Leading shares, which spent much of the week heading higher in anticipation that the US Federal Reserve would keep interest rates on hold, fell back sharply once the deed was done.
It was the cautious comments from Fed chair Janet Yellen about the Chinese economy and global growth which did the damage, prompting a sell-off across global markets.
The FTSE 100 dropped 82.88 points or 1.34% to 6104.11 on the day, but was only down 0.22% on the week after its earlier gains ahead of Thursday’s meeting of the US central bank.
Mining groups were among the main losers on the outlook for the global economy, with Glencore down 6.15p to 126p and Anglo American off 15.4p at 720p.
But precious metal miners moved higher as investors sought the haven of gold and silver amid the storm. So Randgold Resources rose 134p to £38.63 and Fresnillo added 20p to 610p.
Crude prices were on the slide on renewed worries about falling demand, with Brent crude down 2.6% to $47.8 a barrel. So Royal Dutch Shell A shares have lost 62.5p to £15.82 while BP was down 12.25p to 333.45p.
Elsewhere engineering group Weir, which has been hard hit by the slump in the oil price since it is a key supplier to the sector, fell 39p to £12.45 on its last day in the FTSE 100 before being relegated to the mid-cap index.
Marks & Spencer dipped 4p to 491.1p despite Canaccord Genuity raising its recommendation from hold to speculative buy, albeit with a target price reduced froim 585p to 550p. The broker said:
Its forward PE now stands at a 15% discount to the wider FTSE 350 peer sector on 85.
This clearly suggests to us that the market is discounting earnings downgrades. To date there has been little actual evidence of this at broad consensus level. It is also worth noting that the market will not hear about second quarter trading performance until the interims in November, which are likely to reflect unhelpful weather over recent weeks. Countering this, the whole clothing sector is batting against weak comparatives for September to early November, so a more typical autumnal weather pattern would be beneficial.
We believe the short-term balance of risk currently warrants a 10% discount to the wider sector.. We do not yet sufficient conviction in the longer-term fundamentals to move to an unequivocal buy recommendation, but the short-term risk reward looks weighted to the upside, given the de-rating since April, hence our move to a speculative buy.
But ITV was steady at 246.7p after a positive note from Peel Hunt.
Among the mid-caps, UDG Healthcare jumped 47.5p to 540.5p after it agreed to sell its Irish drug distribution business as well as its UK travel healthcare division to US group McKesson for €407.5m.
Petra Diamonds put on 2.9p to 111p after full year production rose 2% but revenues fell 10% to $425m and earnings dropped 26% to $139.3m. Analyst Alison Turner at Panmure Gordon said:
With production, prices, revenue, capex and net debt all already reported and detailed guidance given for 2016 and beyond (including on costs) there is limited new news from today’s full year results.
However, for us two slightly conflicting messages emerge – on the one hand Petra has declared a maiden dividend of 3c rather than the 2c intention flagged at half year. On the other the company notes that “volatility” in the broader diamond market may result in deviations from Petra’s previously guided diamond prices. Should investors take heart from the increased dividend? Petra has the debt headroom to afford it but we are unconvinced increasing net debt to pay a bigger dividend is the right message in current market conditions
