FTSE loses near 1 on Moody s threat to UK s AAA credit rating

The FTSE 100 lost nearly 1% in early trading on Monday after ratings agency Moody’s warned that the UK may lose its top notch AAA credit rating should growth remain anemic and if the coalition government’s budget cuts do not succeed in meeting deficit cut targets.

The FTSE 100 is back trading around its 200-day moving average again and a close below the 5800 level could well open the UK index for a more sincere move lower.

It is the Moody’s threat to the UK’s top notch credit rating, along with Ben Bernanke’s refusal to give the market any clues as to how the Fed will combat what he sees as a loss of momentum in the labour market and a slowdown of US growth, that is keeping sentiment negative and forcing equities lower.

The Moody’s comment is also forcing the pound weaker against both the dollar and the euro this morning.

In truth, the line from the Moody’s analyst is not a headline change of direction from the credit rating agency. Investors know that if UK growth slows and deficit targets do not meet, the AAA credit rating would be under threat. The market reaction to the comments therefore reinforces the heightened sensitivity of trader sentiment.

Mr Bernanke’s admission that US growth looks to be somewhat slower than expected had been largely expected. However, what really disappointed was the Fed’s Chairman’s refrain from detailing or even hinting at typical measures the Fed may employ to combat this. Instead he merely emphasised that this may be a temporary trend. This has given the markets a rather sour tone that the Fed may not be willing to act to maintain the US economic recovery just yet, thus crushing many hopes for QE3.

Punch Taverns shares rise on higher profitsShares of pub group Punch Taverns rose over 5% in early trade after the firm announced a 7.3% increase in sales over the previous 12 weeks. The company said it remains on track to meet full-year guidance of between £119 million and 129 million and the demerger with Spirit continues full steam ahead. Shares in the firm have been on a downward spiral for the last month, losing 10% in the process and so there is certainly a degree of bargain hunting on the back of this trading update helping to push share prices higher today.