MARKET REPORT: Markets spooked by US debt row and UK inflation

Global equity markets plunged into the red on fears of the approaching US debt ceiling deadline and the prospect of higher interest rates in the UK.

On a gloomy day for investors, the FTSE 100 fell 1.8 percent, or 135.85 points, to 7627.1 and the FTSE 250 fell 1.4 percent, or 277.15 points, to 18931.16.

In Europe, the main benchmark in Germany fell 1.9 percent and the French Cac 40 fell 1.7 percent.

On Wall Street, the S&P 500 lost 0.9 percent, the Dow Jones Industrial Average fell 0.9 percent and the technology-intensive Nasdaq lost 1.1 percent.

The slump came when another round of talks on extending the US debt ceiling — the limit on how much money the US government can borrow — ended without a deal. This self-imposed limit is £25 trillion.

President Biden and House Speaker, Republican Kevin McCarthy, are engaged in negotiations to try to reach a deal on lifting the debt ceiling that can be passed by the US Congress.

If there is no deal before the June 1 deadline, the US will not have enough money to pay its workers and interest on its debts, leaving the country in default.

Economist Nouriel Roubini, nicknamed Dr. Doom after predicting the 2008 subprime mortgage crisis said talks could drag on with potentially disastrous consequences.

“Maybe they’ll get to the last hour for a deal,” he told Bloomberg TV. “Or it’s possible they won’t reach an agreement. If that doesn’t happen, the market will collapse.’

Fears about the outlook for the UK were fueled by higher-than-expected inflation. With investors and analysts betting on further interest rate hikes – and with it on mortgage costs – homebuilders had hit the rocks.

Persimmon fell 5.5 percent, or 71p, to 1215p, Taylor Wimpey dropped 4.5 percent, or 5.6p, to 117.5p, Barratt Developments lost 3.6 percent, or 17.6p, to 477.3p and Berkeley Group dropped 4.3 percent, or 180p to 4025p.

Among mid-cap homebuilders, Crest Nicholson fell 3.9 percent, or 10 pence, to 247.4 pence.

Redrow lost 5.3 percent, or 27.7p, to 497.8p, Vistry Group lost 4.9 percent, or 38.5p, to 751.5p and Bellway dropped 4 percent, or 98p, to 2328p.

Utilities stocks were also in the red despite mostly positive updates. SSE will be looking to invest up to £40bn in clean energy projects this decade.

The pledges came as the Scottish energy company nearly doubled its profits to £2.2bn in the year to the end of March. Shares fell 1.6 percent, or 30.5 pence, to 1,900 pence.

Severn Trent brushed off extreme weather and rising energy prices to report higher earnings, while earnings remained broadly flat in the 12 months to March 31. Shares fell 1.9 percent, or 52 pence, to 2,745 pence. Intertek was among only a handful of blue-chip risers.

The company’s turnover for quality assurance and product testing of £1.05 billion between January and April was 6.5 per cent higher than in the same period a year earlier.

The lifting of Covid-19 restrictions in early 2023 helped improve the performance of its Chinese operations, which it says will make a “significant contribution to the group’s performance in 2023.”

As such, Intertek reiterated its forecasts that group sales will grow by at least 5 percent this year. Shares gained 3.4 percent, or 141p, to 4333p.

Great Portland Estates, owner of offices and retail properties in the West End and City of London, suffered a loss after the value of its property portfolio fell.

It made a loss of £164m for the year to the end of March, following a profit of £166.7m in the same period 12 months earlier.

The value of the group’s property portfolio fell 6.6 per cent to £2.38 billion over the past 12 months. Shares fell 2.1 percent, or 11 pence, to 503.5 pence.