- FTSE 100 closes down 58 points at 7,653
- S4C rocked by second warning in two months
- Royal Mail owner lifted by broker upgrade
4:40pm: Rising oil price adds to inflationary worries
The FTSE 100 lost its way as the trading session wore on to start the week on the back foot as rising oil prices might lead to renewed pressure on inflation.
At the close, London's lead index was down 58.44 points at 7,652.94 while the FTSE 250 tumbled 340.50 points to 18,449.27.
Chris Beauchamp at online trading platform IG said: "Everyone is worried about oil prices, and what they will mean for inflation figures heading into the end of the year."
"While the recent pickup in US price growth is unlikely to shift the Fed into hiking on Wednesday, another hike before year-end seems more plausible," he said.
The US central bank and the Bank of England both announce thier interest rate decisions this week with a pause likely in the US and a 25 basis point hike expected in the UK.
Rate sensitive stocks took a fall with housebuilder Persimmon down 4.1% and property firm Land Securities down 3.3%.
WPP was knocked down 3.3% by a warning from Sir Martin Sorrell's advertising firm S4 Capital of lower revenue and margins, its second such warning in two months.
S4C fared far worse, losing 26%.
Heading the other way were packing firm Mondi which rose 3.2% after confirming the sale of its Russian business after a filed attempt to do likewise last year, while technology and food delivery firm Ocado rose 2.6% ahead of a trading statement tomorrow.
3:45pm: No signs of "enhaustion" in oil price rally
The rising oil prices continues to be a domiant theme in the markets.
Craig Erlam at Oanda said the oil rally has been relentless and "I'm not seeing any signs of exhaustion yet."
"A 15% rally in the space of around three weeks to trade at levels not seen since last November and not far from triple figures, it's been an impressive move and there could be more to come," he thinks.
Saudi Arabia and Russia have been very effective in squeezing a tight market that much further to create a situation in which oil prices are trading well above the zone they've been stuck around for much of the year, he noted.
You would imagine there'll be a limit to their ambitions, not to mention their desire to continue the additional voluntary cuts but that may well depend on the demand side over the coming months, Erlam commented.
They're committed until the end of the year but if demand softens as those additional cuts expire then the price could cool somewhat, he suggested.
3:10pm: Bundesbank expects German economy to contract in Q3
Germany's central bank foresees a worsening state of the country's economy in the coming months, pointing to consumer restraint and weak industrial output as main issues.
"German economic output is likely to contract somewhat in the third quarter of 2023," the Bundesbank wrote in its monthly report .
The recovery of consumer spending is likely to be delayed in view of stubbornly high inflation, the bank said.
???????? #GERMANY | #BUNDESBANK COMMENTS ON GERMAN ECONOMY IN MONTHLY REPORT - BBG
*GERMAN ECONOMY WILL PROBABLY CONTRACT IN 3Q, BUNDESBANK SAYS
*GERMANY'S ECONOMY NEEDS AN OVERHAUL, BUNDESBANK SAYShttps://t.co/BZ23M65KoR
— Christophe Barraud???????? (@C_Barraud) September 18, 2023
"Noticeable positive impulses from private consumption are hardly to be expected. Despite the somewhat weakening price increase, the strong wage growth and the good labour market situation, private households are still holding back on spending," it said.
2:45pm: Flat start in New York
As expected it's been a muted start on Wall Street but the lack of impetus has sent shares in London lower, now down 56 points at 7,655.73.
The Dow has edged higher, while the Nasdaq is little changed as investors take a cautious view ahead of Wednesday's interest rate decision by the Federal Reserve.
Shortly after the opening bell, the Dow Jones Industrial Average was up 29.92 points, 0.1%, at 34,648.16, the S&P 500 was little changed at 4,451.74 and the Nasdaq Composite was up 6.40 points, 0.05%, at 13,714.74.
The moves came as traders prepare for an interest rate decisions by the Fed on Wednesday when the US central bank is expected to keep its target range unchanged at between 5.25% and 5.5%.
“Further rate hikes would risk sending the economy into a hard-landing scenario,” said Thomas Simons, senior US economist at Jefferies. “Instead, the Fed can look to a strategy of maintaining current policy rates for a long time.”
