Disappointing economic data and the ongoing US government shutdown sparked a sell-off on London's FTSE 100 on Tuesday, with the index falling to levels not seen in over three months.
Meanwhile, as the budget impasse continues in Washington, the International Monetary Fund (IMF) today cut its outlook for global economic growth and warned that a US default could "seriously damage" the world economy.
The FTSE 100 finished 71.45 points lower at 6,365.83, a fall of 1.11% on the day. The last time it closed lower was on July 3rd when it ended at 6,229.87.
Risk appetite was also being scaled back ahead of the start of third-quarter earnings season in the US with aluminium giant Alcoa expected to kick off proceedings with its results after the close.
"As the government shutdown that began a week ago delays the publication of some [US] economic data, investors will turn their attention to companies' financial results," said Financial Sales Trader Max Cohen from Spreadex.
Shutdown continues, IMF cuts global outlook
Lawmakers in the US have continued to butt heads over the budget debate and the debt ceiling, extending the partial shutdown of the US government into its second week. While Republicans continue to demand a delay to the Affordable Care Act, Democrats are determined not to give up ground over President Barack Obama's flagship health-care bill.
The Treasury has already said that it will exhaust measures to avoid going over the borrowing limit by October 17th, while the Congressional Budget Office claims that cash reserves will run dry between October 22nd and October 31st.
The IMF now expects the global economy to grow by 2.9% this year and by 3.6% in 2014, compared with its previous estimates in July for growth of 3.1% and 3.8%, respectively. The forecasts however factor in an assumed short US shutdown and an agreement being made before the October 17th deadline.
"The effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the US and abroad," said IMF Chief Economist Olivier Blanchard at a press conference.
Even the Chinese government has highlighted its concerns over the political deadlock. In a meeting with reporters, Vice Minister of Finance Zhu Guangyao said that "the clock is ticking" in Washington. "The US is clearly aware of China's concerns about the financial stalemate and China's request for the US to ensure the safety of Chinese investments," he said.
Data fails to impress
Also weighing on sentiment today was data which showed that activity growth in the Chinese services sector slowed in September. The HSBC/Markit services purchasing managers' index fell from 52.8 to 52.5 last month, adding to the downwards pressure on miners in London.
Retailers, meanwhile, were hit by the news that UK retail sales growth slowed for the second straight month in September. According to the British Retail Consortium (BRC), like-for-like sales growth fell to an annual rise of 0.7% last month, from 1.8% the month before - analysts were looking for a pick-up to 2%.
Looking across the Channel, German factory orders unexpectedly fell by 0.3% in August, an improvement from the revised 1.9% decline the month before but worse than the 1.1% increase forecast by analysts.
The news comes amid uncertainty over which party Chancellor Angela Merkel's Christian Democrats will form a coalition with in order to end a hung parliament. Opposition party Social Democrats have signalled their readiness to join the conservative Christian Democrats while a top aide for Merkel has suggested a partnership with the Greens was a realistic possibility.
FTSE 100: Retailers fall on sales data
Blue-chip retailers Marks & Spencer, Next and Kingfisher were among the worst performers of the day after data from the retail sales data from the BRC.
Financials were also out of favour as risk appetite was scaled back. Standard Life, Legal & General, Lloyds, Barclays and RBS were all trading in the red by the close.
HSBC was also lower after selling a portfolio of non-performing personal unsecured and secured loans to the Paragon Group of Companies for £13.5m.
A number of miners, however, performed well as metal prices edged higher. Leading the way was copper giant Antofagasta, along with Fresnillo, Vedanta and Randgold.
FTSE 250: Telecom Plus surges after strong first half
The share price of Telecom Plus surged after the utility services company reported that growth accelerated strongly in the first half. The firm said that customer numbers jumped by 50 per cent in the six months to September 30th, as it guided to a record full-year performance. Finncap upgraded the stock to 'buy' today.
Ocado was another strong riser as the stock continues to set new highs following its incredible performance so far this year. In 2013 alone, the share price has rocketed by nearly 425%.
Retailers Dixons Retail, Home Retail, Debenhams and Ted Baker were all on the decline.
FTSE 100 - Risers
Antofagasta (ANTO) 833.50p +1.58%
Fresnillo (FRES) 942.50p +1.18%
ITV (ITV) 183.60p +0.99%
Persimmon (PSN) 1,077.00p +0.94%
Randgold Resources Ltd. (RRS) 4,420.00p +0.91%
Vedanta Resources (VED) 1,070.00p +0.85%
ARM Holdings (ARM) 977.50p +0.77%
Reed Elsevier (REL) 839.00p +0.48%
British American Tobacco (BATS) 3,212.00p +0.38%
Sports Direct International (SPD) 676.50p +0.30%
FTSE 100 - Fallers
Travis Perkins (TPK) 1,578.00p -3.78%
Marks & Spencer Group (MKS) 463.80p -3.44%
Standard Life (SL.) 341.10p -2.96%
Mondi (MNDI) 1,038.00p -2.54%
Lloyds Banking Group (LLOY) 72.52p -2.44%
Legal & General Group (LGEN) 190.70p -2.41%
easyJet (EZJ) 1,230.00p -2.38%
Petrofac Ltd. (PFC) 1,341.00p -2.33%
International Consolidated Airlines Group SA (CDI) (IAG) 329.10p -2.32%
Reckitt Benckiser Group (RB.) 4,269.00p -2.31%
FTSE 250 - Risers
Telecom Plus (TEP) 1,371.00p +10.56%
Ocado Group (OCDO) 450.50p +5.09%
African Barrick Gold (ABG) 158.30p +4.21%
Hochschild Mining (HOC) 156.60p +3.50%
Bank of Georgia Holdings (BGEO) 2,105.00p +2.93%
Perform Group (PER) 552.00p +2.22%
Fisher (James) & Sons (FSJ) 1,093.00p +1.86%
Rank Group (RNK) 155.60p +1.77%
Dialight (DIA) 1,160.00p +1.75%
Fidelity China Special Situations (FCSS) 101.00p +1.61%
FTSE 250 - Fallers
Imagination Technologies Group (IMG) 276.50p -4.16%
Dixons Retail (DXNS) 44.60p -4.04%
Thomas Cook Group (TCG) 143.40p -3.69%
Cranswick (CWK) 1,056.00p -3.65%
Afren (AFR) 134.00p -3.25%
Workspace Group (WKP) 446.00p -3.02%
Keller Group (KLR) 941.50p -2.94%
Homeserve (HSV) 249.40p -2.92%
PayPoint (PAY) 1,025.00p -2.75%
Wood Group (John) (WG.) 762.00p -2.62%