Economic news

FTSE 100 Edges Up, Midcaps Fall as Bond Yields Rise

  • FTSE 100 steady after opening lower
  • Housing stocks under pressure
  • UK economy unexpectedly shrinks in August
  • FTSE 100 up 0.4%, FTSE 250 off 0.1%

Oct 12 (Reuters) - UK's FTSE 100 edged higher on Wednesday, but the midcap index came under pressure as a slide in housing stocks after Barratt Developments' disappointing results added to worries over a bond market selloff that has kept investors on edge.

The blue-chip FTSE 100 rose 0.4% in choppy trading, while the midcap FTSE 250 index dropped 0.1%. The latter fell as much as 2% earlier to hit its lowest since May 2020.

The pound rose 0.9% in a volatile session after Bank of England (BoE) Governor Andrew Bailey told pension funds they had three days to fix liquidity problems before the bank ends emergency bond-buying that has provided support. 

Reports signalling that BoE could extend bond purchases had calmed the mood earlier but the central bank confirmed gilt purchases will end on Friday. 

Shares of rate-sensitive banks, homebuilders and insurers extended losses as gilt yields continued to rise. 

The 20-year gilt yield rose above 5% for the first time since Sept. 28.

"While more of the action in terms of this crisis is playing out in the gilt market and the pound, it does seem like UK equities, particularly the domestically focussed companies, are struggling by more than you might expect if it were just global factors weighing on it," said Oliver Allen, senior markets economist at Capital Economics.

"That makes sense given one sharp feature about this crisis is rise in bond yields. There are worries about the housing market in the UK, and it is posing a darker cloud over the economic outlook."

Data earlier showed Britain's economy shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in North Sea oil and gas fields, underscoring the challenge for Prime Minister Liz Truss to speed up growth.

Britain's largest homebuilder Barratt Developments Plc fell 3.7% after it said its annual outlook looked "less certain" as homebuyers face rising mortgage rates and a worsening cost-of-living crisis. 

The wider housing index fell 1.8%.

Reporting by Sruthi Shankar in Bengaluru; Editing by Savio D'Souza and Neha Arora

Source: Reuters

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