Yahoo Finance FTSE 100 Live: Bank of England warns over bond support, GDP contracts
The UK’s recession fears were fuelled today after figures showed a bigger-than-expected contraction in GDP in August.
The 0.3% decline reported by the Office for National Statistics comes as traders continue to focus on developments in the bond market, with Bank of England governor Andrew Bailey warning that emergency support would end on Friday.
Speaking in Washington last night, Bailey said there could be no further extension beyond the end of the week: “My message to the (pension) funds involved – you’ve got three days left now. You have got to get this done.”
Sterling stood at just below $1.10 this morning, having fallen by more than a cent on the back of his remarks.
FTSE 100 Live Wednesday
Gilt yields jump again on confusion over Bank of England’s intentions next week
GDP weakened by 0.3% in August
Lloyds, M&S and other UK stocks fall
Barratt Developments warns over ‘less certain’ outlook
New York stocks tick higher as rate outlook limits bounce back from sell-off
14:59 , Michael Hunter
The S&P 500 inched higher in opening trade, making up some ground after the previous session’s declines.
But the advance was limited after more strong inflation data -- an 8.5% rise in the Producer Price Index for September -- pointed to further large scale rate hikes from the Federal Reserve.
The broad New York stock index gained 8 points to 3597.0, a rise of 0.2%.
Wall Street futures cool after more strong inflation data adds to rate expectations
14:22 , Michael Hunter
New York stocks are on course for a positive start to trade, but the opening gains predicted by futures trade cooled after more strong inflation data opened the way for more aggressive rate hikes from the Federal Reserve.
The official Producer Prices index rose 8.5% in September, marginally ahead of forecasts. After five consecutive days of falls, the S&P 500 was expected to regain 6 points, up 3605.50, a gain of 0.2%. At its highest for the session before the inflation data, it reached 3,635.25.
Bank of England’s chief economist predicts ‘significant action’ on rates at next meeting
13:47 , Michael Hunter
Huw Pill, the Bank of England’s chief economist has repeated his prediction for a big UK rate hike in November.
Speaking this afternoon to the Scottish Council for Development and Industry in Glasgow, Pill, who sits on the Monetary Policy Committee, said:
“I continue to expect a significant monetary policy action at the MPC’s next scheduled meeting.”
The BoE’s base rate, which influences the cost of millions of everyday financial products from mortgages to loans and the interest paid on savings accounts, is currently at 2.25%. It has risen at the MPC’s last seven meetings. It went up by 0.50% last month, double the usual rise of 0.25%. Three members of the MPC voted then for an even bigger rise, of 0.75%.
Pill first made the prediction of significant action in the immediate aftermath of the government’s redrawn tax and spending plans, which caused and run on the pound and in the market for UK sovereign debt.
Pill also said the Energy Price Guarantee policy unveiled by Prime Minister Liz Truss -- which caps the annual energy costs of a typical UK household at £2,500 -- “shifts the main macro risks” relating to gas prices “away from higher headline inflation and a squeeze on household real incomes towards greater pressure on the fiscal deficit and ultimately the public finances more widely.”
He went on to “welcome” confirmation that the Office for Budgetary Responsibility would resume scrutiny of the government’s next set of tax and spending plans, due on October 31.
“Its independent, external scrutiny of the outlook for the public finances will bolster the credibility of the process, thereby helping to add stability in what is a volatile environment at present,” Pill said.
The pound traded back up over $1.10 in afternoon trade, up 0.9% to $1.1056.
Dollar earners help limit overall impact of slide in house builders and banks on the FTSE 100
13:06 , Michael Hunter
London’s main stock market index continued to fall in midday trade, but overall losses were limited by some of its multinational names, while more domestic stocks led the overall decline.
The FTSE 100 fell 20 points to 6865.65. a fall of 0.3%, with Barratt Developments taking up residence at the bottom of the market after it warned of a drop off in reservations for its homes. It was taken by investors as a sign that the Bank of England’s series of rate hikes was starting to bite, and shares across the sector and in UK-focused mortgage banks were lower.
