- FTSE 100 up 15 points at 7,273
- UK borrows less-than-expected in July
- CRH in demand ahead of results
4:40pm: FTSE 100 ends off the day’s highs
The FTSE 100 finished Tuesday on the front foot, up 13 points or 0.18% at 7,270.
4:05pm: Annuities back in fashion as rates jump
Annuities are back in vogue after rising interest rates made the retirement product more appealing.
Canada Life said that sales of its annuities, an insurance product that pays a set income in exchange for a lump sum upfront, had doubled in the first six months of the year.
Customers had spent £441 million on annuities between January and July, the insurer said, compared with £220 million in the same period last year.
“We’ve experienced an extraordinary comeback for individual annuities, driven by the significant increase in value offered from the returns available, combined with customers seeking income security in times of economic uncertainty,” Lindsey Rix-Broom, chief executive of Canada Life UK, said.
Improved rates mean that more customers are opting for the security of a guaranteed income.
Canada Life said its customers had spent £100 million on annuities in May, the highest sales figure since 2015.
In January 2022 the average annuity rate quoted for a 65-year-old purchasing an annuity that would pay them a fixed income for life was 5.22%, according to Retirement Line, an annuities broker. The average rate on offer now is 7.47%.
3.55pm: Higher rates putting pressure on firms
Higher interest rates are putting pressure on indebted corporates through higher debt servicing costs, according to the Bank of England.
The Bank warned that such pressure increases the likelihood of defaults on corporates’ debt and may lead some firms to reduce investment and employment sharply.
"Defaults can increase risks to financial stability directly through reducing lender resilience, while sharp reductions in investment and employment can indirectly affect financial stability by amplifying macroeconomic downturns," the report said.
One measure of a company’s debt-servicing ability is through their interest coverage ratio (ICR), calculated by dividing a companies’ earnings before tax and interest by their interest expense. Companies with low ICRs are more likely to experience difficulties in making their debt payments, the Bank said.
But the Bank said it would take a further upward shock to borrowing costs of over 200 basis points and 800 basis points respectively - on top of the increases already expected - to reach global financial crisis and Dotcom shares of low ICR firms.
3.13pm: Government pays BoE record amount to cover bond losses
The Government transferred a record £14.3 billion to the Bank of England last month as increases in interest rates left the Treasury with heavy losses from quantitative easing (QE).
The record transfer was needed to meet the shortfall from the monetary stimulus programme put in place after the global financial crisis.
Losses on the Bank of England’s quantitative easing measures have cost the taxpayer almost £30 billion in the past 11 months, according to the Office for National Statistics, while July's figure is £5.4 billion more than forecast by the Office for Budget Responsibility in March.
The figures dashed hopes of tax cuts in next year’s Budget, which were raised by separate data showing public sector borrowing was below forecast in July.
The BoE began using QE in response to the global financial crisis, amassing bond holdings of £895 billion between 2009 and 2022 in order to boost the economy when interest rates were already at record lows.
It is a controversial tool which saved the Government around £120 billion during that period but those early profits have turned into losses as interest rates have risen sharply.
The Bank of England’s own projections show the taxpayer will need to transfer about £220bn to the Bank in the seven years to 2030 alone.
The BoE is indemnified against losses on the QE programme under an agreement signed with the Treasury in 2009, intended to ensure that monetary policy is not constrained by the implications for the central bank’s balance sheet.
2.50pm: US markets in the green
The Nasdaq and S&P opened higher, extending Monday's gains, but it was a bad start for two well-known retail names.
Shortly after the opening bell, the Dow Jones Industrial Average was up 21.63 points, 0.1%, at 34,485.32, the S&P 500 was up 12.05 points, 0.3%, at 4,411.82 and the Nasdaq Composite was up 61.53 points, 0.5%, at 13,559.12.
The renewed enthusiam for tech stocks was in part fuelled by increased appetitie as Softbank's semiconductor unit Arm filed for what is set to be this year’s largest US initial public offering.
Susannah Streeter at Hargreaves Lansdown said: "The obsession with all things AI is still super-strong and the semi-conductor designer (ARM) will be using AI as its calling card to entice investors as it heads towards the launch."
In company news, shares in Dick’s Sporting Goods plummeted 24% after it cut its profit outlook for the year as the athletic goods retailer deals with a rise in thefts.
Chief executive Lauren Hobard said quarterly “profitability was short of our expectations due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers”
2.10pm: Jefferies sees BAT shares firing higher
Jefferies reckons British American Tobacco PLC (LSE:BATS) shares are worth 4,000p, around 57% higher than today's 2,538p mark.
