Market update - 24 October

The FTSE 100 fell to 3788.16, down more than 7 per cent or 299.09 points, and the FTSE 250 was down 446.06 points at 5682.59 at 12.05 pm. Investors were spooked by official data confirming that the UK economy contracted by 0.5 per cent between July and September, its worst performance since the early nineties.

Reacting to the news, George Buckley, chief UK economist at Deutsche Bank, said: “The Office for National Statistics confirmed what we already suspected today – that the economy contracted in the third quarter for the first time in sixteen years. What we did not know was the size of that fall – some 0.5 per cent off GDP, with the surveys (such as the PMI’s [a monthly gauge of economic activity] and this week’s quarterly CBI report) suggesting it could be even worse in the final quarter of the year.”

“This is the largest quarterly decline in GDP since the end of 1990, raising the possibility that our forecast for total loss of output from peak to trough of 2.3 per cent (similar to the scale of the last recession of the early 1990s) proves too conservative. The consensus expectation for today’s GDP number was – 0.2 per cent, with the reported contraction being in line with the lowest of all economist forecasts.”

“Moreover, the fall in real GDP today proved to be across the board – only government spending and agriculture output did not contract in the third quarter. Industrial and manufacturing production, construction output, distribution, hotels and catering, transport, storage and communication and business services and finance (the latter unsurprisingly) all contracted in the third quarter. And none of those falls were small – they ranged from a 0.4 per cent contraction in business services and finance (a far cry from the 1.4 per cent average quarterly growth rate recorded in this sector during 2007) to a 1.7 per cent quarter-on-quarter fall in distribution, hotels and catering.”

Finance and mining issues were among the hardest hit this morning. HBOS was down almost 20 per cent or 14.2p at 58.6p while the Eurasian Natural Resources tracked lower metals prices, falling to 333.75p, down 15.18 per cent or 59.75p. The Royal Bank of Scotland was down more than 8 per cent or 5.4p at 61.6p – well below the 65.5p per share price at which it is offering new shares in its £15bn capital raising.

Moving up

There was little activity on the upside, with no stocks in the black on the FTSE 100.

Moving down

HSBC lost more than 13 per cent or 106p at 699p after Morgan Stanley reduced its target price for the stock to 580p from 630p, saying: “We question how long the shares can tread water in the face of falling earnings and increased pressure on capital and we think the dividend is exposed (we cut our forecast by 50 per cent [for] 2009).”

Morgan Stanley also sullied sentiment around Standard Chartered, which was down 13.56 per cent or 122p at 778p after the broker reduced its earnings estimates and cut its target price for the stock to 1060p from 1520p.

The broker said: “Our economists are increasingly negative on emerging market growth and our Asian banks team is negative, reflecting reduced revenues as the economy slows, falling wealth management revenues and deteriorating asset quality.”