The FTSE 100 plunged on Friday as major UK assets sank. The FTSE 100 shed 1.97% while GBP/USD hit fresh lows as bond yields jumped.
GBP/USD was trading near the lows of 1.0900, down 2.9%, at the time of writing.
Investors dumped UK assets after the government unveiled their mini-budget without the usual economic forecasts attached to new measures which will cut taxes dramatically and increasing spending.
The FTSE 100’s inverse relationship with the pound was not enough to support the index on a day the entire global equity universe was under pressure.
London’s leading index slipped below 7,000 for the first time since June in a broad selloff that tracked a global equity move to the downside.
However, analysts were upbeat about the longer term prospects for the FTSE 100 given the composition of the index and weakness in the pound.
“Moreover, in aggregate, around three quarters of revenues of FTSE 100 companies are made outside of the UK, much of which is in US Dollars. In the near term, as overseas earnings are translated back into Sterling reported profits and dividends this should be supportive,” said Jason Hollands, Managing Director at Bestinvest.
Hollands also pointed to the strong yields investors are able to achieve in UK stocks.
“Valuations of UK blue-chip equities also look attractive overall both compared to other developed markets and their own long-term trend. They also provide a relatively attractive dividend yield of c. 4%, which is more than double the dividend yield of global equities.”
Cyclical selling
There was very little green in the FTSE 100 on Friday with many cyclical stocks falling heavily. Miners were particularly heavily hit as were banking stocks.
Natwest was down 6% at the close on Friday and Lloyds shed 3.6%, despite the Bank of England raising rates 0.5% yesterday and markets pricing in more rate hikes on the horizon.