- FTSE 100 closes up 71 points at 7,732
- Lower food prices drive surprise fall in inflation
- BoE rate decision seen a 50/50 call
4:40pm: FTSE 100 ends near session highs after inflation surprise
The FTSE 100 closed sharply higher after inflation surprised on the downside for once leaving the Bank of England's interest rate decision on a knife-edge.
At the close London's blue-chip index was up 71.45 points, 0.9%, at 7,731.65 while the FTSE 250 was up 285.67 points, 1.6%, at 18,712.37.
Deutsche Bank's Sanjay Raja said: "Today's CPI report will certainly be seen as a very positive surprise for the MPC."
"In short, the August CPI print will give the MPC more optionality to pause in September."
"We now think tomorrow's decision will be finely balanced," Raja said, adding the big miss in inflation, alongside weaker growth momentum now stands in "stark contrast to still sticky and elevated wage growth."
"Putting it altogether, we now think the case for a pause is slightly stronger," although he added "either outcome won't surprise us tomorrow."
"More importantly, today's data will likely raise the odds of a dovish pivot to the Bank's forward guidance in September."
4:19pm: Pendragon rejects bid approach from Hedin Mobility and PAG
Pendragon PLC has unanimously rejected an unsolicited and preliminary proposal from Hedin Mobility Group AB and PAG International Ltd, or Penske, to jointly acquire the company.
The 28 pence per share proposal was subject to the completion of due diligence and external debt financing.
"The board carefully considered the proposal, including taking advice from its advisers, and concluded that it fundamentally undervalues the company and is therefore not in the best interests of shareholders or other stakeholders," Pendragon said in a statement.
The company said it was excited about the future prospects for Pendragon as a result of the transaction announced with Lithia Motors which, if completed, will deliver a substantial cash dividend and create a pure play software as a service business with an accelerated growth plan and a strategic partnership to enter North America.
On Monday, Pendragon said it has agreed to sell its entire UK motor business and leasing business to Lithia Motors, its North American rival.
Shares jumped 14% to 27p on the news.
3:55pm: BofA sees 25 basis point rise but it's a close call
We'll find out tomorrow, but for now banks are still having their say on what the Bank of England may or may not do on Thursday.
Bank of America is in the 25 basis point rate camp.
"We stick with the call but with little conviction," BofA said in a research note.
The Bank of England’s guidance focuses on three indicators: labour market slack; services inflation; wage growth. More persistence in those indicators would require an interest rate hike. Those indicators give conflicting signals but two out of three say no hike.
Additionally consider that the BoE has seemed reluctant to hike in our view for some time, with the Chief Economist and Governor both explicitly arguing for holding rates high for long than risking overtightening.
"A pause tomorrow with guidance that they will revisit in November would not surprise us," BofA said.
The counter-argument would be that much of the services inflation news reflects volatility rather than genuine information.
The BoE could pause now and find services inflation back in-line with its expectations next month, it said.
"The choice is to wait for more information or go for a final insurance hike," BofA said.
"On balance we side with the latter, but it’s a very close call after such large data news and potentially large data noise as well," it added.
3:40pm: Elementis disagrees with shareholders call to sell-up
Elementis plc (LSE:ELM) has dismissed a request from shareholder Franklin Templeton that it should sell off its "attractive assets".
The firm said it "does not consider an immediate sale of the company to be in the best interests of its shareholders."
Franklin Mutual Advisors LLC, an investment advisory firm parented by Franklin Templeton, published an open letter earlier on Wednesday requesting that the Elementis board "initiate an immediate sale of the company".
But London-based Elementis said: "After careful consideration, with the support of its advisors, the board does not consider an immediate sale of the company to be in the best interests of its shareholders."
The company added: "The board notes and agrees with Franklin's comments about Elementis' attractive assets."
"In particular, the comments about our healthy market positions, strong gross margins that demonstrate the premium nature of our products and potential for upside in a cyclical recovery alongside substantial operational improvement initiatives."
Franklin said Elementis's more recent capital allocation decisions have caused "a shocking amount of shareholder value destruction".
It said Elementis has significant strategic value but is currently too small to accomplish its goals, and would therefore benefit from merging with a larger company.
Shares in Elementis jumped 11% to 123.40p.
3:13pm: Entain's US business undervalued, says Barclays
Barclays has taken a look at the valuation of US gambling firms and the implications for UK-listed firms, Entain and Flutter.