2:10pm: Mondi finally gets Russian sale away
Mondi PLC (LSE:MNDI) remains one of the top performing stocks in the FTSE 100 after cinfirming the sale of its remaining Russian operations (Mondi Syktyvkar and two affiliated entities) to Sezar Invest for €775 million.
This comes after the sale announced in May 2022, at a higher price, that did not complete as the buyer could not get the necessary approvals.
Broker Citi added exchange rates have moved since the earlier transaction and hence the new agreement translates to €775 million compared to the sale price of €1.5 billion last year.
Citi said: "Though the headline price in € is lower than the earlier disposal, we would argue that investors were ascribing very little value for those assets given that earlier sale had fallen through and some of the £1.37/share equivalent value should start getting reflected in the shares."
1.31pm: Here’s a recap of the top risers and fallers on the junior market today
Orcadian Energy PLC (AIM:ORCA)'s share price jumped 82% after the company announced a preliminary agreement with an unnamed potential operator of its key North Sea asset.
Corcel PLC (LSE:CRCL) shares surged over 18% as the company confirmed it has secured a £10 million loan note financing agreement.
S4 Capital PLC (LSE:SFOR) tanked 25% after lowering expectations for revenue and its core profit margin for the second time in two months following a slow summer.
Christie Group PLC (AIM:CTG), the distressed business services specialist, tumbled 11% as it swung to a first-half loss and warned of an uncertain outlook for the remainder of the year.
1:00pm: Pendragon - a takeover with a twist
Pendragon shares remain in favour, yp 26%, after what AJ Bell's Russ Mould called a "takeiver with a twist."
The small cap car retailer has agreed to sell its entire UK motor business and leasing business to Lithia Motors, its North American rival for £250 million.
Following completion of the disposal, Pendragon will operate as a stand alone Pinewood business, making it a pure-play software as a service business.
“Rather than being swallowed up completely, Pendragon is selling its UK motor retail and leasing operation to North American player Lithia, together with offloading all debt and pension liabilities," Moul pointed out.
"It will be left as a pureplay technology company, owning a car dealer management software platform," he noted
Liberum analyst reckon it is a "good deal" for shareholders, "in terms of the cash realisation at least, given the persistent underperformance of the shares and illiquidity, albeit some may have preferred a complete exit."
Mould called it an "interesting move and one that completely changes the investment case.”
Pendragon initially values this to be worth around 27.4p "with significant upside potential expected from the strategic partnership".
This is a premium to Friday's closing price of 18.5p, it noted.
12:37pm: Barclays increases GSK price target
Barclays has increased its price target and forecasts for GSK on brighter hopes for its Arexvy and Ojjaara products.
“Having been tracking the Arexvy launch for a few weeks now, it's clear that our forecasts for 2H23 dramatically underestimated this launch,” the bank said.
It also noted Friday night delivered yet another bit of good news for GSK, with momelotinib (now branded as Ojjaara) receiving a line-agnostic approval from the FDA for myelofibrosis patients with anaemia.
As a result, Barclays has lifted forecasts up for both products, which drives overall GSK adjusted EPS up between 2% and 5% for the next five years.
The broker has also increased its price target by 9% to 1,575p from 1,450p
Retaining a neutral rating, Barclays said: “We think that greater confidence in the HIV pipeline's ability to replace dolutegravir could drive greater upside in GSK.”
It suggested plans for this could come on the update call on September 28.
12:18pm: Could higher oil price boost London real estate?
The oil price continues its relentless rise towards $100/barrel with Brent crude up a further 0.8% to $94.68/barrel on Monday.
We mentioned earlier that Goldman Sachs (NYSE:GS) thinks this could prompt more share buybacks from energy companies in the UK but Morgan Stanley (NYSE:MS) believes the price rise could benefit another, less obvious sector.
The investment bank pointed out history suggests the pricing of real estate relative to other real assets (like oil) is relevant for share prices.
It argues the last three months' oil price recovery, and the sustained weakness in real estate stocks, has improved the risk reward for central London office stocks.
Why? Morgan Stanley (NYSE:MS) explains prime real estate is frequently used as a 'store of value' for wealth derived from commodities, so it follows a higher price for oil should drive improved demand for prime real estate, all else equal.