Barratt lost 23p to 321p, a decline of 7%. Its peer Persimmon Homes was next on the list of biggest fallers, down 6% at 1142p, easing by 73p. Lloyds Banking Group, the owner of major mortgage provider the Halifax was third, down over 5% at 39p, a loss of 2p per share.
Gains for exporters stood out and helped support the index, with vaccine maker AstraZeneca up 150p, or 1.5%, to 9973p. Diageo, which stocks bars around the world with Johnnie Walker and Guinness, was up 43p to 3705p, a rise of over 1%.
The pound traded below $1.10 again for part of the morning after the Bank of England appeared to rule out an extension of its debt market intervention scheme that is due to end on Friday, but bounced back to $1.104, a rise of .8% for the session.
US mortgage rates hit highest level since 2006
12:17 , Simon Hunt
Interest rates on US mortgage rates have climbed to the highest level since 200 as homebuilders suffer from continued market turmoil.
Average rates on a 30-year fixed-rate mortage hit 6.81% in the week ending 7 October, according to data from the Mortgage Bankers Association.
It comes as one of the biggest UK homebuilders, Barratt Developments, reported a fall in the reservation rate of its homes as the reduced availability of mortgages starts to make an impact on the sector.
The FTSE 100 housebuilder said the net number of reservations for private sales made in an average week from July to October fell to 188 from 281 in the same period a year ago.
It said the fall reflected “wider economic uncertainty where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability.”
Truss says international problems to blame for market turmoil
12:11 , Simon Hunt
Keir Starmer has asked the Prime Minister is she agrees with Jacob Rees-Mogg’s assertions this morning that the mini-budget is not to blame for the UK’s recent financial turmoil.
Liz Truss alluded to “international” pressures affecting the market, as she responded: “What we have done is we have taken decisive action to make sure that people are not facing enrgy bills of £6,000 for two years.
“We’ve also taken decisive action to make sure we aren’t facing the highest taxes for 70 years amidst a global econmoic slowdown, and what we’re making sure is we protect our economy at this very difficult time internationally.”
She added that she remains confident these measures will lead to “higher growth and slower inflation”.
Gilt yields jump again on confusion over Bank of England’s intentions next week
11:37 , Simon Hunt
The crisis in the gilts market dramatically worsened again today as yields rose sharply amid confusion over the Bank of England’s emergency buying programme.
By late morning the yield on the 30 year gilt was up 25 basis points 5.027% the highest since the Bank’s intervention began at the end of last month.
The 20 year gilt was yielding 5.1%, up 18bps, its highest level since the global financial crisis.
The latest turmoil on trading floors followed mixed signals from the Bank of England around a potential extension to its intervention in the government debt market.
Governor Andrew Bailey said overnight that the £65 billion scheme to buy long-dated UK government bonds would end on Friday. “We will be out by the end of the week,” he said, speaking in Washington at an even run by Institute of International Finance.
Gilt purchases will end on Friday, Bank of England confirms
10:48 , Simon Hunt
The Bank of England’s bond purchases programme will end on Friday, the Bank said, amid reports earlier today thay purchasing may continue into next week if market conditions necessitated the move.
A Bank of England spokesperson said: "As the Bank has made clear from the outset, its temporary and targeted purchases of gilts will end on 14 October.
"The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels. Beyond 14 October, a number of facilities, including the new TECRF, are in place to ease liquidity pressures on LDIs."
Banks under pressure, M&S down 3%
10:14 , Graeme Evans
Lloyds Banking Group, Marks & Spencer and other popular UK-focused stocks have fallen sharply amid the darkening outlook.
Lloyds, which owns mortgage lender Halifax and is seen as a bellwether for the UK economy, traded below the 40p threshold for the first time since March as its shares tumbled another 4% or 1.7p.
