- FTSE 100 closes up 31 points at 7,528
- Wage growth remains inflated, food price inflation eases
- Smurfit Kappa tumbles after confirming WestRock merger
4:40pm: FTSE 100 closes higher with AB Foods leading the way
The FTSE 100 held onto gains at the close boosted by gains in telecoms and banks, while Primark owner, AB Foods also enjoyed a strong day,
At the close, London's lead index was up 30.66 points, 0.4%, at 7,527.53 while the FTSE 250 rose 19.86 points, 0.1%, at 18,542.30.
AB Foods rose 5.3% after it raised guidance for the second time in four months, boosted by a strong performance in its food division.
Analysts at Barclays said although Primark's Ebit margin will be lower than expected at 8% in the 2023 financial year due to German restructuring costs, the 2024 margin outlook is more positive on lower (fabric) costs and FX.
"Coupled with a strong showing in grocery and sizeable sugar upgrades for 2024, we upgrade our 2024 Ebit estimates by 7% and raise our target price to to 2400p," the broker said.
Earilier, the FTSE 100-listed firm said it now expects full-year operating profit to be “moderately ahead” of last year.
Elsewhere, telecom firms Vodafone and BT were prominent risers alongside banks, Barclays, HSBC and Lloyds Banking Group.
Food retailers Tesco and Sainsbury also advanced as data from Kantar showed they were picking up market share from discounters, Aldi and Lidl.
But, heading the other way were shares in Smurfit Kappa after the terms of its merger with WestRock were confirmed 0 shares fell nearly 10%.
3:50pm: GB news backer could bid for Telegraph - report
Another hat has been thrown into the ring to buy the Telegraph, according to reports, with GB backer and hedge fund tycoon Paul Marshall said to have hired bankers to look the business over.
Telegraph Media, which owns the Spectator as well as the Daily and Sunday versions, is currently owned by Lloyds Bank, which took control after owners, the Barclay family, defaulted on a loan in June.
Lloyds vowed to put the business up for sale as soon as possible with a number of names already said to be interesting including Mail owner Lord Rothermere and former Mirror boss David Montgomery.
Sky News said bank Moelis has been hired to advise Marshall ahead of the newspaper's auction later this year.
3:10pm: BofA highlights value of Relx's Risk business
Taking a look at some broker research now, and Bank of America remains a fan of fan of Relx PLC highlighting the potential for its Risk division.
The broker explained the unit accounts for 34% of group sales and 40% of the forecast profit growth over the next four years.
BofA sees a long-term growth story with headroom to more than double sales, supporting 7-8% revenue compound annual revenue growth over more than 15 years and thinks it could be worth £30 billion.
In a note, BofA said if it were a separate company, Relx’s risk division would the 3rd largest in its coverage and the 5th fastest growing.
It sees growth being driven by increasing digital transactions and cyber fraud, potentially accelerated by generative AI plus rising data usage in insurance aided by telematics and the connected car.
BofA reiterated a buy rating and increased its price target by 4% to 3,200p from 3,080p.
Shares in Relx are up 0.7% at 2,730p.
2:45pm: US stocks lower as trading starts
As expected it's been a slow start over in the US as investors look ahead to key economic updates later this week, and as Apple prepared for its annual fall event, this year called "Wonderlust."
Shortly after the opening bell, the Dow Jones Industrial Average was down 25.23 points, 0.1%, at 34,638.49, the S&P 500 was down 9.84 points, 0.2%, at 4,477.62 and the Nasdaq Composite eased 44.35 points, 0.3%, to 13,873.54.
In the only economic data point of note, the NFIB Small Business Index nudged lower to 91.3, down 0.6 points and slightly below the Dow Jones estimate of 91.5.
Investors are looking ahead to the consumer prices index figures on Wednesday which will provide food for thought for the data dependent US central bank.
The data will be followed the next day by August producer prices and retail sales numbers, data that may impact the Federal Reserve's thinking ahead of its policy deliberations next week and at its next meeting in November.
"[G]iven persistent pressures on service prices, the resurgence of oil prices, and the diminishing impact of favorable base effects, it appears unlikely that headline inflation will return to the desired 2% target any time soon. Hence, the path ahead remains challenging, and the Federal Reserve still faces a lengthy journey in its efforts to stabilize the economy," SPI Asset Management said.