While this may not apply for all real estate – such as for retail assets – it should benefit prime London office, suggesting material upside potential for London office stocks on a 12 month view.
The bank thinks it should provide some downside protection, and therefore an improving risk reward.
It remains overweight the London office specialists, highlighting Derwent London and Great Portland Estates (LSE:GPOR).
“Their balance sheets screen as sufficiently capitalised, while NAV valuation is close to or at all-time lows.” Morgan Stanley (NYSE:MS) said.
11:50am: US futures point to flat open in the US
Heading towards midday and the FTSE 100 is down around 27 points at 7,685.
It doesn't look as though Wall Street is going to provide much fresh impetus at the moment.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% higher, while those for the S&P 500 rose 0.1%, and contracts for the Nasdaq 100 futures were up 0.1%.
Chip stocks will be in the spotlight after heavy falls on Friday.
Reuters reported TSMC has told its major suppliers to delay the delivery of high-end chipmaking equipment, as it grows increasingly nervous about customer demand, citing two sources familiar with the matter.
Shares in Nvidia, Applied Materials and Lam Research fell 3.7%, 4.4% and 5.0% respectively. The Philadelphia semiconductor index, tracking 30 of the world’s biggest semiconductor manufacturers, fell 3.0%.
Othewise, the focus will be the Federal Reserve's interest rate decision on Wednesday.
Investors are widely anticipating that the Fed will hold interest rates steady but as always, the language accompanying the decision will be scrutinised to gauge the mood of the central bank going forward.
Goldman Sachs (NYSE:GS) explained Fed officials have signalled that they can afford to proceed carefully at this point and will leave the target range for the funds rate unchanged at 5.25-5.5% at their September meeting.
But the immediate question for markets is whether the median dot will continue to project an additional hike this year to 5.5-5.75%, presumably in November.
“We think that it will, but only by a narrow majority, and in part for the strategic purpose of preserving flexibility,” the investment bank said.
But Goldman believes that the FOMC will ultimately decide in November that it has made enough progress in the inflation fight to leave the funds rate unchanged.
11:11am: S4C warning a knock to "already fragile confidence"
S4 Capital's warning continues to weigh, with shares down 24.6% at 72.00p.
Jefferies said a second warning on revenue growth within two months will be a knock to the already fragile market confidence in S4's all-important march towards longer-term margins of >20%.
The broker has lowered its financial year 2023-25 revenue and Ebitda forecasts by 2% and 12% respectively.
While it thinks the intention to initiate a dividend stream in 2024 is a confident signal, and the valuation remains compelling, S4 "needs to provide comfort on near-term earnings momentum as a priority."
Jeferies has cut its diccounted cash flow based price target from 195p to 160p
10:39am: Biden's green subsidies make investing in UK less attractive
A bit more on the Make UK survey which also showed manufacturing chiefs warning that Joe Biden’s subsidies have made investing in the UK harder to justify.
Three quarters of businesses surveyed by Make UK said incentives in the US, EU and other countries were making investments in Britain more difficult to rationalise.
The US president has pumped billions into green subsidies through the Inflation Reduction Act, which offers incentives for businesses investing in areas such as electric vehicle manufacturing and clean power.
The EU has pledged to spend €50 billion a year on its green transition as it seeks to rival Biden’s plans with its own Green Deal.
But the UK government has so far refrained from joining in the big money support, preferring a project by projcet approach.
The Government has struck bespoke deals with the likes of Port Talbot-owner Tata Steel and Mini to support their transition to net zero but has failed to put in place an overarching scheme.
More than half of companies surveyed by Make UK said they would invest more if Britain had a formal industrial strategy in place.
10:18am: Manufacturers hiring plans on hold
Plans by manufacturing firms to recruit more staff have stopped amid a slowdown in orders, new research suggests.
A survey of more than 300 manufacturers showed they were "battening down the hatches" amid warnings of a sharp slowdown in activity and a potential recession.
Make UK and business advisory firm BDO said their study showed that a positive picture of the first half of the year has gone sharply into reverse.
As a result, Make UK has cut its manufacturing growth forecast for 2023 with output set to fall this year, while the forecast for next year is within the margins of no growth at all.
