- FTSE 100 closes 53 down points at 7,679
- Bank of England leaves rates unchanged
- JD Sports and Next higher after results
4:40pm: Stocks nurse heavy losses at the close
The FTSE 100 closed in the red despite the Bank of England leaving interest rates unchanged snapping a run of 14 successive rises.
At the close, London's lead index was down 53.03 points at 7,678.62.
The pause followed better-than-expected inflation figures on Wednesday.
Bank of England described the fall in inflation as very welcome news”, and a sign that price pressures were easing by more than the bank expected.
“Of course, the job’s not done yet. We can’t be complacent about this,” he added.
3:56pm: Fall in inflation welcome but more to be done, says BoE chief
Bank of England governor Andrew Bailey has given an interview to broadcasters and begun by saying yesterday’s fall in inflation, from 6.8% to 6.7%, was “very welcome news”, and a sign that price pressures were easing by more than the bank expected.
“Of course, the job’s not done yet. We can’t be complacent about this,” he added.
He said it was too early to make predictions about rates coming down.
“I can tell you that we have not had any discussion on the Monetary Policy Committee about reducing rates, because that would be very, very premature,” he said.
“Our job is to get inflation down, we’ve got a big job to do, we’ve got quite a long way to go yet. It’s encouraging. But I’m afraid we can’t be complacent, and of course we will watch the evidence very carefully as we always do.”
3:35pm: What next for Elementis?
What Next for Elementis after shareholder Franklin Mutual Advisers called on the firm to put itself up for sale.
Barclays notes the concerns outlined in the letter from Franklin Mutual Advisers are not new.
Issues of capital allocation and doubts over whether Elementis can reach the mid-term targets set out at its 2019 CMD are problems raised by Franklin that many investors will likely agree with.
However, the broker thinks solid first half 2023 results, addressing leverage issues, and the Chromium divestment mean some credit is certainly due.
Barclays was not surprised by the company’s response, declining to consider an immediate sale.
Given how recently Chromium was disposed of and the overall solid 1H23 earnings performance it would seem almost defeatist now for management to sell the business, ie feels.
But it does put increased pressure on the November Capital Markets Day.
Barclays thinks further cost-saving initiatives are likely and a clear strategy for the Talc business would be appreciated, but thinks investors are wanting to see solid earnings performance as opposed to expecting any dramatic announcements at the event.
3:01pm: End of an era as Murdoch steps down
Media tycoon Rupert Murdoch is to retire as chair of his Fox Corp and News Corp (NASDAQ:NWS) businesses after a career spanning nearly 70 years.
In a statement, the firm said Murdoch will be appointed chairman emeritus of both Fox and News Corp (NASDAQ:NWS).
The 92-year-old Australian-born businessman is set to be replaced in the role at both companies by his son Lachlan Murdoch.
The change of leadership will take place following the companies' annual meeting in mid-November.
Lachlan Murdoch said: "On behalf of the Fox and News Corp (NASDAQ:NWS) boards of directors, leadership teams, and all the shareholders who have benefited from his hard work, I congratulate my father on his remarkable 70-year career."
2:44pm: US markets head south after hawkish Fed
It's been a dismal start across the pond, as expected, on worries interest rates would stay higher, for longer, following the Federal Reserve’s ‘hawkish hold’ on Wednesday.
Shortly after the opening bell, the Dow Jones Industrial Average was down 217.32 points, 0.6%, at 34,223.56, the S&P 500 was down 34.34 points, 0.8%, at 4,367.86 while the Nasdaq Composite was down 131.58 points, 1.0%, at 13,337.55.
There was further evidence of the resilience of the US economy with US initial jobless claims coming in lower than expected.
According to the US Department of Labor, initial claims for unemployment support – a proxy for lay-offs - fell 20,000 to 201,000 in the week ended September 16, from 221,000 a week prior.
The latest figure fell short of the FXStreet cited consensus, which predicted claims would rise to 225,000.
Elsewhere, Splunk shares surged after the analytics and security software company agreed to be acquired by Cisco Systems in a $28 billion deal.
Shares of Splunk jumped than 20% while shares of networking-equipment giant Cisco fell 3.4%.
Cisco is paying $157 a share in cash for Splunk.
Broadcom fell 4.8% following a report that Alphabet's Google unit is looking to drop the company as a supplier of artificial-intelligence chips as early as 2027.
