Why did the FTSE 100 tumble today?

London’s FTSE 100 faced a challenging day as industrial firms led a downward trend, prompted by concerns over China’s economic recovery losing momentum.

The blue-chip index closed with a notable drop of 1.03%, settling at 7,442.11 points. Additionally, the domestically-focused mid-cap FTSE 250 index fell by 0.76%, ending at 18,393.33 points.

The latest figures from Caixin unveiled a decline in Chinese services sector activity, dropping to 53.9 in June from 57.1 in May. This reading, the lowest since January when Covid-19 cases surged after easing restrictions, further strengthened the signs indicated by the manufacturing purchasing managers’ index earlier this week. These indicators collectively suggest a downward trajectory, signalling that China’s recovery from prolonged lockdown measures is reaching its limits.

Susannah Streeter, the head of money and markets at Hargreaves Lansdown, expressed her concerns, stating, “There are fresh concerns about the global economy powering down as data from China’s service sector underlines how tepid the post-pandemic recovery has become.”

The fear of China becoming a less lucrative revenue source triggered a decline in the share prices of FTSE 100 mining companies. Anglo American experienced a significant drop of 2.72%, while Antofagasta lost 2.16%. Fresnillo also experienced a decline.

Given that industrial firms hold significant weight within the FTSE 100, any fluctuations in their share prices heavily impact the overall direction of the premier index.

Furthermore, FTSE 100-listed housebuilders faced challenges as mortgage rates increased. Data from Moneyfacts revealed that the rate for a 5-year fixed mortgage surpassed 6% for the first time this year.

Financial institutions have been passing on the rising rates in financial markets, with traders speculating that the Bank of England will implement interest rate hikes beyond 6% to curb persistent inflationary pressures.

Surprisingly, the pound sterling weakened slightly against the US dollar, which is atypical in a country where borrowing costs are on the rise. The pound has shown significant strength against the greenback throughout this year.