9:48am: Goldman cuts year-end FTSE 100 target
After its strong run last week, just where could the FTSE 100 end 2023.
Goldman Sachs (NYSE:GS) reckons the blue-chip index will close the year at 7,900, slightly lower than its previous 8,000 target.
The investment bank notes this implies a 3.0% price return and 7.3% total return.
"We think FTSE 100 remains largely immune from the domestic growth concerns," it said.
However, as an asset class, bonds now provide a reasonable alternative to equities; both UK and US 10Y bond yields are above 4%, Goldman thinks.
"We see globally equities trading in a 'Fat & Flat' range and tend to highlight companies either with very strong growth prospects or those returning cash to shareholders via dividends/buybacks," it said.
On this last point, the UK has a lot to offer, Goldman believes with high buybacks supported by one of the highest free cash flow yields globally.
It thinks the recent rise in energy prices could continue to support this amongst energy stocks which provide a substantial share of the buybacks.
9:20am: Royal Mail owner gets broker boost
Royal Mail owner, International Distributions Services PLC (LSE:IDS), is top of the risers in the FTSE 250, up 5% at 270.04p, boosted by positive comments from JP Morgan.
The investment bank has upgraded the mail delivery firm to overweight from neutral and raised its price target to 310p from 300p.
“While predicting the outlook for the UK business is difficult, we think there are reasons to believe we are at an inflection point, both on revenue and costs,” JP Morgan said in a research note.
The bank noted the valuation still seems to apply zero value to the UK business.
“This provides an attractive entry point, and also provides some protection against any recovery in the UK business failing to materialise,” it reckons.
The valuation at Royal Mail has always been potentially “cheap,˙the broker said.
“However, it is noteworthy that remains the case, despite the recent union agreement, helpful signals on regulation and an improving parcels market,” it added.
“We note the business has considered splitting the UK and GLS in the past, and this could again become an option as / when the UK is profitable,” JPM said.
8:56am: FTSE 100 flat, Mondi up on Russian sale
The FTSE is trading close to its opening levels, up 2 points at 7,714.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: "A watchful mood is settling ahead of the key interest rate decisions this week."
"The FTSE 100 has opened flat, with little to spur investors’ interest as they remain cautious ahead of key central bank meetings.
Mondi is the top performer in the FTSE 100 after agreeing to sell its last remaining facility in Russia, Mondi Syktyvkar, and two affiliated entities to Sezar Invest LLC for around €775 million cash.
Mondi said it is intended that the net proceeds from the sale will be distributed to Mondi shareholders once the payments have been received.
Shares rose 4.6% to 1,398p.
Frasers Group PLC (LSE:FRAS) rose 0.5% after reports it is in negotiations to sell its online clothing brand Missguided, to Chinese firm Shein.
Frasers also owns House of Fraser, Sports Direct and Flannels retail chains.
Sky News said the potential deal, which the firms have been discussing for ‘several weeks’ would be Shein’s first British fashion brand acquisition.
8:36am: Pendragon offloads UK motor business, stock soars
Pendragon PLC shares jumped 26% after it announced the sale of its UK motor business and leasing business to Lithia UK Holding for £250 million.
Pendragon and Lithia have also struck a strategic partnership, including the rollout of Pinewood, the company's dealer management software business, to Lithia's existing 50 UK sites and the creation of a joint venture to accelerate Pinewood's entry into the highly attractive North American DMS market.
The Pinewood division will become a standalone entity, retaining Pendragon's listing on the London Stock Exchange and creating a pure play software as a service business with an accelerated growth plan.
Shareholders in Pendragon will receive a 16.5p dividend plus retain 83% in the remaining business and an indirect interest in the US business.
Pendragon said in aggregate shareholders will initially receive the equivalent of around 27.4p per share with further significant upside expected from the strategic partnership.
Shares jumped 27% to 23.40p.
8:15am: FTSE sluggish ahead of interest rate decisions
The FTSE 100 has made a sluggish start to trading as investors look ahead to interest rate decisions either side of the pond later in the week.
At 8:15am. London's blue-chip index was down 9.19 points, 0.1%, at 7,702.19 and the FTSE 250 dropped 50.50 points, 0.3%, at 18,739.27.
