending the pound (GBPUSD=X) lower.
The bank was forced to announce the scheme to buy government bonds in order to help pensions after chancellor Kwasi Kwarteng’s mini-budget caused a record sell-off in gilts.
“Bailey’s promise to stop buying bonds can’t be dressed up as anything other than a significant problem for the pension industry,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said.
“The Bank of England may well have just caused the spark which will result in a large-scale meltdown for gilts. On paper it’s easy to criticise the decision to halt help, but the reality is that these stabilising efforts complicate the Bank of England’s ability to meet its responsibilities in its other realm: monetary policy.”
Read more: IMF forecasts more pain for the UK: prices will remain higher for longer
Stocks in Asia reversed their declines on Wednesday, closing fairly mixed on the day, despite US equities turning sharply lower.
In Japan, the Nikkei (^N225) ended flat while the Hang Seng (^HSI) was 0.2% down in Hong Kong, and the Shanghai Composite (000001.SS) rose 1.5%.
Read more: What happens if you miss a bill?
The dollar rose amid risk aversion and the yen weakened past a level that previously drew Japanese authorities into the market.
The US greenback breached 146 yen for the first time since 1998, prompting authorities in Tokyo to pledge necessary steps in the foreign exchange market if needed. Treasury yields were little changed around recent highs.
It comes as the outlook for China’s economy continues to cast a shadow over markets amid Beijing’s COVID curbs.