It thinks while FanDuel and DraftKings, the dominant online sports betting operators in the US, have broadly similar values priced in, little value is placed on the small to mid-sized players, while the number 3 player (BetMGM) is undervalued in the Entain share price.
The broker reiterated an overweight rating on Entain and raised its price target by 5% to 1,520p, implying 36% upside as it considers the shares cheap.
The broker calculates only 55p per share is priced in for Entain's US business in the current share price but Barclays thinks it should be worth 340p at 15x 2025E EV/Ebitda even after discounting the multiple for recent share losses and a JV structure.
It retains an equal weight rating on Flutter and raises its price target by 3% to 16,000p.
While it thinks FanDuel is the best-in-class online betting operator, it considers the value fairly priced, particularly in light of possible near-term share losses given increased competition.
2:45pm: Bright start in US pushes FTSE higher
The US session is underway and stocks have climbed ahead of the interest rate decision by the US central bank later today.
The bright start has helped push the FTSE 100 to a session high, up 70 points at 7,730.
Shortly after the opening bell, the Dow Jones Industrial Average was up 103.82 points, 0.3%, at 34,621.55, the S&P 500 was 12.54 points, 0.3%, at 4,456.49 and the Nasdaq Composite was up 30.87 points, 0.2%, at 13,709.05.
Craig Erlam at Oanda said the Fed meeting today is widely expected to end in an agreement not to hike interest rates this month with the key takeaway being whether they intend to again in this cycle.
"The ECB strongly hinted that it is probably done last week but I'm not convinced we'll get the same signal from the Fed and neither, it would appear, are markets," he thinks.
"We have seen the odds of another hike creeping up a little recently amid more resilience in the economy which will likely make the central bank a little apprehensive about declaring victory or even suggesting they believe they've done enough," he added.
2:10pm: Bytes Technology jumps as HSBC starts with buy
HSBC thinks UK value added resellers (VAR) have demonstrated their ability to take market share and are well placed to benefit from technology spending, including on AI, despite near-term growth concerns.
Strong organic growth has been driven through effective sales strategies, market share gains and market tailwinds.
“With less than 5% market share each for the top three players in the UK, we think the opportunity for gaining market share in a highly fragmented market is significant,” HSBC added.
The broker has started coverage Bytes Technology at buy (price target 625p) and Computacenter Group at buy (price target 3,015p), and Softcat (LSE:SCT) at hold (price target 1,560p).
Bytes surged 6.5% to 504p, Computacenter rose 0.9% to 2,498p and Softcat (LSE:SCT) climbed 0.8% to 1,448p.
1.30pm: Here’s a recap of the top risers and fallers on the junior market today
Thor Energy PLC (AIM:THR, OTCQB:THORF, ASX:THR) shares advanced 43% as it raised new funds to accelerate its exploration venture in Colorado and Utah – in the uranium-vanadium mining district of the Uravan Mineral Belt.
Longboat Energy PLC (AIM:LBE) shares dropped back some 12% as a new gas discovery offshore Norway underwhelmed.
Shares in Dianomi PLC (AIM:DNM) fell 11% after it reported a 17.6% decline in revenue in the first half and the amendment to a contract with one of its largest publisher clients.
Tandem Group PLC (AIM:TND) took a 20% hit to its share price as it became the latest casualty exposed to the challenging consumer market.
1:05pm: SSE is JP Morgan’s top utility pick
JP Morgan has taken a look at UK utilities and expects them to outperform the FTSE350 into year-end “as the sector’s defensive qualities prove attractive amidst a slowing macro-economic backdrop.”
“While higher bond yields have proven to be a headwind for the capital-intensive sector, we believe that we are nearing the end of rising rates,” the investment bank said.
It thinks the sector should trade at more of a premium given the higher power price environment and higher growth prospects in electricity networks.
Its top pick is SSE (overweight), where JPM expects higher prices and asset growth to underpin strong earnings.
It also likes National Grid (overweight), Centrica (overweight) and Drax (overweight).
But it remains cautious on the UK water stocks, where it expects regulatory and political headwinds to persist despite expectations of a more favourable macroeconomic backdrop.
It rates United Utilities and Pennon neutral, and Severn Trent underweight as it still trades at a premium valuation relative to the other water stocks.
12:31pm: Finsbury up, Tandem down
A couple of smaller companies on the move today are Finsbury Food Group (AIM:FIF) PLC and Tandem Group PLC (AIM:TND) - albeit with mixed fortunes.