2:15pm: Bank saw PMI figure before decision
As mentioned earlier, the Bank of England has not exactly bullish on economic growth.
"While some of this news could prove erratic, Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected."
Interestingly, the statement shows that the MPC members have seen the flash S&P Global/CIPS UK composite PMI for September that is to be released on Friday.
"38: While some of the weakening in recent activity data could prove erratic, Bank staff now expected GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 was also likely to be weaker than had been expected. Ahead of its final meeting, the Committee was made aware of the flash S&P Global/CIPS UK composite PMI for September that would be released publically on Friday 22 September."
Hard to know how much this influence this piece of data had, but perhaps brace for a weak number given the decision to leave interest rates unchanged today.
1:02pm: Bank pauses and that could be it for this cycle
James Smith developed markets economist at ING Economics sus[ects today's rate pause by the Bank of England "means the tightening cycle is now over."
He was struck by how close the decision was, with a 5-4 split, which he said "is actually pretty unusual and shows just how close a call this meeting was."
"What’s very clear is that the Bank is leaving all options on the table for November," he noted, explaining the BoE has three key metrics for setting policy right now – services inflation, private sector wage growth, and the vacancy-to-unemployment ratio.
It was the former of those variables that presumably convinced the committee to pause today, now that services inflation is noticeably below the Bank’s most recent forecasts from August, he thinks.
He doesn't rule out a hike in November, but thinks "it will probably require a big upside surprise to either the services inflation or wage data."
Smith says although the BoE has been clear that it won’t be lowering rates any time soon, in practice, "we suspect we could see some initial cuts by the middle of next year."
12:33pm: Bank of England rate decision a "sensible call"
Simon French chief economist at Panmure Gordon said it was a “sensible call from the MPC internals given the latest data and a new set of forecasts in 6 weeks.”
He added it was consistent “with our own view that the majority impulse of recent tightening is still to come, and the value here is in more incoming data.”
Sensible call from the MPC internals given the latest data and a new set of forecasts in 6 weeks. Consistent with our own view that the majority impulse of recent tightening is still to come, and the value here is in more incoming data.
— Simon French (@shjfrench) September 21, 2023
Samuel Tombs at Pantheon Macroeconomics noted: "August’s lower than expected CPI inflation print appears to have been the decisive factor persuading a small majority of MPC members to vote to keep Bank Rate on hold today."
He thinks interest rates have peaked.
"With surveys pointing to a further increase in labour market slack, a slight slowdown in wage growth and lower CPI inflation by year-end, the case for hiking again likely won’t be stronger in November or December than today."
"Accordingly, we now think that 5.25% will be the peak level of Bank Rate in this hiking cycle."
Neil Wilson at markets.com said: "I don’t know if we categorise this as a hawkish hold – what's appears clear is that the BoE saw the CPI print coupled with soft growth figures and thought it’s enough to warrant holding fire for the time being."
"The vote was split 5-4, a tight call that was reflected in the market pricing ahead of the event," he added.
Wilson pointed out market expectations for a rate rise in November have fallen to 64% from 81% before the decision.
12:17pm: Stocks up, pound down as BoE pauses
The interest rate decision has given the FTSE 100 a shot in the arm - with the lead index now up 4 points at 7,736, after being around 50 points lower before.
But the pound fell further, now down 0.6% at $1.2274, after traders bet the peak in UK rates has been reached.
Rate sensitive stocks have jumped - housebuilders Barratt Developments is up 2.4% and Persimmon is up 2.3%.
Nigel Green, chief executive of deVere Group welcomed the decision but said the central bank policymakers "should go further and commit to stopping the hiking agenda, rather than just pausing it."
“The battle against inflation is gradually being won. Further squeezing already weak economic growth through making borrowing costs for consumers and companies down the line could leave long-term scars on the UK economy," he said.
12:00pm: Bank of England pauses; interest rates unchanged
The Bank of England has left interest rates unchanged, after 14 successive hikes, leaving Base Rate at 5.25%.
The BoE’s Monetary Policy Committee made the decision, which was seen as a 50/50 call by City pundits, in the wake of weaker-than-expected inflation figures on Wednesday.
