The FTSE 100 Index continued to slide today, as uneasiness over the SEC's fraud charges against Goldman Sachs – deemed one of the most profitable banks on Wall Street – curbed risk appetite.
On Friday the US Securities Exchange Commission (SEC) sued Goldman Sachs for fraud, claiming the bank misstated key facts when selling collateralised debt obligations tied to subprime mortgages.
Unsurprisingly, this event sent jitters across the banking sector, as investors feared that Goldman’s case will not be a one-off event and that other banks could be charged. This development also reinforces the need for tighter financial sector regulation, which would, depending on what is enacted, weigh on the sector's earnings expectations.
Uncertainty surrounding the matter drove shares of HSBC down 2% to 683.9p, Barclays and Standard Chartered down 1.4% to 368.1p and 1.2% to 1763p respectively, and Lloyds 0.2% lower to 64.6p. Royal Bank of Scotland, however, managed to buck the negative trend, advancing 3.3% to 49.9p following a positive broker note on Friday.
Goldman's case, along with news about China taking additional steps to control speculative buying of real estate over the weekend, also weighed on equity markets today. Asian stocks retreated the most in two months today, while commodities and risky currencies fell, after the Chinese government warned domestic banks to stop loans for third-home purchases – a development that is likely to curb China's appetite for natural resources, especially copper, a metal used in the construction industry.
July high-grade copper prices declined 1.2% to $3.4925 per pound, while June palladium futures, a platinum group metal used in the manufacture of catalytic converters for vehicles, fell 2% to $520.9 per troy ounce. June gold futures fared relatively better, falling only 0.75% to $1,128.3 per troy ounce.
May crude oil (WTI) futures were also in the red, down 2.3% to $81.3 a barrel, predominantly due to a broad rise in the so-called safe-haven US dollar. The euro fell against the dollar and the yen today after European Union finance ministers told Greece to brace itself for the International Monetary Fund's conditions on a bailout package. Meanwhile, sterling fell 1% against the US dollar, over fears that the prospects of a hung parliament have increased following stronger support for the Lib Dems.
Falling commodity prices naturally exerted pressure on miners today. Copper miner Kazakhmys was the sector's worst performer, down 2.5% to 1461p followed by Vedanta Resources, which fell 1.9% to 2742p.
Travel stocks were in the red, after Tui Travel said it has taken a £20 million hit from the closure of most of Europe’s airspace due to a huge cloud of ash from an Icelandic volcano. Tui's share price slumped 3% to 282.9p, Thomas Cook retreated 3.4% to 252.2p and British Airways fell 3.1% to 227.7p.
Defensive stocks fared better today, however, with BAE Systems up 0.3% to 373.1p after the FT announced that the company is to supply India's government with up to 60 additional Hawk trainer jets. Meanwhile, pharmaceutical companies AstraZeneca and Shire were up between 0.4% and 0.5% respectively.
Elsewhere, property website Rightmove today said UK house prices rose 2.6% in April, taking the annual gain up to 6% from 5.3% in March. House prices in London continued to lead the way, with an annual price rise of 9%.
Rightmove said house prices rose, despite an increase in the supply of homes available for sale. 'With weather disruptions out of the way, more sellers are coming to the market and they appear to be ignoring the uncertainties facing potential buyers,' said Miles Shipside, Rightmove's commercial director. 'Prices are up, but so is choice, and the two are not happy bedfellows in the longer term.'
There are no other major UK economic releases today, but investors should keep their eyes on the March inflation figures due on Tuesday as well as the unemployment rate and the Bank of England minutes for March on Wednesday. The UK retail sales figures will be released on Thursday followed by the preliminary first-quarter GDP reading on Friday.
Looking ahead to this afternoon, the US leading indicators index for March is due out at 3pm (London time). In addition, Citigroup will report its first-quarter results ahead of Wall Street's open today, while computer giant IBM will unveil its earnings after the closing bell today.
By 10.40am (London time), the FTSE 100 Index was 30.18 points (-0.53%) below its previous close at 5713.78, while the broader FTSE 250 was 75.9 points (-0.73%) lower at 10371.93. Meanwhile, US June futures traded between 0.3% and 0.5% lower, suggesting Wall Street is expected to open in negative territory this afternoon.
It is interesting to note that the blue-chip Index has now breached its 14-day exponential moving average (EMA), meaning additional declines could be in store. A break below the 14-day EMA could see the FTSE 100 Index touch the 70-day exponential moving average of 5590 in the short term.