Shares in Finsbury Food's have leapt 23% to 109.70p after it agreed a £143.4 million bid from Isle of Man investment firm, DBAY Advisors Limited.
The 110p per share offer for the UK and European manufacturer of cake and bread bakery goods represents a 23.6% premium to last night’s closing price of 89p.
Finbury called the offer “fair and reasonable,” as it gave its backing to the approach.
But not such a good day for sports and mobility equipment retailer, Tandem Group PLC (AIM:TND), down 19.5% to 169p after posting a pre-tax loss of £900,000 for the first half of the year, a loss three times the size of the profit it posted in the first half of 2022.
Revenue fell by nearly a quarter to £9.8 million and no dividend was paid.
The company said “stubbornly high inflation” and persistent interest rate increases had a “direct impact on consumers’ disposable income”.
More on this story here.
12:00pm: Wall Street seen higher with all eyes on the Fed
Across to new York, where US stocks futures have edged higher ahead of a trading session likely to be dominated by the Federal Reserve’s interest rate decision, statement and press conference.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 rose 0.2%, and contracts for the Nasdaq 100 futures were up 0.2%.
The US central bank is widely expected to hold interest rates steady at a range of 5.25% to 5.5% but investors will be watching for the Fed’s “dot plot” of economic and policy projections for the coming year.
Julien Lafargue, chief market strategist for Barclays Private Bank thinks the real question for markets is what will happen to the central bank’s projections, “the dot plot”.
In particular, there is some uncertainty as to what FOMC members will consider to be the long term equilibrium for interest rates and how we will get there starting in 2024, he said.
Currently, the median dot suggests a rate of 4.6% in 2024 and 2.5% for the long term.
“We believe the risk here is to the upside as the Fed may want to reinforce its message that interest rates are due to stay higher for longer,” he said.
Elsewhere, investors will look for economic commentary from parcel delivery group FedEx (NYSE:FDX) (FedEx (NYSE:FDX)) and breakfast cereal producer General Mills (NYSE:GIS) (General Mills (NYSE:GIS)) as they report results.
11:27am: Car bosses criticise potential delay to petrol car ban
The UK car industry has strongly criticised prime minister Rishi Sunak for considering delaying a ban on new petrol and diesel cars until 2035, saying it threatens the UK’s international leadership and the industry’s efforts to pivot to EVs.
“Ending emissions from road transport is the only way you will achieve net zero,” Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, told BBC Radio 4’s Today programme.
The delay would cause “confusion” among motorists, many of whom would delay switching to EVs just as carmakers invest billions in new models, he warned.
Ford's UK chairman Lisa Brankin said: "Our business needs three things from the UK government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three."
"We need the policy focus trained on bolstering the EV market in the short term and supporting consumers while headwinds are strong: infrastructure remains immature, tariffs loom and cost-of-living is high."
10:55am: Goldman joins calls for UK rate pause
Goldman Sachs (NYSE:GS) is the latest top bank to call on the Bank of England to leave interest rates unchanged on Thursday after today’s inflation figures surprised “meaningfully to the downside.”
“Combined with their recent dovish commentary, we now expect the MPC to keep Bank Rate unchanged tomorrow and lower our forecast for the terminal policy rate to 5.25% (from 5.5% before),” the investment bank said.
Goldman now expects core and headline inflation to be 5.5% (vs 6.0% previously) and 4.4% (vs 4.7% previously), respectively, by the end of the year.
“With today's data, two out of the three indicators that the MPC has set out to monitor inflation persistence have now shown notably more progress than anticipated since the August meeting,” the bank pointed out.
10:15am: House prices grow at slowest pace in four years
Average UK house prices increased by 0.6% in the 12 months to July, the slowest increase since July 2019, and down from a revised 1.9% rise in June, according to figures from the Office for National Statistics.
The average UK house price was £290,000 in July 2023, which is £2,000 higher than 12 months ago, but £2,000 below the recent peak in November 2022.
Gabriella Dickens at Pantheon Macroeconomics explained the official index is based on completed transactions, which depend on mortgage offers made over the previous few months.
"As a result, further declines in the official index over the coming months look likely, given that timelier measures point to further weakness," she thinks.
She doubts prices will pick up later this year either, "given that the drop back in mortgage rates over the last month or two has been fairly minimal."
"Consumers’ confidence is still very weak by past standards and expectations of further house price falls remain entrenched," she pointed out.
"On balance, then, we expect a peak-to-trough fall of around 6%, with the nadir coming at the end of the year," she said.
