(Alliance News) - European markets suffered on Friday, closing a week dominated by central banks firmly in the red, as the UK's new economic direction sank the pound to a thirty-seven-year low.
The FTSE 100 index closed down 140.92 points, 2.0% at 7,018.60. The flagship index lost 3.6% over the week as a whole.
The FTSE 250 ended down 359.00 points, 2.0%, at 17,972.69, losing 4.8% over the week. The AIM All-Share closed down 13.83 points, 1.6%, at 833.59, closing the week down 4.0%.
The Cboe UK 100 ended down 2.0% at 699.89, the Cboe UK 250 closed down 2.1% at 15,380.42, and the Cboe Small Companies ended down 1.9% at 13,029.71.
After a busy week for central banks, the UK's Chancellor Kwasi Kwarteng unveiled his "mini-budget", confirming a reversal of tax hikes and a cut to stamp duty.
"The new chancellor barely had time to draw breath as he dragged rabbit after rabbit from his newly acquired hat. The big question troubling markets is how on earth he's going to pay for all these long-eared prizes. The new government is gambling on growth, but markets aren't overly keen on a gamble if they don't know they odds," said Danni Hewson, AJ Bell financial analyst.
He confirmed that a 1.25 percentage point national insurance hike, announced by the previous Conservative government, has been cancelled. A hike in corporation tax, which would have taken the levy to 25% next year, has also been reversed. It will remain at 19%.
The plans are part of the government's attempt to usher in a growth-focused "new era" for the country.
As part of plans to cap household energy bills at GBP2,500 for the next two years, Kwarteng indicated a total cost of GBP60 billion for the six months from October. The debt management office announced it would issue GBP193.9 billion in gilts, a rise of GBP62.4 billion to fund the extra spending.
"The Truss administration wants to put a rocket under growth, but there is a risk that after a first boost, the policies could crash and burn, particularly if government borrowing costs soar further. There are signs that buyers of UK government bonds are becoming even more nervous about the government's 'splash the cash' policies, given the mounting debt pile," said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
Compounding the unease around the mini-budget was another record low in UK consumer confidence.
GfK's long-running consumer confidence index fell five points in September to minus 49, the worst score since records began in 1974.
"Consumers are buckling under the pressure of the UK's growing cost-of-living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments," GfK client strategy director Joe Staton said.
Online retailers Boohoo and Asos shed 5.6% and 6.5%.
The pound was quoted at USD1.0931 at the London equities close Friday, compared to USD1.1257 at the close on Thursday. The pound is sitting at a 37-year low against the US currency. At the start of 2022, the pound fetched around USD1.35.
A hawkish full basis point hike is now considered increasingly likely when the Bank of England holds its next meeting in November, to stem the downside for the pound.
"Those hoping for a vote of confidence from the market in the government's ambitious tax-cutting programme have been sorely disappointed; instead of giving people reason to be confident about the UK economy, they seem merely to have provided another reason to flock to the safety of the dollar," said IG's Chris Beauchamp.
The euro stood at USD0.9727 at the European equities close Friday, down against USD0.9827 at the same time on Thursday.
In European equities on Friday, the CAC 40 in Paris ended down 2.3%, while the DAX 40 in Frankfurt ended 1.9% lower.
Against the yen, the dollar was trading at JPY143.20, regaining ground from JPY142.17 late Thursday, following Thursday's intervention from the Japanese government.
Stocks in New York were also in the red at the London equities close, with the DJIA down 1.9%, the S&P 500 index down 2.1%, and the Nasdaq Composite 2.1% lower.
In the FTSE 100, Anglo-Swiss miner Glencore shed 6.0% after Yamana Gold revealed Glencore will buy Newmont's 19% stake in the Mara project.
Under the pact, Glencore will pay Newmont USD124.9 million upon closing and a USD30 million deferred payment upon commercial production subject to an annual interest fee of 6%, with total deferred consideration capped at USD50 million.
The Mara project is a brownfield project located in the Catamarca province of Argentina. It has mineral reserves of 11.8 billion pounds of copper and 7.4 million ounces of gold contained in 1.1 billion tonnes of ore.
It is a joint venture formed in December 2020 between Yamana Gold, Glencore and Newmont. Yamana Gold closed down 4.0%.
Made.com sank 20%. The sofa seller has put itself up for sale and announced plans for strategic review. Its fortunes have weakened due to cost-of-living pressures.
It is also eyeing cutting costs as its cash begins to run out. The Financial Times on Thursday reported Made plans to cut a third of its workforce.
The wider strategic review will mull its balance sheet options, which include debt financing, strategic investment or even a sale of the company. It ruled out an equity raise though, saying current conditions are not conducive to raising "sufficient equity from public market investors".
"It's concluded that raising money on the public markets would be a struggle in the current environment, so the options now are to look at debt financing (which may not come cheap given how rates are going up and the company is deemed higher risk), bring in a strategic investor, merge with another business, or sell the whole company. Whatever happens, it looks like existing shareholders may be wiped out or be left with a mere fraction of their original investment," said AJ Bell investment director Russ Mould.
Brent oil was quoted at USD86.34 a barrel at the London equities close Friday, falling sharply from USD90.24 late Thursday. FTSE-100 listed oil majors BP and Shell shed 5.6% and 5.3%, tracking the price lower.
Gold was quoted at USD1,648.57 an ounce at the London equities close Friday against USD1,669.31 at the close on Thursday.
In Monday's UK corporate calendar, there are a host of half-year earnings for AIM listings, including retail, promotional and brand experience specialist SpaceandPeople and floor coverings distributor Likewise Group.
The economic calendar for Monday has Japanese flash manufacturing PMI and UK house price index overnight, German business climate index at 0900 BST, with some comments from US Federal Reserve Officials to come later in the day.
By Elizabeth Winter; elizabethwinter@alliancenews.com
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