London close: Stocks hit by rout in Turkish assets

London stocks finished in the red on Friday, tracking losses in Europe amid concerns about the possible impact of the Turkish crisis on the Continent's banks, even as the latest UK GDP reading showed that growth picked up as expected in the second quarter.

The FTSE 100 was down 0.97% or 74.76 points to 7,667.01, but the fall was cushioned by a 0.8% drop in the pound's value against the US dollar to 1.27625, which saw it trade below 1.28 for the first time in almost a year.

Yet against the single currency, Sterling was up 0.58% at 1.1189, due to those concerns around the euro area's banking sector.

In that regard, according to the Financial Times, the European Central Bank was concerned about the exposures of BBVA, UniCredit and BNP Paribas to their fellow Mediterranean country - although the watchdog reportedly did no yet see the situation as "critical".

The US dollar surged 17.26% against the Turkish lira to trade at 6.5088 after Turkish authorities failed to act against the currency's weakness on Friday, despite concerns that the country might be walking straight into an economic recession and - according to some observers - perhaps even a full-fledged balance-of-payments crisis if it did not quickly remedy the current situation.

On Monday, HSBC had estimated that approximately half of Turkey's corporate debt - which stood at about 60% of GDP, versus around 40% as of 2010 - was denominated in foreign currencies.

That was about the same proportion as in 2010, but now most of it was unhedged.

The key in the short-term now was whether Turkey would be able to attract sufficient capital to continue covering its current account deficit.

IG Market analyst Chris Beauchamp said: "The FTSE 100 has extended its losing streak from yesterday, eating further into the gains made earlier in the week, while the ECB's warning about bank exposure to Turkey has resulted in the steady flow of early losses on the continent turning into a full-blown rout.

"'Contagion' is now the watchword, as markets, hobbled by thin summer liquidity, wonder where the Istanbul problem will make itself felt next."

For their part, analysts at Capital Economics said: "While worries about the exposure of euro-zone lenders to Turkey weighed on the euro and European banking stocks on Friday, the economic spillovers to the region should be fairly modest."

Back in the UK, data from the Office for National Statistics showed that UK gross domestic product quarter to June grew 0.4% more than the first three months of 2018, in line with the Bank of England's prediction and the average forecasts of economists, picking up from the disappointing 0.2% growth in the first quarter.

GDP was 1.3% higher compared to the second quarter last year, also as anticipated, up from 1.2% annual growth in the first quarter.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "In today’s economic climate 0.4% quarterly growth draws a small cheer from the crowd, though it would have been deemed below par prior to the financial crisis. In the ten years running up to the crisis, UK economic growth averaged 0.73% per quarter.

"Indeed a rather less than encouraging assessment of the UK’s economic prospects can be found in the performance of the pound, which has slipped back below $1.30 against the dollar in the last week, despite a rise in UK interest rates. Fears over the potentially negative impact of Brexit clearly play a part in this, however we shouldn’t ignore the fact this particular coin is two sided, and dollar strength is a contributing factor alongside sterling weakness."

With little going on on the corporate front, Mike Ashley provided some distraction from the Turkish lira’s woes as Sports Direct announced the acquisition of House of Fraser from its administrators for £90m in cash. Debenhams, the department store chain in which SPD has a 30% stake, rallied.

Ferrexpo tumbled after the White House added to the Turkish lira's woes after the US President ordered that tariffs on the Mediterranean country's exports of aluminium and steel be doubled.

Turkey was the world's sixth-largest steel producer.

In parallel, the roof caved-in on Evraz following a report that a top advisor to Russian President Vladimir Putin had recommended levying a tax on miners.

Miners were easily the worst performing group in the market as the US dollar shot higher, weighing on commodity prices more generally, which in turn dragged on the likes of Glencore and Rio Tinto.

Ryanair flew lower as the budget airline cancelled one in six flights due to a pilot walkout, while IP Group edged up after saying it has committed to investing £5m in portfolio company Artios Pharma as it raises £65m in a Series B financing.

SSP slipped after saying it has found investors for a $175m issue of US bonds to replace existing debt and for general corporate purposes.

Diageo ticked up as it told its broker to kick off the first swathe of its £2bn share buyback. Citigroup will begin purchasing the drinks giant's shares up to a value of up to £1.4bn, with further tranche to be announced by the FTSE 100 company later in the financial year to June 2019.

On the broker note front, RBS was upgraded to ‘buy’ from ‘neutral’ by UBS, while Hill & Smith was cut to ‘hold’ at Berenberg.

Rolls-Royce was reduced to ‘underweight’ at JPMorgan and Evraz was downgraded to ‘sell’ at VTB Capital.

Market Movers

FTSE 100 (UKX) 7,667.01 -0.97%
FTSE 250 (MCX) 20,667.45 -0.67%
techMARK (TASX) 3,577.01 -0.82%

FTSE 100 - Risers

Carnival (CCL) 4,623.00p 2.03%
TUI AG Reg Shs (DI) (TUI) 1,568.50p 1.49%
WPP (WPP) 1,235.00p 1.44%
Royal Mail (RMG) 465.70p 1.35%
National Grid (NG.) 818.70p 1.02%
AstraZeneca (AZN) 6,107.00p 0.51%
Tesco (TSCO) 266.20p 0.45%
SEGRO (SGRO) 673.40p 0.39%
Pearson (PSON) 919.20p 0.33%
BAE Systems (BA.) 625.60p 0.29%

FTSE 100 - Fallers

Evraz (EVR) 510.00p -8.99%
Coca-Cola HBC AG (CDI) (CCH) 2,644.00p -4.13%
Paddy Power Betfair (PPB) 7,255.00p -3.91%
Rolls-Royce Holdings (RR.) 1,044.00p -3.69%
Randgold Resources Ltd. (RRS) 5,404.00p -3.47%
Fresnillo (FRES) 989.20p -3.21%
Glencore (GLEN) 323.33p -2.74%
Anglo American (AAL) 1,665.20p -2.57%
Mondi (MNDI) 2,172.00p -2.38%
Associated British Foods (ABF) 2,405.00p -2.35%

FTSE 250 - Risers

Rank Group (RNK) 186.80p 4.47%
Contour Global (GLO) 248.00p 2.54%
Games Workshop Group (GAW) 3,270.00p 2.34%
HarbourVest Global Private Equity Limited A Shs (HVPE) 1,344.00p 2.28%
Charter Court Financial Services Group (CCFS) 344.00p 2.14%
Pershing Square Holdings Ltd NPV (PSH) 1,205.80p 2.03%
Wetherspoon (J.D.) (JDW) 1,261.00p 1.94%
Syncona Limited NPV (SYNC) 259.50p 1.76%
Caledonia Investments (CLDN) 2,830.00p 1.62%
Keller Group (KLR) 1,038.00p 1.57%

FTSE 250 - Fallers

Bank of Georgia Group (BGEO) 1,710.20p -5.52%
On The Beach Group (OTB) 416.00p -4.15%
TBC Bank Group (TBCG) 1,646.00p -3.73%
Hill & Smith Holdings (HILS) 1,089.00p -3.73%
Ashmore Group (ASHM) 357.40p -3.72%
G4S (GFS) 251.40p -3.11%
CLS Holdings (CLI) 229.00p -2.97%
Ted Baker (TED) 2,180.00p -2.94%
Investec (INVP) 522.00p -2.94%
Essentra (ESNT) 471.00p -2.80%