The major pre market news to accompany the end of the week once again came in the form of a credit ratings agency downgrade. In the firing line this time were UK financials, with 12 banks and building societies seeing their ratings reduced. Lloyds was subject to a one notch downgrade from AA3 to A1, on the same day that the state owned bank also featured in a Financial Times article suggesting a recapitalisation was needed. RBS was cut by two notches from AA3 to A2, with Santander UK, the Co-Operative Bank and Nationwide building society also negatively rerated. Moody’s cited a decreased likelihood for government support for the smaller and less systemically important institutions, emphasising that the downgrade was not a reflection of a deteriorating banking system, or indeed the UK government.
The FTSE 100 was largely undeterred, hovering around its 5291 opening level and seemingly undecided as to whether it should establish a foothold in negative or positive territory. Major news from the US in the early afternoon provided an excuse for the latter, with FTSE instantly shooting up 1.5% on the back of better than expected jobs data. September’s non-farm payrolls came in at 103,000, way ahead of the 60,000 that was forecast, with August’s number revised up to 57,000 from 0 and July’s reading also rerated higher. The initial excitement tailed off towards the close of trade, although the FTSE 100 managed to hold onto some of its gains to finish up 12 points, 0.2%, at 5303. Following a 3.5% loss on the index after Monday and Tuesday’s sell-off, investors will be comforted that the subsequent three day rally has resulted in a weekly gain of 3.5%.
On a stock specific level, the day was much less volatile than we have been used to, Vedanta the top performer on the FTSE 100, the miner closing up 4.2%. It was unsurprising that RBS and Lloyds were at the bottom of the index, both losing just over 3% following their downgrades.