Richard Hunter, head of markets at interactive investor, commented “Risk appetite evaporated as investors came to terms with the real possibility of higher rates for longer after a busy week of economic releases.”
The Bank of England is expected to increase interest rates by 25 basis points with economists suggesting this could be the last rise of the current cycle.
Goldman Sachs (NYSE:GS) thinks that the Monetary Policy Committee would need to see clear signs that wage and services inflation have turned a corner before pausing, even if the labour market is cooling and the MPC wishes to implement a policy path with a flatter peak.
As such, it continues to expect a 25bp hike at this week’s meeting.
“Looking ahead to the November meeting, we see a greater chance that sequential wage and price pressures will have cooled sufficiently to allow the MPC to go on hold,” the investment bank said.
On a quiet day for company news plunged 19% after lowering earnings expectations for the second time in two months.
The advertising firm warned full-year like-for-like net revenue is now expected to be likely down on the prior year and operational Ebitda margins is now targeted to be in the range of 12% to 13.5%.
In July, the company forecast revenue growth between 2% and 4% and an operational core profit margin of between 14.5% and 15.5%.
Peel Hunt said it has downgraded its net revenue estimates by 6%, Ebitda by 22% and EPS by 36% (due to higher interest).
“It is disappointing to see another significant downgrade for S4,” it said.
The broker has cut its price target to 110p from 180p and its recommendation to add.
International Distributions Services PLC (LSE:IDS), the owner of Royal Mail, rose 3.6% after JP Morgan upgraded the stock to overweight with a price target of 310p.
7:48am: House prices continue to fall, Rightmove
UK house sellers are cutting their asking prices at the fastest rate in more than a decade, after high interest rates dampened demand for property this summer.
The proportion of homes on the market which have had at least one price reduction is at its highest level since January 2011, the property website Rightmove has reported.
According to Rightmove, more than 36% of properties on the market have had their asking price reduced at least once, compared with the pre-pandemic average of 31.2%, as sellers tried to attract offers.
The increase is due to a combination of interest rate rises, and lower activity in the housing market because of the summer holidays, Rightmove says, with the number of new properties coming up for sale in August being 6% lower than the 10-year average.
Rightmove said the average UK new seller asking price in September was "lower than is usual" for this time of the year.
The Rightmove House Price Index showed the average new seller asking price increased by 0.4% month-on-month, or GBP1,386, in September to GBP366,281. This was "lower than is usual" for this time of year, the property portal noted.
On an annual basis, prices fell 0.4% in September. Rightmove said this was the biggest drop in prices since March 2019 and meant prices are still on track to meet its prediction of a 2% fall over the year as a whole.
7:29am: S4 Capital warns again after slow summer
We'll start the week with news that S4 Capital has lowered expectations for revenue and core profit margin for the second time in two months following a slow summer.
The advertising firm warned full-year like-for-like net revenue is now expected to be likely down on the prior year and operational Ebitda margins is now targeted to be in the range of 12% to 13.5%.
In July, the company forecast revenue growth between 2% and 4% and an operational core profit margin of between 14.5% and 15.5%.
Chair Sir Martin Sorrell’s advertising group said: “We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.”
The warning came as the group unveiled results for the six months to June 30.
Revenue rose to £445.5 million against £375.3 million reflecting the challenging macroeconomic conditions compared to last year and clients' caution, with longer sales cycles, particularly with technology and newer regional and local clients.
Billings climbed 21% to £925.4 million and the loss narrowed to £19.7 from £82.3 million.
S4 said it would consider a dividend of at least 1p per share when the final results for 2023 have been determined.
7:00am: Sluggish start expected on Monday
Good morning and blue-chips are expected to make a subdued start after last week’s strong gains.
Spread betting companies are calling the FTSE 100 down by around 9 points after closing up 38.30 points at 7,711.38 on Friday.
Central banks take centre stage this week with interest rate decisions from the US Federal Reserve on Wednesday, the Bank of England on Thursday, with the Bank of Japan to follow on Friday.
Figures from Rightmove showed the average new seller asking price fell 0.4% in September, the biggest drop since March 2019.
Meanwhile, the early focus will be results from Phoenix Group Holdings.