uropean markets suffered a big hit on Wednesday as the shock of a downgrade to the US’s debt rating rocked global markets.
In London, the FTSE 100 dropped by as much as 1.9% during the day but had clawed back some of its losses by the time the closing bell sounded in the afternoon.
The index of the UK’s biggest companies closed the day 1.4% lower, a 104.64-point drop which saw it end at 7,561.63.
It came after Fitch, the rating agency, said on Tuesday evening that it had downgraded the US’s debt from the highest rating, AAA, to AA+.
“The effect of the downgrade appears to be being felt more keenly by Asian and European stocks, however one can’t help feeling that the action really doesn’t change that much when it comes to the overall global growth outlook, which means today’s move lower could simply by just another dip buying opportunity. Time will tell,” said CMC Markets analyst Michael Hewson.
“The timing of the intervention was curious as well with the agency criticising the deterioration in political governance over the continued multiple stand-offs over the debt ceiling and rising debt levels, as if this was a new thing, ignoring the fact that it has been an ongoing theme for the last 10 years.
“If anything, the decision has come a decade too late given Standard & Poor’s did a similar thing over 10 years ago.
“The report made several accurate observations about the US fiscal situation, as well as its governance, however none of what was outlined by Fitch in yesterday’s report is a surprise to most people.”
In Europe, the Cac 40 closed down 1.3% and the German Dax index had lost 1.4% of its value by the close of play.
In New York, the S&P 500 was trading down 1.3% while the Dow Jones had dropped 0.7% shortly after European markets closed.
On currency markets the pound dropped 0.6% to 1.271 dollars and rose by 0.1% to 1.162 euros.
It was a good day for shareholders of BAE systems as the weapons manufacturer upped its outlook for the full year, sending shares soaring 5.4%.
The business said that it had received record orders due to the Kremlin’s full-scale attack on Ukraine.
It secured orders of £21.1 billion in the six months to the end of June, and faces a record backlog as a result, with £66.2 billion of orders on its books.
As a result, annual underlying earnings are expected to be between 6-8% – a full 2 percentage points higher than it had previously guided.
Shares in Taylor Wimpey also had a good day. The housebuilder said on Wednesday morning that the start of the year was “encouraging” despite increased mortgages putting pressure on buyers.
Shares in the business were up 3.5%.
The biggest risers on the FTSE 100 were BAE Systems, up 59.4p to 992.8p, Convatec Group, up 13p to 218.8p, Taylor Wimpey, up 3.25p to 117.35p, Smurfit Kappa Group, up 56p to 3,116p, and Relx, up 7p to 2,610p.
The biggest fallers on the FTSE 100 were Ocado Group, down 52.6p to 885p, Endeavor Mining, down 95p to 1,735p, Prudential, down 47p to 1,012p, Hargreaves Lansdown, down 32.2p to 807.6p, and Anglo American, down 89.5p to 2,253p.