It accepts BAT's first half delivery did not do much to address underlying fundamental market concerns, while it's now looking like perhaps the first half of 2024 until meaningful improvement is seen in key areas.
"That said, delivery aside, near-term catalysts (or lack thereof) should still be in its favour, and specifically a likely vape PMTA approval, which - given a valuation disconnect - could drive sizeable multiple gains," the broker said.
BAT is just too cheap, it thinks, pointing out the firm trades at ex-US a 70% discount to Philip Morris and even 30% below Imperial Brands.
Second, near-term catalysts are in BAT's favour with the biggest is a premarket tobacco product application vape approval in the US, "the absence of which we think is the main driver of BAT's valuation disconnect."
Add to this, BAT's implied reduced-risk products valuation is 90% below Philip Morris which in Jefferies "does not make sense."
The broker has a buy rating on BAT with the 4,000p price target down from 4,100p before.
1.36pm: Here’s a quick look at the top risers on the junior market today
Shares in Plexus Holdings PLC (AIM:POS) soared by 41% after the AIM-listed oil and gas engineering company announced a significant increase in the value of a major contract.
Rua Life Sciences saw its shares jump 27% on the back of an upbeat trading update contained in the company’s address to shareholders attending its annual meeting later Tuesday.
Haydale Graphene Inds PLC (LSE:HAYD, OTC:HDGHF) got a leg up as it signed a collaboration deal with Malaysian state oil and gas group Petronas to accelerate the commercialisation of graphene-based formulations.
Shares rose 0.03p or 2.5% to 1.05p, though afternoon trades sent them back down to a flat 1p.
1.02pm: RTOP confirms listing plans, all set for Friday
London's main market is to welcome another minnow listing at the end of the week, with Italy-based regulation fintech RegTech Open Project PLC confirming reports it is set for a direct listing.
Also known as an introduction, a direct listing means the company will float without raising any new cash and that no underwriting banks are involved.
RTOP, which will have a £60 million debut valuation when it arrives on Friday, specialises in regulatory technology and compliance, with a cloud-based platform that helps its financial services companies and banks keep track of their compliance with regulations and standards.
12:31pm: Manufacturing output falls at fastest rate since 2020
The latest CBI Industrial Trends Survey found that manufacturing output volumes fell in the three months to August, at the fastest rate since September 2020.
However, firms expect output to be broadly stable in the next three months.
But there was better news on inflation with expectations for selling price inflation over the next three months at their softest since February 2021, having eased for eight consecutive months.
The latest CBI Industrial Trends Survey found that manufacturing output volumes fell in the three months to August, at the fastest rate since September 2020. Firms expect output to be broadly stable in the next three months #ITS pic.twitter.com/qJa4liiLBf
— CBI Economics (@CBI_Economics) August 22, 2023
Total and export order books were reported as below “normal” in August, but to a similar extent to their (respective) long-run averages.
Gabriella Dickens at Pantheon Macroeconomics said the “renewed decline in the CBI survey adds to the evidence that the manufacturing sector is not out of the woods yet.”
However, she felt the news on selling price inflation provided “some reassurance on the pace of price rises.”
“This adds to our conviction that the rate of increase in the core goods CPI will slow sharply in the second half of this year,” she said.
12:02pm: Nasdaq expected to lead Wall Street higher
Wall Street looks set for to open higher on Tuesday with tech stocks leading the charge building on Monday’s gains.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 rose 0.4%, and contracts for the Nasdaq 100 futures were up 0.6%.
The Nasdaq Composite posted its biggest advance of the month during Monday’s main trading session, rising 1.6%, led by Nvidia’s 8.5% gain.
The chip maker reports results on Wednesday and it looks as though investors are betting on another blow away quarter.
Sentiment around semiconductor stocks was also boosted by the release of British chip designer Arm’s Nasdaq listing prospectus, starting the countdown to the biggest US initial public offering in almost two years.
Elsehwere, attention will switch to events at Jackson Hole, where the Federal Reserve chair Jerome Powell will speak Friday.
Joshua Mahoney at Scope Markets explains: “The Federal Reserve starts to take on a more prominent role today, with comments from Barkin, Goolsbee, and Bowman laying the groundwork for Powell’s Jackson Hole appearance.”
