August feels the heat with worst FTSE 100 losses for nearly a year
RECESSION fears, Brexit worries and trade tensions sent the FTSE 100 to its worst monthly losses in almost a year, after four weeks marked by summer volatility.
The blue-chip index, which consists of London’s biggest listed companies, fell 5pc over the month, its worst drop since October.
The fall was inches from a four-year record, which would have stretched back to when a slowdown in China sparked fear for the state of the global economy in August 2015.
Global markets were rattled at the start of the month after Donald Trump, the US president, announced ramped-up tariffs against China, sparking a back-and-forth of retaliatory responses.
A bumpy ride for sterling added to pressures on the exporter-heavy bourse, which usually benefits from a weak currency.
After days in the doldrums at the start of the month, the pound began to eke out gains after Boris Johnson’s visits to European leaders and the G7 summit, and increasingly public efforts to block a no-deal Brexit raised sentiment.
The pound yesterday reversed several days of losses – triggered by the Prime Minister’s plans to prorogue Parliament – to find narrow gains.
It wasn’t quite enough to tip the FTSE 100 past the 10-month drop record, however.
“The pound’s rebound had the side-effect of keeping the FTSE’S own gains on the lower-end of what was seen elsewhere,” said Connor Campbell, of Spreadex.
August is known for its volatility, as low levels of trading volumes and reduced business activity typically lead to exaggerated price movements. Safe haven assets boomed at several points, with the Japanese yen and Swiss franc gaining strength,
“The summer months are traditionally a period where limited liquidity and the absence of any real news flow lead to exaggerated moves in markets,” said David Jane, a fund manager at Miton.
“Some of these moves may be justified, giving a hint at the future direction as we head into the more meaningful trading period of the autumn. Some, however, are just sound and fury, signifying nothing.”
The biggest weight on FTSE 100 yesterday, and through most of the month, was Royal Dutch Shell. The oil giant had a torrid August amid falling oil prices, shedding more than 12pc on its B-shares (the company has two share prices listings because of its management structure) – its worst decline since the financial crisis in 2008.
The drop means Shell is now at risk of losing its stop as the world’s second-largest oil firm, as rival Chevron edges ever-closer to overtaking its market capitalisation. Its B shares closed down 23.5p at £22.65 yesterday.
The biggest pull on the FTSE 100 came from Rio
Tinto, with the miner finding some relief at the end of a tough month for iron. Micro Focus managed a dead cat bounce, up 57.4p to £11.08 after Thursday’s plummet.