FTSE 100 close: Shock US debt downgrade sparks market sell-off in London and Europe

London’s FTSE 100 plummeted during opening exchanges today after a top credit ratings agency slashed their outlook on the US’s finances.

The capital’s premier index slumped 1.36 per cent to 7,561.64 points, while the domestically-focused mid-cap FTSE 250 index, which is a better reflection of the health of the UK economy, fell 1.33 per cent to 18,812.88 points.

Late last night, Fitch, one the world’s most influential credit rating agencies, downgraded its assessment for the US’s debt position one level to AA+ from AAA. The latter is the top rung on Fitch’s rating ladder.

It is not the first time credit experts have soured on the world’s largest economy’s financial position. S&P Global Ratings just over a decade ago also revised down their judgement of the safety of the country’s debt.

Credit rating agencies use a tiered system to illustrate how likely they think a country is to repay its debts. Their assessments are closely watched by financial traders.

Fitch said “repeated debt limit standoffs” prompted the decision. Back in June, US lawmakers after weeks and weeks of failed negotiations, voted to lift the cap on how much the government is able to borrow from $31.4 trillion.

Without the agreement, there was a real risk the US would have failed to make good on some of its debt, likely sparking chaos in global financial markets.

City traders seemingly absorbed Fitch’s fresh judgement poorly, ditching London listed stocks. Just three stocks on the FTSE 100 were up in early trading.

European shares also came under heavy fire. The pan-continental Stoxx 600 shed 1.35 per cent, while Germany’s Dax and France’s Cac 40 nosedived 1.46 per cent and 1.26 per cent respectively.

Wall Street’s top indexes all opened sharply lower.

Housebuilder Taylor Wimpey, whose shares climbed nearly three per cent, said in fresh results out this morning that pre-tax profit tilted 29 per cent lower to £237.7m in the first half of this year.

Revenue has been clobbered by higher interest rates knocking demand in the housing market. The Bank of England is expected to back a 14th straight rate rise tomorrow.

Among the worst performers today was online supermarket and middle class favourite Ocado, which shed 5.61 per cent, arresting a strong rally that has pushed its share price up around 50 per cent so far this year.

Lingering concerns about UK and global economic growth curbing sharply due to central banks keeping rates higher for longer is also likely to be dragging on risk sentiment. 

As a result, there is a chance that the final leg of earnings season undershoots analysts’ expectations.

Pound sterling weakened 0.46 per cent against the US dollar.

Oil prices tumbled 2.5 per cent.