2:15pm: Mortgage arrears to rise further, says Capital
Andrew Wishart, senior property economist at Capital Economics thinks mortgage arrears will increase further as the rise in mortgage rates fully takes effect.
Capital noted the second quarter mortgage lenders and administrators statistics from the Bank of England showed that higher rates are limiting lending and making it more difficult than ever for single-income households to get onto the housing ladder.
Meanwhile, arrears took a step up as another cohort of borrowers lost the protection of fixed rates, it noted.
"With mortgage rates now higher than when the data was compiled, the drop in lending and increase in arrears will only become more severe in the second half of the year," it thinks.
1.37pm: Here’s a look at some the top risers and fallers on the junior market today
Cornerstone FS PLC (AIM:CSFS) surged 19% as the company announced that its full-year 2023 results are set to significantly exceed market expectations, marking its first year of positive adjusted EBITDA.
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF) jumped 10% as investors responded well to an updated on its Azerbaijan operations.
EKF Diagnostics (AIM:EKF) dropped 11% to 22.52p as it warned that timelines for its new fermentation facility had slipped and it would not now meet guidance for this current year. Shares recovered to 25.1p at the trading session continued.
Ocean Harvest Technology Group PLC (AIM:OHT), one of AIM’s very few debutants in 2023, took a light battering in the wake of its first interim earnings report as a publicly listed company.
The group, which specialises in researching, developing and selling seaweed products for use in the animal feed industry, reported a delay in onboarding new customers in Europe due to surging feed ingredient prices. Shares fell 14.4%.
1:02pm: Barclays to cut 450 jobs says Unite
Barclays PLC (LSE:BARC) has told Unite that it plans to cut 450 jobs, the trade union said on Tuesday.
The union branded the decision “unnecessary and unjustified” and said it will leave staff gravely concerned about their job security and livelihoods.
Unite national officer Dominic Hook said: “How can a profitable finance organisation such as Barclays slash over 450 staff amid a cost-of-living crisis?"
BREAKING NEWS - Barclays to cut over 450 staff. Unite branded the decision “unnecessary and unjustified” which will leave staff gravely concerned about their job security and livelihoods.
— UniteFinanceSector (@Unite_Finance) September 12, 2023
"This isn’t an organisation struggling to survive, this bank is making billions of pounds of profits."
"If these plans for compulsory redundancy are implemented then hundreds of families will lose their livelihoods and face financial hardship because of a management decision which is both unnecessary and unjustified," Hook added.
“The staff losing their jobs are not highly paid rich City bankers but those earning modest salaries within Barclays," he added.
On Monday Reuters reported the job cuts would focus on the bank's retail business.
In July, Barclays said that in the three months to 30 June, it made pretax profit of £2.0bn.
12:37pm: Leading DX shareholders back HIG bid terms
Gatemore Capital Management, a fund manager with around a 19% stake in DX (Group) PLC has given its backing to the conditional bid proposal for the firm from HIG European Capital Partners.
DX revealed after the market close on Monday it had received an all cash bid approach from HIG worth 48.5P per share rejecting earlier approaches.
It said it was mided to accept a bid should one be officially made.
Gatemore said it has signed a letter of intent to support the proposal which remains in effect.
Gatemore has been the largest shareholder in DX since 2017 when it led the rescue of the company with a £24 million convertible note financing.
Liad Meidar, managing partner at Gatemore Capital Management said: "We believe H.I.G. is a credible backer for this company, which has built a market-leading position in the UK and continues to deliver strong growth, going from strength to strength."
Meanwhile, HIG said it had also received backing from Lloyd Dunn which holds around 12.6% of DX.
HIG said a bid remained subject to the satisfactory completion of confirmatory due diligence.
12:27pm: Incoing BoE deputy governor warns of sluggish growth
The Bank of England’s new deputy governor has been speaking to MPs on the Treasury committee and has warned of sluggish economic growth for the next couple of years.
Breeden, who was appointed deputy governor of the Bank of England with responsibility for Financial Stability last month, reckons high interest rates will weigh on the economy.