11:30am: Bloomberg brings in Mark Carney to head board
Bloomberg has appointed former Bank of England governor Mark Carney to head up a new board of directors as part of a management overhaul at the media and market data firm.
In an email to staff, Michael Bloomberg, the firm's 81-year-old founder and former New York City mayor, also announced that form chief product officer Vlad Kliatchko was being promoted to chief executive.
???? Mark Carney has been hired by billionaire former New York Mayor Michael Bloomberg to chair his financial data and media empire https://t.co/YHw8QKpDBE
— The Telegraph (@Telegraph) August 21, 2023
Despite mounting speculation over succession plans at Bloomberg, Bloomberg told employees he was "not going anywhere".
The management reshuffle sees JP Zammitt, who had been chief operating officer, become president of Bloomberg LP, while Patti Roskill has been appointed as the group's chief financial officer.
Carney, who has teamed up with Bloomberg previously on climate projects, will chair a new board of directors alongside his role as chair of Canadian investment firm Brookfield Asset Management (TSX:BAM.A) (Brookfield Asset Management (TSX:BAM.A)).
Carney was governor of the Bank of England for nearly seven years, from July 2013 to March 2020.
11:11am: Mortgages taking up a bigger chunk of wages
A steep surge in interest rates has made it harder to buy a home, despite wages growing much faster than house prices over the past year, figures from mortgage lender Halifax showed.
Halifax, part of Lloyds Banking Group PLC (LSE:LLOY), said the cost of a typical 25-year mortgage, with a fixed interest rate for the first five years and a 25% deposit, now amounted to 35% of a single average full-time salary, up from 30% a year ago, and 23% before the pandemic.
"Typical monthly mortgage payments are up by around a fifth, which is a big jump at any time, but particularly during a wider cost of living squeeze," Kim Kinnaird, mortgages director at Halifax, said.
Mortgage rates have surged significantly over the past year as the Bank of England battles to bring inflation down to its 2% remit while rising prices have put a hole in consumer finances.
The report comes as data from Rightmove shows the average 5-year fixed mortgage rate is now 5.79%, up from 3.89% a year ago, although down from 5.86% last week.
The average 2-year fixed mortgage rate is now 6.40%, up from 3.77% a year ago, down from 6.46% last week.
Rightmove’s mortgage expert Matt Smith said: "The positive direction for rates continues this week albeit a little more slowly, with five-year rates edging down slightly more than two-year equivalent products."
10:39am: CRH in demand ahead of results; JPMorgan, Stifel positive
The FTSE 100 is sitting pretty, up 45 points now, at 7,303, with miners supporting the gains but can it hold its gains after yesterday's retreat after a similarly positive start.
Sitting near the top of the risers is building materials giant, CRH PLC (LSE:CRH), which will soon be moving its main listing to the US.
The firm reports first half results this Thursday and has been pushed by a couple of banks ahead of the figures, with shares up 1.7%.
JP Morgan has placed the stock on positive catalyst watch going into the results.
It expects first half Ebitda of $2.43bn, 2% above its previous forecasts and 3% ahead of Bloomberg consensus.
"We see earnings upside for CRH in light of the good set of results reported by peers and note the shares have underperformed the peers in the last month," it said.
JPM thinks the set up is one of ‘beat and raise’ and sees scope for the company to quantify full-year 2023 Ebitda guidance to c.$6bn - although the investment bank expects the firm to beat this and forecasts Ebitda of $6.169 billion, 5% ahead of Bloomberg consensus.
As a result, JPM has increased its December 2024 price target to €57 from €54, and reiterated an 'overweight rating."
"Whilst there may be some disruption from September index outflows, we would use any weakness as a buying opportunity as we believe that CRH’s outlook remains strong with the US infrastructure end-market underpinned by the IIJA bill," the bank said.
Analysts at Stifel are similarly positive. "We would expect a good beat and a guidance ahead of expectations."
"Higher US bond yields have started to impact its share price and could together with the relisting flowback act as a break on the shares near term after the results," it suggested.
"That said, once the relisting is out of the way the significant valuation differential with its US peers should continue to drive the shares with a further re-rating into the first half of 2024."
"The value on offer is simply too good to ignore for US investors," Stifel analysts said.
9:51am: John Wood rises after lifting guidance
A better reception for numbers from John Wood with shares up 3.9% at 153.80p.
Russ Mould at AJ Bell said: ““After a bid from private equity firm Apollo collapsed earlier this year Wood Group has been under pressure to deliver, and these results go some way towards doing that as it pulls the rabbit of slightly improved full year guidance out of its hat.”