The Monetary Policy Committee voted by a majority of 5-4 to maintain #BankRate at 5.25%. https://t.co/jfAstgGch5 pic.twitter.com/m2VuQTAu9N
— Bank of England (@bankofengland) September 21, 2023
At its meeting ending on 20 September 2023, the MPC voted by a majority of 5–4 to maintain Bank Rate at 5.25%.
Four members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%.
The MPC didn't rule out further rate increases.
"Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures," it said in a statement.
It also hinted rates would stay higher, for longer.
"Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit," it said.
11:38am: US markets set to further after hawkish Fed
US stocks are expected to fall further on Thursday after the Federal Reserve signalled one more rate rise this year and fewer cuts next, as it left interest rates unchanged at a 22-year high.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.4% lower, while those for the S&P 500 fell 0.6%, and contracts for the Nasdaq 100 futures were down 0.8%.
Bank of America expects one final hike in November, but "it is a close call."
Away from reaction to the rate call, and economists expect sales of existing US homes to have edged up to 4.1 million in August from 4.07 million in July.
Meanwhile, weekly jobless claims, considered a proxy for lay-offs, are predicted to have risen to 225,000 last week, from 220,000 the prior week.
11:17am: Oil price at $100 looks a stretch, says Morgan Stanley (NYSE:MS)
The oil price has eased further with Brent crude down 1.2% to $92.39 and West Texas Intermediate down 0.9% to $88.61.
Despite all signals “flashing tightness,” Morgan Stanley (NYSE:MS) thinks Brent above $100 appears stretched.
"Not only has flat prices risen, but calendar spreads have rallied sharply as well, refining margins are unusually strong, the CFD curve is deeply in backwardation and physical differentials are strong," the bank said.
"On top, fundamental data tells the same story. Demand growth has been robust this year, and inventories are falling"
But the investment bank thinks the boost to the price from Saudi Arabia and Russia's announcement to continue voluntary cuts at least until year end is largely “already in the price.”
It expects Brent at $85-95/bbl to end-2024.
“For oil to move meaningfully higher, one would need to make the case that outright demand destruction is needed to balance supply and demand. That is still unlikely to be necessary, in our view,” Morgan Stanley (NYSE:MS) said.
"Therefore, our call is for Brent to remain in the mid-$90s for as long as OPEC cuts continue, but revert back to the $85-90/bbl range during the course of 2024 when some of OPEC's supply returns," it said.
10:40am: Goldman pushes back timescale for first US rate cut
Back to the US rate decision - Goldman Sachs (NYSE:GS) said the FOMC’s interest rate projections were "somewhat more hawkish than expected today," with a solid 12-7 majority showing another hike in 2023 and the median penciling in 50bp of rate cuts in 2024, down from 100bp of cuts in June.
"We did not take this as a strong signal about a hike in November, in part because these projections came alongside an inflation forecast that still looks too high," the investment bank said.
Goldman continues to expect that better inflation news, progress on labor market rebalancing, and a likely Q4 growth pothole will convince the FOMC not to hike again this year.
But the bank has pushed back its hopes for the first interest rate cut in 2024.
"We do, however, think that today’s meeting raises the bar for rate cuts next year, and we have pushed the first cut in our forecast back from 2024Q2 to 2024Q4," it added.
10:29am: JD Sports US performance reassures, no evidence of shrinkage
JD Sports has bounced back in style after half-results offered reassurance about the firm’s North American business.
Broker Barclays said “We consider this update to be encouraging, and many investors were concerned about downgrade risk post warnings from US peers.”
First-half pre-tax profit of £373.5 million beat its £361.6 million forecast and company consensus £370.6 million.
Shares had been a weak feature ahead of the figures spooked by warnings from US peers Dick’s Sporting Goods and Foot Locker both of which were hit by ‘shrinkage’ – retail terminology for loss of inventory due in some cases to theft.
Barclays noted North America inventory was £533 million “with the sell through of the delayed Summer 2022 apparel ranges progressing as expected”.
“At first glance, the growth in inventory being broadly consistent with revenue growth is encouraging,” it said, adding “there is no obvious impact from shrinkage that others have mentioned.”
Shares are up 7.8% at 143.29p.
10:02am: Bank of England rate call a “very close one”
Morgan Stanley (NYSE:MS) thinks the rate decision today “is a very close one.”
It thinks the door to holding rates constant tomorrow is open after yesterday’s inflation surprise.