In a questionaire for parliament’s Treasury Committee, Breeden said: "I would expect relatively flat GDP in the UK over the next couple of years, as the impact of past increases in Bank Rate increasingly push down on demand, and supply remains very weak."
She also thinks that the jobless rate is likely to rise in the coming months.
"The unemployment rate has been in a tight range from around 4% for several months. I would expect it to rise slightly but remain relatively low in the next few months," she said.
As demand weakens, in the medium term, this will inevitably lead to a rise in the unemployment rate.
She also highlighted concerns that the UK could suffer a wage-price spiral, saying: "Turning to risks to the UK outlook, I agree with the MPC that the risks to inflation around the August forecast are skewed to the upside."
"We have learned, in particular, that second-round effects via price and wage setting are stronger than had previously been expected."
12:02pm: Weak started expected on Wall Street
Midday already, and time to look across the pond, where US stocks are expected to open lower, consolidating gains after a strong run on Monday, as investors look ahead to the consumer prices print on Wednesday.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% lower, while those for the S&P 500 fell 0.2%, and contracts for the Nasdaq 100 futures were down 0.2%.
Inflation figures will likely shape direction for the rest of the week with the consumer price index released on Wednesday and the producer price index slated for Thursday.
Retail sales figures will also be reported Thursday.
The CME’s FedWatch tool shows a 93% probability that the central bank will keep interest rates steady at its next meeting, and investors will be hoping that the water is not muddied by a hot inflation print.
The Wall Street Journal reported Sunday that there was a consensus within the Fed to not hike rates this month and less urgency for additional hikes later this year.
In company news, Alphabet’s Google arm is facing the biggest tech antitrust lawsuit brought by the US government in 25 years, with a trial starting today looking at whether the search company illegally shut out competitors.
Other stocks in focus include Apple is expected to unveil the iPhone 15 at the company’s annual fall event, called “Wonderlust,” and Oracle which is down 9% in pre-market trading after it reported a fall in cloud licensing revenue.
11:15am: Mortgage arrears jump in June
The value of UK residential mortgages in arrears jumped in the three months to June to the highest level in seven years while mortgage loans fell by the largest amount on record, according to a Bank of England survey on Tuesday.
In the second quarter, outstanding balances in arrears, borrowers failing to make payments equal to at least 1.5% of the outstanding balance, or where the property is in possession, increased by 28.8% compared with the same period last year, to £16.9 billion, the highest since the third quarter of 2016.
The BoE said the outstanding value of all residential mortgage loans fell from the previous quarter by £19.9 billion, or 1.2%, to £1.66 trillion, the biggest fall in absolute and percentage terms since reporting began in 2007.
The rise comes ahead of a widely expected increase to interest rates by the Bank of England at its next meeting.
Another hike would follow the steady rise in UK interest rates since December 2021, from 0.1% to 5.25% at present, which has driven up payments on variable-rate mortgages and made new fixed-rate deals much pricier too.
10:45am: Fund managers see less chance of recession in Europe
The more optimistic mood in the market is reflected by a survey from Bank of America which shows fewer fund managers think Europe will fall into recession.
A net 32% of participants think that the European economy will go into a recession over the next 12 months, down sharply from 61% last month, and from a peak of 95% last October, the BofA report showed.
The proportion of respondents expecting a global recession remains unchanged at a net 14%, following a drop from 77% last November.
Growth concerns remain, however, particularly in Europe, with 89% of investors predicting a further slowdown in the region in response to monetary tightening (up from 79% last month) while 53% see immediate downside for US growth (up from 45% last month), with a further 37% expecting growth to remain resilient near term but ultimately to slow in response to monetary policy (down from 53%).
Around 47% of fund managers surveyed think China growth will soften further (up from 34% last month), with only 13% expecting a renewed acceleration (down from 24%).
Around 63% of investors expect downside for European equities over the coming months in response to monetary tightening (down from 71% last month), but 61% now project upside over the next year (up from only 45% last month).
10:22am: Primark owner, AB Foods, takes off after trading update
Shares in Primark owner, AB Foods, have accelerated on further consideration of today’s trading update.
Interestingly, the pick-up has been noticeable in the last hour with City scribes speaking to the company at 9:00am.