9:50am: Oil price dips but Goldman ups Brent forecast to $100/barrel
Goldman Sachs (NYSE:GS) has raised its 12-month forecast for Brent oil from from $93/bbl to $100/bbl as it now expects modestly sharper inventory draws.
The key reason behind the change is that significantly lower OPEC supply and higher demand more than offset significantly higher US supply, it said.
Overall, we believe that OPEC will be able to sustain Brent in an $80-$105 range in 2024 by leveraging robust Asia-centric global demand growth and by exercising its pricing power assertively.
Specifically, Goldman assumes Saudi Arabia unwinds the extra 1mb/d cut gradually starting in the second quarter of 2024, but that the 1.7mb/d cut with 8 other OPEC+ countries remains fully in place next year.
Goldman thinks that most of the rally in the oil price is behind, and that Brent is unlikely to sustainably exceed $105/bbl next year.
First, while US supply is more capital disciplined than a decade ago, the upward trend in capex and supply beats over the past three years, and the recent inflection in rigs confirms its dynamism.
Second, high spare capacity and the return to growth in offshore projects limit the upside to long-dated oil prices.
Third, OPEC is unlikely to push prices to extreme levels, which would destroy its long-term residual demand.
The oil price has taken a breather today, with Brent down 1.4% at $93.01.
9:16am: BoE's rate decision a 50/50 call after inflation surprise
Kallum Pickering senior economist at Berenberg thinks tomorrow’s decision by the Bank of England whether to raise interest rates is on a knife-edge.
He pointed out the market for overnight index swaps which had dramatically cut its bets for the peak bank rate in recent weeks (from a high of 6.5% in early July) has now lowered its bet on a further final 25bp hike to a c50% chance from a virtually certainty yesterday.
Pickering thinks policymakers will sway towards one more hike to 5.5% while providing a strong signal that further hikes are unlikely as long as inflation continues to trend lower.
He said the sharp drop in underlying price pressures in the UK during August is a welcome development for two reasons.
First, it further narrows the gap between inflation in the UK versus the US and Europe – the UK now looks like less of an outlier.
Second, it comes amid a widespread expectation that inflation accelerated modestly in August on the back of the rising oil price – as it had done in the US.
Simon French at Panmure Gordon also highlights it's a 50/50 call tomorrow.
Financial markets now seeing UK rate decision as 50/50 tomorrow. Having been 80/20 in favour of a hike first thing. Bailey allowing the markets to dictate financial conditions, rather than leading them. Not my preferred approach, and in stark contrast to the Fed. https://t.co/nm0FGz0KKs
— Simon French (@shjfrench) September 20, 2023
8:51am: Housebuilders lead FTSE higher; sterling drops
The surprise fall in inflation continues to drive equities in London with the FTSE 100 now up 41 points at 7,701.
Housebuilders lead the way with the top three risers in the FTSE 100 from that sector – Taylor Wimpey PLC (LSE:TW.), Barratt Developments PLC (LSE:BDEV) and Berkeley Group Holdings PLC (LSE:BKG), up 5.4%, 4.5% and 4.0% respectively.
Property firms Land Securities Group PLC (LSE:LAND) and Segro PLC aren’t far behind, up 3.8% and 2.8% as well.
Pearson remains top of the fallers, down 4.6%, after its CEO stepped down while a downgrade by Societe Generale to hold from buy has kept BAE Systems in the red, down 0.5%.
In the FTSE 250, there are similar themes with housebuilders Bellway, Persimmon and Crest Nicholson prominent risers alongside property firms British Land and Great Portland Estates (LSE:GPOR).
The fall in inflation has pushed the pound lower on expectations that UK interest rates will peak below previous forecasts.
Sterling fell 0.25% to $1.2358 after the news and ahead of what is expected to be a “hawkish” hold by the US Federal Reserve later today.
8:29am: Pearson falls as chief executive steps down
News of a change at the top at educational publishing group, Pearson PLC (LSE:PSON), and it has sent shares to the top of the FTSE 100 fallers, down 4.8%.
Andy Bird has decided to retire, Pearson said in a statement, replaced by Omar Abbosh, effective early 2024.
Abbosh is president of Microsoft's Industry Solutions business with direct responsibility for driving sales, service and solutions across Microsoft's largest global customers.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: "Abbosh’s background in various tech leadership positions means the board is doubling down on plans to propel the education specialist into the next – very digital – chapter."
"While legacy declines in physical US course materials continue to be a hurdle that needs clearing, other efforts to drag its offerings online means performance has been steady of late," she added.
