The FTSE 100 suffered steep losses on Wednesday morning as buyers showed caution ahead of a policy decision in Europe, whilst political uncertainty in the US and Italy continues to erode risk appetite.
The all-important European Central Bank (ECB) policy decision is due at 12:45 this afternoon, though the general consensus is expecting the benchmark interest rate to be held at 0.5%. The subsequent press conference with Mario Draghi will be closely watched with the ECB President expected to give very dovish comments, in line with last month's speech.
Alastair McCaig, Market Analyst at IG, said: "The early-afternoon statement is unlikely to signal any change in the base rate, but may give a little more guidance on longer-term strategy. As much as Europe appears to have its own issues, the wrangling on the other side of the Atlantic will probably dictate European market sentiment.
Sharp falls from retail bellwethers Tesco and Sainsbury following their results were also weighing on sentiment this morning in London with the FTSE 100 extending losses after hitting a one-month low the day before. The index finished at 6,460.01 on Tuesday; the last time it closed lower was on August 30th.
US and Italian politics in focus
The partial shutdown of the US government continues to grab headlines today given that it is the first shutdown in 17 years. As such, some 800,000 federal workers will be on unpaid leave for a second straight day today as the US government shuts down non-essential agencies indefinitely until politicians can agree on a budget.
While investors continue to gauge the impact of the shutdown on economic growth, the focus is now turning to the deadline of the debt ceiling on October 17th. If an agreement is not made to raise this limit, then the government will run out of the cash and will likely default on its debt obligations.
"Given that neither side has been in a rush in the past to negotiate, this could mean two more weeks of uncertainty for the markets and therefore, more risk aversion from investors. That said, once a deal is done, it's only a matter of time until we're talking about indices being back at record highs," said Market Analyst Craig Erlam from Alpari.
Over in Italy, Prime Minister (PM) Enrico Letta will today face a confidence vote in parliament after centre-right PDL leader and former PM Silvio Berlusconi called some of ministers to leave the government. Addressing the Senate ahead of the vote, Letta said a collapse of his government would be a "fatal risk" for the country. A number of key PDL figures have already said they would back Letta.
"It is a public humiliation for Berlusconi, and although reports suggest he will now show support to Letta to try and keep his seat at the table, this act of desperation is further evidence that the damage may already be done," said Senior Sales Trader Nick Dale-Lace from CMC Markets.
FTSE 100: Supermarkets in focus after results
The focus was on supermarket giant Tesco today which was registering steep losses after disappointing the market with its interim results. Half-year underlying pre-tax profit fell 7.4% to £1.4bn as an improvement in the UK was offset by tough market conditions in Europe and Asia.
Sainsbury was also lower though losses were trimmed slightly by midday after the company said it had outperformed rival retailers in its fiscal second quarter. The company reported a 5% increase in sales, accelerating from the 3.6% growth in the first three months of the year, as it continues to grow its market share.
Sector peer Morrison was also trading in the red after going ex-dividend this morning, meaning that from today investors will no longer be able to get their hands on the company's latest payout. Intertek, British Land and Weir also went ex-div today.
Mining stocks were also lower as metal prices fluctuated after some sharp losses; gold hit an eight-week low on Tuesday.Randgold was out of favour after Citigroup downgraded the stock on to 'sell'. Sector peer Fresnillo, trading broadly flat by midday, was also cut to 'sell'.
Leading the upside were utility stocks with National Grid, Severn Trent, SSE and Centrica heading higher.
Banking group Barclays was in demand after Societe Generale upgraded its rating to 'buy'. Lender RBS also edged higher.
FTSE 250: Dunelm disappoints; Domino's delivers
Soft furnishings retailer Dunelm said soaring temperatures eroded sales at the start of the quarter, causing shares
to take a hit this morning. The firm said that first-quarter like-for-like (LFL) sales were down 5.3%.
The hot weather also slowed down sales growth at Domino's Pizza, but the company pleased investors this morning as it was still able to grow LFL sales in all its four markets during the third quarter. The firm also said that growth was also boosted by online sales which continue to rise strongly.
Mining group Hochschild was a heavy faller after saying it would raise up to $96m via an equity placing to help fund the buy-out of two of its assets in Peru for $280m. It currently owns 60% of the Pallancata mine and the Inmaculda project but is looking to acquire the remaining 40% through the purchase of International Minerals.
FTSE 100 - Risers
National Grid (NG.) 745.00p +1.92%
Barclays (BARC) 272.40p +0.96%
Severn Trent (SVT) 1,787.00p +0.73%
SSE (SSE) 1,479.00p +0.68%
Sage Group (SGE) 332.70p +0.64%
Aviva (AV.) 410.10p +0.49%
Tate & Lyle (TATE) 741.50p +0.47%
IMI (IMI) 1,466.00p +0.41%
Royal Bank of Scotland Group (RBS) 369.20p +0.24%
Centrica (CNA) 368.90p +0.22%
FTSE 100 - Fallers
Tesco (TSCO) 346.10p -3.62%
Coca-Cola HBC AG (CDI) (CCH) 1,773.00p -2.85%
Intertek Group (ITRK) 3,264.00p -2.68%
GKN (GKN) 341.70p -2.23%
Pearson (PSON) 1,223.00p -2.16%
Tullow Oil (TLW) 1,010.00p -2.04%
easyJet (EZJ) 1,292.00p -1.97%
Unilever (ULVR) 2,316.00p -1.78%
Melrose Industries (MRO) 297.30p -1.72%
Smiths Group (SMIN) 1,395.00p -1.69%
FTSE 250 - Risers
Domino's Pizza Group (DOM) 620.00p +5.26%
COLT Group SA (COLT) 121.40p +4.03%
Oxford Instruments (OXIG) 1,361.00p +2.33%
Perform Group (PER) 553.00p +2.31%
BH Global Ltd. USD Shares (BHGU) 11.78 +1.90%
Kenmare Resources (KMR) 28.44p +1.57%
Soco International (SIA) 404.10p +1.53%
Jupiter Fund Management (JUP) 374.30p +1.46%
BH Macro Ltd. USD Shares (BHMU) 20.69 +1.42%
Redrow (RDW) 237.60p +1.32%
FTSE 250 - Fallers
Hochschild Mining (HOC) 156.90p -10.09%
Ophir Energy (OPHR) 311.10p -6.15%
Dunelm Group (DNLM) 882.00p -4.75%
Genus (GNS) 1,405.00p -3.10%
ICAP (IAP) 359.20p -2.89%
Man Group (EMG) 80.70p -2.89%
Workspace Group (WKP) 467.80p -2.74%
Bank of Georgia Holdings (BGEO) 1,893.00p -2.67%
Countrywide (CWD) 535.50p -2.64%
AZ Electronic Materials SA (DI) (AZEM) 284.40p -2.60%