Ahead of that meeting, UBS said it expected a modestly positive reaction to today’s news.
“Should the call point to further upside to consensus EBIT for FY24e, it could turn more positive,” the broker said.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: "The group’s savvy model means that starting with bargain prices allows more room to pump up price tags before putting consumers off in this very tough economic climate."
Emma-Lou Montgomery, associate director for personal investing at Fidelity International highlighted good progress in the US.
“In the US, the Primark brand is making great strides too.”
“The weakening of the US dollar against sterling and the euro, as well as lower freight costs, which have improved in recent weeks, mean it expects adjusted operating profit margins to recover strongly in the next financial year.”
“Then there’s the news, expected later today from New York, of a new international fashion collaboration,” she added.
“The icing on the cake is the Foods division, which thanks to Twinings, Ovaltine, Blue Dragon and Patak's performing particularly well with US consumers, will see a “substantial” improvement in profitability in the next financial year,” she added.
AJ Bell’s Russ Mould said: “While there have been some hiccups along the way, such as unfavourable weather conditions in several geographic territories which has hurt footfall to its shops, the outlook for Primark continues to be favourable.”
9:50am: Metro Bank slips as capital relief delayed
Metro Bank is having a bad day, down about 6%.
That’s after the UK regulator told the lender its application for accreditation on the residential mortgage side needs more work, and the bank won’t receive approval in 2023.
“The [Prudential Regulation Authority] has indicated that at this stage more work is required by the company which means approval will not be attained during 2023,” the bank in a statement on Tuesday.
Metro has spent five years pursing its bid to use internal models, which allow banks to rely on their own history rather than standardised approaches to calculate the riskiness of loans.
The so called AIRB approval is important for Metro Bank because it would allow it to be more flexible in its product offering, free up capital and loosen constraints in how it puts deposits to work.
Currently, Metro Bank can only to deploy them into zero-risk or low-risk weighted ways, which caps its profits.
9:19am: UK wage numbers "more dovish" than they look
The UK wage numbers are more dovish than they look at first glance, according to ING Economics.
At headline level, regular pay growth stayed at 7.8% on a three month annual basis, "no surprises there," ING said.
"But drill down and if you strip out the public sector, private sector pay barely increased in level terms between June and July."
"And if we look at the alternative wage data which is based on payroll figures (or PAYE), that actually fell in level terms for the second consecutive month," it pointed out.
One month doesn’t make a trend and the latest private-sector regular pay figure, which is the bit the Bank of England is focused on, was preceded by several upside surprises over recent months, ING noted.
But it comes alongside various signals that the labour market is cooling more noticeably, ING added.
The ratio of unfilled job openings to the number of unemployed workers, a ratio that BoE Governor Bailey has consistently referenced, is falling quickly now, ING pointed out.
"The bottom line is that with the jobs market cooling and wage growth, for now at least, not coming in as hot, the labour market data does not scream a need for the Bank to keep hiking rates much further," it added.
8:55am: FTSE 100 holds steady with rate rise "nailed on"
The FTSE 100 has pushed ahead despite the strong wage growth figures, which have increased the likelihood of an interest rate increase when the Bank of England next meets.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’Caution is in the air today as investors assess stubborn wage growth in the UK and wait for other key data, which may help determine the direction of interest rates, as speculation swirls over how far hiking cycles have left to go.”
“Wage growth is still hot in Britain and the temperature isn’t coming down much, providing little relief for Bank of England policymakers who need more evidence that employers are showing restraint before they’ll feel confident about pressing pause on interest rate hikes.”
“Annual growth in regular pay remains at the scorching level of 7.8% so another rate rises this month looks nailed on.”
Martin Beck, chief economic advisor to the EY ITEM Club, said: “Whether a loosening in the jobs market will press down on pay growth sufficiently and quickly is a key question facing the MPC.”
“The latest data offered few signs that is happening,” he added.
The big loser in the lead index remains Smurfit Kappa after the terms of its merger with WestRock were confirmed.
Shareholders of Atlanta, Georgia-based WestRock will receive the equivalent of $43.51 a share in cash and stock, a 28% premium to WestRock’s Monday close.
The City clearly thinks Smurfit has got the wrong end of this deal.