8:15am: FTSE 100 jumps after welcome inflation surprise
The FTSE 100 jumped after a surprise fall in the annual rate of inflation increased chances that the Bank of England may leave interest rates unchanged when it unveils its latest monetary policy call on Thursday.
At 8:15am, London’s lead index was up 43.59 points, 0.6%, at 7,703.79 while the FTSE 250 jumped 254.99, 1.4%, to 18,681.69.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’It’s a painful and slow path, but inflation is continuing to head down the hill which will ease headaches at the Bank of England.”
“Oil prices did start to march upwards in August, and hit fresh ten month highs this week, but an easing of food and hotel bills have offset the impact of higher prices at the pumps,” she noted.
The figures from the Office for National Statistics showed the consumer price index rose by 6.7% in August, down from 6.8% in July, and well below City expectations for a rise to 7.1%.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.2% in the 12 months to August, down from 6.9% in July, again well below City expectations of 6.8%.
The inflation surprise has raised speculation that the Bank of England could leave interest rates unchanged on Thursday.
Martin Beck, chief economic advisor to the EY ITEM Club, said: “Signs that an inflexion point has been reached in underlying inflation, combined with evidence of declining activity and a weakening jobs market, mean the odds of another rise in interest rates this month now seem much lower than only a few weeks ago.”
James Smith, developed markets economist at ING Economics said: “We're still tempted to say the Bank of England will hike rates tomorrow,” but “it's a close call, and both wage and inflation data suggest the end of the current tightening cycle is very close to its conclusion.”
Simon French, chief economist at Panmure Gordon, said this was "very important data for the MPC's deliberations and holding rates this week looks now a materially under-priced outcome."
Rate sensitive stocks rose with Persimmon PLC (LSE:PSN) and Barratt Developments both leaping 5.6%.
In company news, M&G rose 3.2% after better-than-expected first half results.
Matt Britzman, equity analyst at Hargreaves Lansdown said: “The transformation programme continues at M&G, with a renewed focus on the Asset Management and Wealth businesses.”
“A clearer strategy makes sense, and some needed momentum looks to be building in those two areas despite what continues to be a tricky backdrop.”
7:57am: Strong results from M&G
Back to the inflation figures in a bit, but results are out from asset manager, M&G PLC (LSE:MNG).
The firm has reported better-than-expected interim operating profit alongside positive net client inflows.
it posted positive net client flows, excluding Heritage, of £0.7 billion, down from last year’s £1.2 billion, remaining positive for a third consecutive year despite known headwinds from UK institutional clients.
Gross inflows to PruFund UK of £3.3 billion are the highest for a six-month period since 2019, M&G said.
Adjusted operating pre-tax profit of £390 million, was up 31% from £298 million last year, which M&G said reflected the strength of diversified businesses.
It was also above consensus forecasts of £284 million.
M&G said solvency II coverage ratio remained strong, and above the top end of its target range and raised the dividend by 5% to 6.5 pence per share.
It reported further momentum in Wholesale Asset Management with net client inflows of £1.3 billion, up from £0.8 billion, and continued strong investment performance.
Cost savings initiatives are expected to deliver a £50 million reduction, M&G said.
Andrea Rossi, chief executive officer, said: “I remain confident we have the right ingredients for success that will enable us to continue to deliver attractive outcomes for our clients and shareholders.”
7:08am: Inflation falls more than expected in August
Good morning. Just released, figures from the Office for National Statistics show the consumer price index rose by 6.7% in August, down from 6.8% in July, and well below City expectations for a rise to 7.1%.
On a monthly basis, CPI rose by 0.3% in August, compared with a rise of 0.5% in August 2022.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.2% in the 12 months to August, down from 6.9% in July, again well below City expectations.
Annual inflation slowed slightly in August 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to August, down from 6.4% in July
▪️ Consumer Prices Index (CPI) rose by 6.7%, down from 6.8% in July
— Office for National Statistics (ONS) (@ONS) September 20, 2023
The ONS said the the largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August than a year ago, and accommodation services, where prices can be volatile and fell in August.
Rising prices for motor fuel led to the largest upward contribution to the change in the annual rates.
The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 6.3% in the 12 months to August 2023, down from 6.4% in July.
The fall will put pressure on the Bank of England to stop raising interest rates and keep them at 5.25 per cent on Thursday.
Futures are now pointing to a bright start by the FTSE 100 which was earlier indicated to open lower.