Having been 49p prior to Kwasi Kwarteng’s mini budget, the summer of progress for the widely-held stock has been undone in spectacular fashion by mortgage market turmoil and fears of a hard landing for the property sector.
Today’s weaker-than-expected GDP print added to jitters across the banking industry as state-backed NatWest slipped 4% or 8.5p to 213.1p and Barclays fell 6.9p to 133.3p.
Declines of more than 5% for housebuilders Barratt Developments and Persimmon completed a UK-focused fallers board, while there was further pain for Ocado as the grocery technology stock set a new multi-year low at below 400p.
Support from defensive plays such as drugs giant AstraZeneca and outsourcing firm Bunzl ensured the internationally-focused FTSE 100 clung to its opening mark during a sixth session in a row of pressure for European markets.
The top flight improved 5.01 points to 6890.24, whereas the UK-focused FTSE 250 index took another hammering with a fall of 1.4% or 231.63 points to 16,672.43.
Today’s slide of 3p for Marks & Spencer means the retailer has fallen 60% this year to levels last seen during the early days of the Covid outbreak, at 95.18p. Other second-tier casualties included pubs chain Mitchells & Butlers, which shed another 4.5p to 104.9p.
The biggest fall in the FTSE 250 index was by speciality chemicals firm Synthomer after it suspended dividend payments until the end of 2023, including one due next month. The move, which follows a recent profits warning, sent shares down another 10.25p to 86.15p.
On AIM, equipment retailer Angling Direct fell 4p to 28p after it reduced full-year expectations due to volatile trading conditions. Having been hit by poor fishing conditions during August’s heatwave, it said weekly sales in September had fluctuated between a 21% increase and 0.5% decrease.
Capital One unveils cost of living support to help staff struggling under soaring inflation
09:41 , Simon Hunt
Capital One has become the latest employer to issue a cost of living payment to its staff in a bid to ease budgeting pressures faced by its lowest-paid workers.
The firm is giving up to £1,500 in one-off payments for employees earning less than £30,000, with the level of support dropping to £750 for those whose salaries were nearest the £30k limit.
Larger employers up and down the country have raised wages or issued one-off payments to help staff tackle soaring inflation. Yesterday, commuter favourite Pret said it was spending £10 million to hike employee pay by 5%, while last month, supermarket giant Sainsbury’s unveiled a £25 million support package for staff.
Capital One boss Lucy Hagues said: “Rising costs affect everyone, including our staff, and of course those who earn less see more of their income taken up with the price of everyday essentials, like energy and food.
“We are providing this one-off payment…because it is the right thing to do."
Capital One wouldn’t say how many employees were eligible for the payments and how much the scheme would cost.
Chart: Monthly GDP back down to February 2020 levels
08:42 , Simon Hunt
The UK’s GDP is back down to February 2020 levels, according to the latest estimates from the ONS.
The economy shrank by 0.3%, in August, a sharper drop than expected, raising new fears of an imminent recession.
FTSE 100 opens down, Barratt falls 5% after update
08:06 , Graeme Evans
The FTSE 100 opened 0.1% lower and the domestic-focused FTSE 250 lost 0.5% as investors digested worse than expected GDP numbers.
Home builder Barratt Developments was the biggest loser after its trading update, with shares down 5%. Grocery technology stock Ocado shares also slipped 3%.
In the FTSE 250, chemicals company Synthomer lost another 6% after it said growth would be in the mid single-digit percentages.
Barratt Developments points to ‘less certain’ outlook as mortgage availability stalls
08:01 , Michael Hunter
Barratt Developmentshas reported a fall in the reservation rate of its homes as the reduced availability of mortgages starts to make an impact on the sector.
The FTSE 100 housebuilder said the net number of reservations for private sales made in an average week from July to October fell to 188 from 281 in the same period a year ago.
It said the fall reflected “wider economic uncertainty where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability.”