8:30am: Food price inflation at 12-month low but remains in double digits
Grocery price inflation has dropped to its lowest level in over 12 months but it’s no cause for celebration, according to Kantar.
The research firm said food price inflation cooled to 12.2% in the four weeks to 3 September, the sixth monthly fall in a row.
Take-home sales from the grocers rose by 7.4% compared with the same period in 2022, a slight increase on the 6.5% growth reported last month.
Fraser McKevitt, head of retail and consumer insight at Kantar said the figures will not be “a number to celebrate for many households.”
“Our data shows that 95% of consumers are still worried about the impact of rising grocery prices, matched only by their concern about energy bills,” he added.
Discount retailers continue to benefit from the inflationary context with knock-on effects for British shopping habits more generally, the report showed.
This month, Aldi grew sales by 17.1% and Lidl by 16.0%. Between them, the discounters now capture 17.7% of the sector, Kantar reported.
Sainsbury’s and Tesco were the fastest growing traditional retailers this month, growing sales by 9.1% and 9.3% respectively.
Tesco’s share now stands at 27.2%, up by 0.3 percentage points from last year, and Sainsbury’s at 14.8%, up by 0.2 percentage points.
Asda’s market share is at 13.8% and Morrisons’ 8.6%, with sales up by 5.1% and 2.0% respectively.
Waitrose’s growth accelerated to 5.6% this month, meaning that the retailer now holds 4.6% of the market.
Ocado also saw sales increasing faster than last month, with growth now at 4.3% and market share at 1.6%.
Co-op's sales were up by 2.5% versus a year ago with the convenience retailer now holding a 6.1% market share. Iceland’s sales rose by 4.3% to take a share of 2.3%.
8:20am: Smurfit tumbles as WestRock merger confirmed
The terms of the merger between Ireland’s Smurfit Kappa and WestRock of the US have been announced in a cash and shares deal that will create a global packaging giant worth about €20 billion.
Smurfit shareholders will own 50.4% of the combined company, while WestRock shareholders will own 49.6%.
Smurfit’s chief executive Tony Smurfit will hold the same position at the combined group, which will be known as Smurfit WestRock.
WestRock shareholders will receive one new share and $5 in cash for each of their existing shares, which the companies said in a joint statement valued WestRock at $43.51 per share.
Smurfit Kappa shareholders will receive one new share for each ordinary Smurfit Kappa share.
It's fair to say the terms haven't down too well in the City, on the Smurfit side at least, with shares down 9.8%.
8:15am: FTSE pushes higher despite strong wage growth
The FTSE 100 made a bright start to trading despite figures showing wage growth remains inflated, shrugging off rising interest rates.
But there was better news as data showed grocery price inflation has fallen to its lowest level in a year at 12.2%.
At 8:15am, London’s blue-chip index was up 16.65 points, 0.2%, at 7,513.52 while the FTSE 250 was little changed at 18,525.48.
The headline rate of year-over-year growth in average weekly earnings, excluding bonuses, held steady at 7.8% in July, matching the consensus, figures from the Office for National Statistics showed.
Samuel Tombs at Pantheon Macroeconomics said: “The persistence of excessively vigorous wage growth in July probably means the MPC can’t stop raising Bank Rate at this month’s meeting, but the end of the tightening cycle is not far off now.”
“Labour market slack, however, is continuing to increase at a faster rate than the MPC’s expected last month’s Monetary Policy Report, consistent with wage growth slowing markedly towards the end of this year,” he felt.
“We still expect wage increases to slow soon, averaging 0.4% per month in the second half of this year, and for the MPC to hike Bank Rate by 25bp this month and then calls it quits, leaving it at 5.50% until starting to reduce it from Q2 2024 onwards.”
While wage growth continues to threaten the BoE’s hopes of taming inflation there was better news on food prices.
Research firm Kantar said grocery price inflation has fallen to its lowest level in a year at 12.2% for the four weeks to September 3.
In company news, Primark owner, AB Foods rose 1.2% to 2,025p after raising guidance following strong growth in its business.
Shore Capital said it intended to nudge up forecasts after what it called a “good” trading update.