“The energy services firm has endured a difficult few years after the 2017 acquisition of Amec Foster Wheeler brought with it a whole deal of problems which the company is still addressing.”
“The main driver of the better first half performance was tight control of costs, no mean feat given how volatile the backdrop has been.”
Mould explains Wood Group, which is a big provider of services to North Sea oil and gas firms, has a longer-term challenge of adapting to the energy transition.
But: “Get it right and there could be big opportunities for the company to help its client base through this process, but it needs to put its legacy problems behind it first.”
Broker Peel Hunt noted guidance for Ebitda of $420 million was better than its $400 million and the consensus mean of $407 million.
“Given recent stock weakness, we believe this should be taken positively, and start the process of closing the rating gap with peer Worley in particular,” it said.
“Divisionally Consulting and Projects were slightly better than we expected, and Operations and Investment Services slightly behind, with the main outperformance from lower central costs,” Peel Hunt added.
9:18am: BHP capex higher-than-expected, numbers in line
The City is giving its verdict on the results and so far BHP is in the red, albeit marginally, with shares off 0.8%.
Barclays said the results were broadly in line with Ebitda as expected, EPS 3% lower than expected and the dividend 1% below forecast.
It said the main negative surprise is capex guidance above expectations at $10 billion for the next two years and $11 billion in the medium term which is likely to lead to market free cash flow downgrades.
The broker pointed out this is above prior guidance of $9 billion in 2024 and $10 billion in the medium term.
Barclays said Ebitda of $37.4 billion was 1% light of its estimate reflecting higher-than-expected iron ore freight costs and greater negative group & unallocated expenses.
It has a neutral rating on the stock.
Susannah Streeter at Hargreaves Lansdown noted BHP is "keeping a super-close eye on policy measures to help China’s fragile new home sector which is the weak spot in terms of demand for raw materials."
But "other sectors have held up better, such as infrastructure and car manufacturing which have helped keep commodity demand relatively robust."
"India appears to be the only country with reliable buoyant growth, as Western economies struggle with the lag effect of higher interest rates, an outlook which has prompted a fall in BHP’s share price today," she suggested.
8:57am: Borrowing numbers better than expected but hopes for tax cuts dashed
A bit more now on those borrowing numbers which increased less than expected in July helped by higher tax revenues raising expectations of a pre-election tax cut splurge by the Chancellor.
Figures from the Office for National Statistics said public sector net borrowing, excluding public sector banks, reached £4.3 billion in July, £3.4 billion more than July 2022, but £1.7 billion below the Office for Budget Responsibility's forecast, and the City consensus of £5.0 billion.
Public sector net borrowing (excluding public sector banks) was £4.3 billion in July 2023, £3.4 less than in July last year.
It was the fifth-highest July borrowing since monthly records began in 1993.
— Office for National Statistics (ONS) (@ONS) August 22, 2023
"Borrowing in July 2023 was the fifth highest in any July on record but is £1.7 billion less than the £6.0 billion forecast by the [Office for Budgetary Responsibility]," the ONS commented.
Self-assessed income tax receipts in July 2023 were £11.8 billion, £2.5 billion more than in July 2022.
Chancellor Jeremy Hunt and Hunt and Prime Minister Rishi Sunak have come under pressure from certain quarters to cut taxes ahead of next year's expected election which opinion polls suggest they will lose.
But economists poured cold water over such hopes.
Ruth Gregory at Capital Economics said while the figures were "better-than-expected," with "interest rates still rising and a mild recession on its way, we continue to think the Chancellor will struggle to unveil a large package of permanent tax cuts in the Autumn Statement while still adhering to his fiscal rules."
Samuel Tombs at Pantheon Macroeconomics agreed. "We still doubt, however, that the Chancellor will have enough wiggle room to meaningfully cut taxes or increase expenditure in the run up to the next General Election, which must be held by January 2025."
"The Chancellor could increase borrowing in the near-term and pencil in unspecified spending cuts further down the line to ensure his fiscal rules still were being met."
"But the turmoil last October suggests markets likely will be less willing to tolerate plans that aren’t credible, particularly given the current economic backdrop of high CPI inflation," he added.
Martin Beck thinks "given the significant increase in government borrowing costs in recent months, the medium-term outlook for borrowing still looks less healthy than the OBR expects," he said.
He said "the true medium-term path for fiscal policy is unlikely to emerge until the first post-election budget."