“That said, if the BoE wanted to close the tightening cycle here, delivering one hike with a message that more strongly implies that more than one inflation print in October will be needed for further action seems plausible as well,” it added.
“We continue to think that a slowdown in private sector pay growth in October should suffice for a hold in November,” MS added.
Thereafter, the global tightening cycle should be done, allowing the BoE to continue with the 'higher for longer' approach, the investment bank thinks, although oil prices “pose a mild near-term risk to that view.”
9:42am: Next's results impress and it's a good read
Next’s results have got the thumbs up from the City after the Leicester-based retailer raised guidance once more due to better sales, lower costs and reduced inflationary pressures.
Stifel said “it’s another set of positive results and another guidance raise for Next.”
“This has become a familiar story for the fashion retailer, with growth in the core business supported by a strong third party offer and growing platform proposition.”
“This continued, strong performance supports our buy rating, with 13% upside to our target price of 8,000p.”
Chief executive Simon Wolfson explained that Next had expected full price sales to fall by 3% in February-July, but they atually rose by 3.2%.
“In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line,” he said.
“We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time (a factor we need to bear in mind when it comes to our forecast for next year),” he added.
The Next RNS release has also attracted praise – personally speaking, it is top notch, and detailed.
Here’s the view of The Sun’s business editor Ashley Armstrong and chief economist at Panmure Gordon, Simon French.
Next’s must-read annual report is out& it’s the most thorough analysis of the market going. It’s a best in class retailer but it shows extreme levels of self-awareness and details how weather and wage inflation play a role in its sales pic.twitter.com/uQdJUrRxdd
— Ashley Armstrong (@AArmstrong_says) September 21, 2023
Terrific illustration from Next PLC (LSE:NXT) on the slowdown in price inflation that has been “faster than we expected” & “throughout the entire supply chain”. Part of the body of data, alongside official statistics, for the MPC to consider today. Next PLC (LSE:NXT) RNS’ remain best in class. pic.twitter.com/w9RIL5EZJo
— Simon French (@shjfrench) September 21, 2023
For those looking some bedtime reading, the release is here.
Next shares are up 2.1% at 7,256p.
9:16am: Capita boosted by £565 million contract wins
Shares in Capita PLC (LSE:CPI) have risen 1.6% to 17.60p after the outsourcer inked two contracts worth £565 million.
The agreements are to deliver functional assessment service assessments in the Midlands and Wales for the Department for Work and Pensions, and in Northern Ireland for the Department for Communities.
Capita was selected as the preferred bidder for the two new contracts in May.
The two contracts are worth a combined £565 million and will run for five years from 2024, with an additional option to extend for a further two years, the firm said.
8:48am: FTSE 100 off lows as markets look for BoE pause
The FTSE 100 remains in the red but off earlier lows as attention switches to the Bank of England's interest rate decision at midday.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: "’Nervousness is pervading sentiment as investors assess the prospects of interest rates staying higher for longer."
"The mood is being driven by the US Federal Reserve taking a defensive stance in the fight against inflation, pausing for now but signalling a fresh rate hike to come."
"While Fed officials are keeping the boxing gloves on ready to spring into action again, there is increased speculation the Bank of England may call time on hikes although it is still expected to keep interest rates at elevated levels until later next year," she added.
Ahead of the decision, the pound has fallen below $1.23, partly in reaction to the Fed's hawkish hold, and partly given the reduced rate expectations in the UK.
Sterling is down 0.4% at $1.2297.
Retailers have been given a shot in the arm following the upbeat results from Next and JD Sports.
Frasers, B&M and M&S are all higher while DFS Furniture has risen 4.9% after its results.
The firm guided to full-year profit between £30-£35 million compared to current consensus of £30 million.
Elsewhere, Ocado fell 6.6% after Bloomberg reported BNP Paribas downgraded the stock to the equivalent of sell, saying the risk-reward on the shares is now “out of kilter” following a recent rally.
8:17am: FTSE falters but JD Sports soars
The FTSE 100 has opened lower after US markets sold off following a ‘hawkish hold’ from the Federal Reserve and ahead of the Bank of England’s interest rate decision later today.
At 8:15am, London’s lead index was down 49.26 points, 0.6%, at 7,682.39 while the FTSE 250 was 93.71 points, 0.5%, at 18,618.66.