But Smurfit Kappa tumbled 11.7% as it unveiled the terms of its merger with WestRock, creating Smurfit WestRock, a global leader in sustainable packaging.
Under the deal, shareholders in WestRock will receive one new Smurfit WestRock share and $5.00 in cash.
7:51am: Unemployment rises, wage growth remains inflated
A bit on the unemployment and wage growth figures.
The UK unemployment rate rose to 4.3%, in line with expectations, as the rise in interest rates continued to eat away at the UK economy.
The rate rose from 4.2% in the three months to June and was in line with FXStreet-cited market consensus.
Headline indicators for the UK labour market for May to July 2023 show:
▪️ employment was 75.5%
▪️ unemployment was 4.3%
▪️ economic inactivity was 21.1%
— Office for National Statistics (ONS) (@ONS) September 12, 2023
But the data also showed growth in regular pay (excluding bonuses) was 7.8% in May to July, the same as the previous 3-month period and is the highest regular annual growth rate since comparable records began in 2001.
Annual growth in employees’ average total pay (including bonuses) was 8.5%, meaning in real terms, taking into account inflation, total pay rose on the year rose by 1.2%.
July's figures were higher than FXStreet-cited consensus, which had expected an unchanged reading from 8.2% in the previous three-month period.
This total growth rate is affected by the NHS and civil service one-off payments made in June and July, the ONS said.
7:46am: Wickes profit falls, guidance held
Wickes Group PLC (LSE:WIX) said it was on track to hit full-year guidance as it unveiled plans for 20 new stores over the next five years.
The do-it-yourself retailer said revenue in the 26 weeks to July 1 rose 0.7% to £827.7 million from £822.3 million the year before, driven by the sales uplift in do-it-for-me (DIFM) sales.
DIFM delivered like-for-like sales up 5.8% as Wickes said it continued to work through its elevated order book.
But reported pre-tax profit dropped to £21.1 million from £33.5 million, primarily reflecting IT separation costs.
The firm reported good progress on productivity gains, offsetting cost inflation with the exception of energy costs.
Wickes plans six refits in the first half, with 11 in total planned for the full year alongside plans to open around 20 new stores over five years.
Trading in July and August has been in line with expectations, and Wickes continues to expect full year adjusted pre-tax profit in line with market consensus – which it put at £45-48 million.
The dividend was unchanged at 3.6p.
7:28am: AB Foods raises guidance on strong food performance
Primark owner, Associated British Foods PLC (LSE:ABF), expects full-year operating profit to be “moderately ahead” of last year boosted by a strong performance in its food division.
“For the group overall, outlook for this financial year is slightly better than previous expectations of group adjusted operating profit to be moderately ahead of last year,” AB Foods said in a statement.
“We continue to see strong sales growth, particularly in grocery and ingredients and a slightly better than expected performance in sugar,” it added.
As a result, adjusted operating profit in its food arm is now expected to be strongly ahead of the previous financial year.
The picture at Primark was mixed.
Full-year sales are expected to be around £9.0bn, 15% ahead of last year, with like-for-like sales growth of 9%, with strong fourth quarter growth, expected of 15% with like-for-like growth of 8%.
Sales growth has been driven by selective price increases, well received ranges and strongly performing new stores, AB Foods said.
But second half adjusted operating profit margin is expected to be slightly below 8% and for the full financial year to be around 8%.
Looking ahead, the FTSE 100-listed firm expects sugar to make a substantial improvement in profitability in the next financial year.
The firm also expects Primark adjusted operating profit margin to recover strongly in the next financial year.
7:00am: FTSE expected to start on the front foot
Blue-chips in London are expected to open higher after strong gains in the US on Monday and ahead of the latest unemployment figures in the UK.
Spread betting companies are calling the FTSE 100 up by around 7 points after closing up 18.68 points at 7,496.87 on Monday.
US stocks rose strongly boosted by gains in technology ahead of a pivotal week of US economic data including inflation and retail sales figures.
Tesla stormed 10% higher as Morgan Stanley (NYSE:MS) highlighted the value of the firm’s supercomputer, Dojo.
The early focus in London will be unemployment and average earnings figures alongside updates from Primark owner AB Foods, posh tonic maker Fevertree Drinks (AIM:FEVR) and Dowlais.