London midday: Stocks fall further after US credit rating downgrade

(Sharecast News) - London stocks had extended losses by midday on Monday as sentiment took a hit after Moody's downgraded its credit rating on the US. The FTSE 100 was down 0.7% at 8,620.35.

Moody's announced late on Friday that it was cutting the rating to Aa1 from the highest triple-A rating.

"This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns," it said.

Moody's said "successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs".

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "Like a long weekend hangover, a headache of worry is seeping into sentiment today.

"Moody's stripped the US of its triple-A rating, citing the growing US fiscal deficit, and the higher borrowing costs the administration will be forced to pay. Given the pledge by Trump to cut taxes, it's feared the situation could deteriorate further. More of a sombre mood is expected on Wall Street when trading opens later, with futures indicating falls of around 1% for the S&P 500 and 1.3% for the Nasdaq.

"The implications of Trump's erratic policymaking are causing caution to creep back in, dampening down the enthusiasm of recent weeks. US Treasury yields have risen as investors sold off US bonds, with the yield on 30-year US debt hitting 5%, the highest level since April, amid the Liberation Day turmoil. A more risk-off environment is emerging again, with gold climbing higher after its losses of recent weeks, as investors look again for shelter for some of their money."

On home shores, investors mulled reports that the UK and European Union have reached a tentative agreement on a so-called Brexit reset.

It was understood that behind the scenes negotiations ahead of an EU-UK summit on Monday have led to agreements on fishing rights, food and farming checks, youth mobility and defence and security.

The latest house price index from Rightmove was also in focus. It showed that house prices edged higher in May, although the rate of growth was notably smaller than usual for the time of year.

UK house prices rose by 0.6% in May, or by 1.2% year-on-year. That compares to April's 1.4% uplift.

The average house price now stands at a record high of £379,517, while agreed sales were up 5% year-on-year.

However, Rightmove said May's price increase was the lowest for this time of year since 2016, as supply continued to catch up with demand.

The number of available homes for sale is now at a 10-year high, while the amount of new properties coming to market is 14% higher year-on-year.

May also suffered from a dip in demand following changes to stamp duty thresholds in April.

Rightmove's Colleen Babcock said: "It's another new price record this month. But having seen a May price record for the last five years, it appears to be driven more by seasonal factors given that new buyer demand has slowed.

"This month's price increase being the lowest in May for nine years is a sign of a market that favours buyers and is more subdued than usual."

However, Rightmove also acknowledged that the latest cut to Bank Rate could boost both buyer affordability and activity later in the year.

In equity markets, stocks that are particularly exposed to the US were the worst performers on the FTSE 100, with Flutter Entertainment, Scottish Mortgage Investment Trust and Pershing Square the biggest fallers.

Oil giant BP gushed lower amid weaker oil prices and after a downgrade to 'hold' at Jefferies.

Drinks giant Diageo reversed earlier gains as it reiterated guidance for full-year organic sales and operating profits after a solid pickup in underlying growth in the third quarter.

Organic net sales increased by 5.9% in the three months to 31 March, compared with a 1.0% increase in the first half, though this was mainly a result of "significant phasing benefits" which are expected to reverse in the fourth quarter.

The company also gave its first financial estimate of the impact of tariffs on its business, calculating a $150m hit on an annualised basis before any mitigation measures.

Genuit also reversed earlier gains as the pipe maker held annual guidance after an 8.5% rise in revenue from the first four months of the year and added that it was not directly exposed to US tariffs.

IT services group Kainos slumped as it met expectations with its full-year results, with profits falling by a quarter amid tough trading conditions, but delivered a cautious outlook.

Dr Martens tumbled as RBC Capital Markets cut its price target on the stock to 60p from 70p and reduced its revenue and earnings per share estimates, saying that consensus estimates may be too optimistic.

Precious metals miner Fresnillo shot to the top of the FTSE 100 as gold prices rose, while Hochschild also rallied.

Ryanair flew higher despite reporting an 16% decline in full-year profit after tax to €1.61bn as average fares declined 7%.

Market Movers

FTSE 100 (UKX) 8,620.35 -0.74% FTSE 250 (MCX) 20,717.49 -1.21% techMARK (TASX) 4,684.03 -1.13%

FTSE 100 - Risers

Fresnillo (FRES) 1,018.00p 1.80% easyJet (EZJ) 549.00p 1.14% Tesco (TSCO) 366.40p 0.96% Vodafone Group (VOD) 71.82p 0.90% Imperial Brands (IMB) 2,725.00p 0.78% Centrica (CNA) 150.40p 0.70% Convatec Group (CTEC) 273.80p 0.44% Sainsbury (J) (SBRY) 280.20p 0.43% Marks & Spencer Group (MKS) 356.20p 0.37% Coca-Cola HBC AG (CDI) (CCH) 3,928.00p 0.36%

FTSE 100 - Fallers

Flutter Entertainment (DI) (FLTR) 18,230.00p -2.67% Scottish Mortgage Inv Trust (SMT) 985.60p -2.46% Pershing Square Holdings Ltd NPV (PSH) 3,708.00p -2.37% SEGRO (SGRO) 653.40p -2.24% Land Securities Group (LAND) 589.50p -2.24% Ashtead Group (AHT) 4,279.00p -2.10% Antofagasta (ANTO) 1,783.50p -2.06% St James's Place (STJ) 1,072.50p -1.97% Halma (HLMA) 2,942.00p -1.93% Melrose Industries (MRO) 456.50p -1.91%

FTSE 250 - Risers

JPMorgan Indian Investment Trust (JII) 1,080.00p 5.88% W.A.G Payment Solutions (WPS) 62.00p 3.33% Ferrexpo (FXPO) 66.80p 2.45% AO World (AO.) 101.80p 2.11% Wizz Air Holdings (WIZZ) 1,653.00p 1.79% Elementis (ELM) 128.60p 1.58% Hochschild Mining (HOC) 263.40p 1.46% Lion Finance Group (BGEO) 6,435.00p 1.10% Endeavour Mining (EDV) 2,072.00p 0.68% Morgan Sindall Group (MGNS) 3,680.00p 0.55%

FTSE 250 - Fallers

Ithaca Energy (ITH) 131.00p -7.22% Kainos Group (KNOS) 755.00p -7.19% Dr. Martens (DOCS) 57.40p -5.98% Auction Technology Group (ATG) 474.00p -4.53% Oxford Instruments (OXIG) 1,818.00p -4.52% Discoverie Group (DSCV) 612.00p -4.38% Trainline (TRN) 262.40p -4.37% THG (THG) 26.04p -4.26% Harbour Energy (HBR) 170.60p -3.83% Greggs (GRG) 1,969.00p -3.39%