Global financial crash fears as UK stocks drop to lowest point in three months
The Bank of England may cut interest rates this summer as several major companies have seen their shares fall.
The FTSE 100, a key UK stock market index, has dropped 73 points (0.9 percent) to 8,080.87 today, its lowest level since April, reflecting worries about the global economy and central bank policies.
Several major companies, including Centrica PLC (which owns British Gas) and Rentokil Initial PLC (a pest control firm), saw their shares fall after releasing their financial results. Precious metals miners like Endeavour Mining PLC and Fresnillo PLC also declined.
Banks like Lloyds Banking Group PLC fell by 2.2 percent despite good results, and other banks experienced similar drops. Vodafone Group PLC and BT Group PLC also saw their shares fall by 1.9 percent and 3.7 percent, respectively.
Traders are increasingly betting that the Bank of England (BoE) will cut interest rates this summer. This belief is growing because there’s optimism that the US Federal Reserve will also lower rates soon.
Money markets now suggest there’s more than a 50 percent chance the BoE will cut rates next week, and a 92 percent chance it will happen by September.
This change in expectations is due to recent data showing a surprising 6.6 percent drop in US consumer spending on items like cars and washing machines.
This unexpected slowdown makes it more likely that the US Federal Reserve will cut rates in September. Even though the US economy grew faster than expected in the second quarter (by 2.8 percent), weaker job market conditions and slower price increases support a rate cut.
As traders anticipate a BoE rate cut, the pound has fallen by 0.3 percent against the dollar and the euro.
Money markets now show a 58 percent chance of a rate cut next week, which has caused British bond yields to fall, putting more pressure on the pound. This shift is largely due to weaker US economic data and comments from former Fed officials supporting a rate cut.
UK car sales have also dropped. Car production fell by 7.6 percent in the first half of the year, with just over 416,000 vehicles produced, down from the same period last year. June saw a 26.6 percent drop due to manufacturers switching to electric vehicle models.
Even strong earnings reports, like AstraZeneca’s, aren’t boosting share prices as expected. Despite good Q2 results and raised full-year guidance, AstraZeneca’s stock still fell.
Investors are seeking safety in US Treasury bonds, with the two-year yield at its lowest since February. European bond yields are also falling, with UK bonds being favored due to confidence in the Labour government’s fiscal policies.