David Thomas, Chief Executive added: “We continue to see strong levels of interest across the country, however private reservations remain below the level seen in FY22 as customers react to the wider economic uncertainty.
“Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax for the year in line with current consensus.”
Poundland revenues climb as retailer responds to cost of living crisis
07:46 , Mark Banham
Poundland owner Pepco Group has benefitted from the cost of living crisis with an uptick in revenues across the business it said in a trading update released this morning but that the outlook across the UK remains “challenging”.
Like-for-like revenues at Poundland, the discount retailer that sells everyday products including FMCG brands to clothing for value hunting customers, were up 2.6% in the year to the end of December to €2.11 billion (£1.87 billion) while group Pepco revenues spiked by 5.2% to €4.82 billion.
New store growth was up 7.1% as a result of the business reacting to a change in consumer shopping habits to 1,051 boosted by 70 new openings during the period while openings across the Polish-owned Pepco Group that includes Irish discounter Dealz jumped by 15% to 3,961 with an additional 516 outlets added.
Trevor Masters, CEO of Pepco Group, said: “These are very challenging times for families across Europe and we remain absolutely committed to helping customers on a budget by offering great range, value and convenience – and we are confident this will enable us to expand our customer base going forward.”
The retail group added: “The outlook across the UK remains challenging as constraints on consumers’ disposable income continue. That said, our value-led proposition becomes even more relevant in these challenging times and continues to drive new customers to our stores, expanding our target market, across Europe.”
Inflation focus keeps FTSE 100 under pressure
07:46 , Graeme Evans
Inflation developments in the US will test stock markets later, with the release of producer price index (PPI) figures for September.
A year-on-year figure of around 8.4% is expected, which if delivered would represent an improvement on the previous month’s 8.7%.
The PPI release comes a day before the monthly US inflation print, which is forecast to show the CPI rate dropped to around 8.1% in September.
Traders fear a hard landing for the US economy if core inflation remains high and the Federal Reserve is forced into further significant interest rate rises.
The S&P 500 yesterday touched its lowest level of the year before recovering to finish slightly lower. European benchmarks are also on a run of five sessions in the red, with CMC Markets forecasting that the FTSE 100 index will open six points lower at 6,879.
Darktrace sales surge as customers ramp up cyber protections
07:40 , Simon Hunt
Cybersecurity business Darktrace saw a surge in first-quarter sales as businesses tighten their security policies amid continued cyber threats.
The company posted sales of $126 million (£115 million) in the quarter to September, a 37% increase on the previous year, while its customer base grew 29% to 7,757 customers.
Darktrace reconfirmed its guidance for the forthcoming year but warned currency fluctuations could impact its earnings.
It comes after US tech investment business Thoma Bravo abandoned plans to buy the firm in September after previously expressing interest in taking it private.
UK economy shrank 0.3% August raising new fears of imminent recession
07:17 , Simon Hunt
The economy shrank by 0.3% in August raising new fears of an imminent recession.
GDP fell more sharply than expected during the month, figures from the Office for National Statistics (ONS) showed.
Most analysts had been expecting output to remain flat in August. It means that the economy is likely to have shrunk during the third quarter as a whole as September’s output will have been depressed by the extra Bank Holiday for the Queen’s funeral.
The latest fall comes after growth of just 0.1 per cent in July. This was revised down from an initial estimate of 0.2 per cent.
Jeremy Batstone-Carr, European Strategist at Raymond James, said: “The question on every policymakers’ mind is how best to stimulate economic growth without pushing inflation even further out of reach. The Treasury’s answer, to cut taxes by borrowing billions, may have been well meant, but by publicly undermining the Bank of England’s monetary policy plans, have invited criticism from both the IMF and the Bank itself.
“As it stands, the two arbiters of UK economic policy look more like a couple of bickering parents than a cohesive unit, leaving the markets, and the rest of the country, betting their financial futures on which one of them will win the argument.”