8:15am: FTSE 100 jumps lifted by better borrowing numbers
The FTSE 100 made a steady start to trading lifted by better news on government borrowing and gains in the US and Asia.
At 8.15am, London’s lead index was up 18.19 points, 0.3%, at 7,276.01 while the FTSE 250 jumped 100.48 points, 0.6%, to 17,999.47.
The public sector net borrowing (excluding banking groups) total of £4.3 billion was £1.7 billion below the OBR’s forecast, and the City consensus of £5.0 billion.
However, it was still £3.4 billion larger than a year ago and the fifth biggest July deficit since records began in 1993.
Could it be enough for a pre-election tax cut splurge? Ruth Gregory at Capital Economics thinks not.
“July’s public finances figures continued the recent run of better-than-expected news on the fiscal position,” she said.
“But with interest rates still rising and a mild recession on its way, we continue to think the Chancellor will struggle to unveil a large package of permanent tax cuts in the Autumn Statement while still adhering to his fiscal rules.”
In company news, John Wood Group has jumped 3.6% in early exchanges after raising guidance for the full-year alongside interim results.
The engineering and consultancy firm now expects Ebitda for 2023 of $420 million which broker Peel Hunt points out is above the $407 million consensus.
The broker said the interim revenue and Ebitda were were better-than-expected.
“Divisionally Consulting and Projects were slightly better than we expected, and Operations and Investment Services slightly behind, with the main outperformance from lower central costs,” it added.
But BHP Group Limited edged lower after it reported a fall in earnings and profits as well as cutting the dividend.
Barclays said full-year results were in line although the dividend was “a touch light” of market expectations.
The broker said the main negative surprise is capex guidance above expectations at $10 billion for the next two years which and $11 billion in the medium term, which is likely to lead to market free cash flow downgrades.
7:50am: BHP chops dividend as earnings fall
Not such a great looking set of results from BHP Group Ltd (LSE:BHP, ASX:BHP) but we'll see what the City makes of them in a few minutes.
In the financial year to June 30, the Melbourne-based diversified miner said revenue fell 17% to $53.82 billion from $65.10 billion the year before reflecting "significantly" lower prices across iron ore, metallurgical coal, and copper.
In iron ore and copper - BHP's two largest segments - prices fell 18% and 12% respectively from the prior year.
Attributable profit from total operations slumped 58% to $12.9 billion from $30.9 billion although last year's figure was inflated by a one-off gain $7.1 billion related to the merger of BHP's Petroleum business with Woodside.
It's also hacked the dividend, down to 170 cents, down from 325 cents the year prior.
7:29am: John Wood raises guidance, strong order book
Some earnings to kick off Tuesday and we also have government borrowing figures to assess.
First though, John Wood Group, the subject of a will they, won't they bid saga with Apollo Global Management (NYSE:APO) has reported results.
After a number of unofficial approaches Apollo walked away leaving John Wood as an independent company and the firm has responded well raising guidance in a decent set of numbers.
The engineering and consultancy group said revenue in the six months ended June 30 rose 16% to $2.99 billion, from $2.57 billion the year before ahead of expectations laid out in July’s trading update.
Adjusted Ebitda climbed 8.5% to $202 million from $186 million but the firm reported a statutory loss for the period of $27 million compared to a profit of $89 million last time, due to lower profit from discontinued operations and a number of exceptional items.
Wood saw double-digit revenue and pipeline growth across the majority of its key markets with excellent growth across carbon capture and hydrogen, while the order book at $6 billion, is 5% higher than December 2022.
The firm now expects revenue for 2023 to be around $6 billion with an adjusted Ebitda margin around 7%, meaning adjusted Ebitda is expected to be ahead of previous expectations and within its medium-term target of mid to high single digit growth.
7:00am: Steady progress seen in London
The FTSE 100 is set to make steady progress when trading begins on Tuesday following gains in the US and Asia.
Spread betting companies are calling London’s lead index up by around 6 points after closing down 4.61 points at 7,257.82 on Monday.
On Wall Street, Nvidia was the star of the show, jumping 8.5% ahead of results on Wednesday driving the S&P 500 and Nasdaq higher, up 0.7% and 1.6% respectively.. The Dow’s progress was more modest, up 0.1%.
In Asia, the Nikkei 225 index was up 0.9%, in China, the Shanghai Composite was down 0.3%, while the Hang Seng index in Hong Kong was up 0.2%.
Back in London, and the early focus will be results from engineering firm John Wood and car dealership chain Lookers and government borrowing figures.