Wednesday’s softer-than-expected inflation figures raised the possibility that the BoE’s Monetary Policy Committee could leave interest rates on hold after 14 rises.
Goldman Sachs (NYSE:GS) expects a pause, pointing out “out of the three indicators the MPC has set out to monitor inflation persistence, two, namely, labour market tightness and services inflation, have now shown notably more progress than anticipated since the August meeting, with only wage growth remaining stronger than expected.”
“Combined with the MPC’s recent commentary which suggests a preference for a flatter peak in rates, we now believe that the MPC will keep Bank Rate unchanged tomorrow and lower our forecast for the terminal policy rate to 5.25% (from 5.5% before).”
Ahead of the interest rate decision, there was better news on government borrowing which totalled £11.6 billion last month, £3.5 billion more than in August 2022, but below the £13 billion forecast by the Office for Budget Responsibility.
However, the EY ITEM Club said “higher interest rates and probable growth downgrades in the OBR’s next economic forecast mean the chancellor still faces significant challenges in meeting his medium-term fiscal rules, limiting room for any ‘giveaways’ in November’s Autumn Statement.”
In corporate news, and two retailers bucked the weaker market.
JD Sports Fashion jumped 6.3% after it reported strong growth in half-year profit and a more than doubled dividend.
Ahead of the numbers there had been concerns over the group’s North American business following warnings by US peers, Dick’s Sporting Goods and Foot Locker.
But JD’s US business seems to be performing well with 15% organic and 9% like-for-like growth.
Next PLC (LSE:NXT) rose 1.9% after raising profit guidance for the second time in two months.
The Leicester-based retailer now expects profit for the financial year of £875 million, up from £845 million before – it nudged its forecast up by £10 million in August.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown said the results “continued its hot streak of beating market expectations on the upside.”
7:55am: UK public borrowing comes in lower than forecast
Away from company news for a moment, and UK public sector borrowing was lower than the official forecast in August, which could the chancellor more wriggle room to lower taxes ahead of the next general election.
Figures from the Office for National Statistics showed that public sector net borrowing was £11.6 billion last month, £3.5 billion more than in August 2022, but below the £13 billion forecast by the Office for Budget Responsibility.
It was the fourth highest August borrowing since monthly records began in 1993, the ONS said.
Public sector net borrowing (excluding public sector banks) was £11.6 billion in August 2023, up £3.5 billion on August 2022.
It was the fourth-highest August borrowing since monthly records began in 1993.
— Office for National Statistics (ONS) (@ONS) September 21, 2023
Central government’s receipts were £76.6 billion, £3.1 billion more than in August 2022 and £1.2 billion more than the £75.4 billion forecast by the OBR.
Self-assessed income tax payments for July and August combined to £13.3 billion, £1.7 billion more than in the same two months in 2022 and £0.9 billion more than the £12.4 billion forecast by the OBR.
7:48am: JD Sports holds guidance after strong first half
Retailers dominating the early news, and sports retailer JD Sports Fashion PLC has held full-year guidance after reporting solid growth in sales, a big jump in profit and a more than doubled dividend at the half-year stage.
The sports, fashion and outdoor brands retailer said in the 26 weeks ended July 29, revenue rose 8.3% to £4.78 billion from £4.42 billion the year before while pre-tax profit jumped 26% to £375.2 million from £298.3 million.
Basic EPS increased 30% to 4.65p from 3.58p while the dividend was bumped 131% higher to 0.13p.
JD said Premium Sports Fashion delivered 15% organic growth, or 9% like-for-like, with further market share gains in key regions while gross margins were robust at 48% and well above pre-pandemic levels.
There was a strong performance from its North America premium Sports Fashion fascias with organic growth of 15%, like-for-like growth of 9% and Ebit up 12%.
The firm said it was on track to add over 200 new JD stores globally by January 2024
Trading in the first seven weeks of the second half has continued in line with expectations and the group expects full-year profit in line with the current market consensus of £1.04 billion.
7:32am: Next raises guidance again
Next PLC (LSE:NXT) has raised guidance for the second time in two months due to better than expected sales, lower costs and reduced inflationary pressures.
The flagship retailer now expects full-year pre-tax profit of £875 million, up from £845 million, which would represent annual growth of 0.5%.
In August, the Leicester-based firm which has a track record of under promising and over delivering nudged up its pre-tax prediction by £10 million from £835 million before.
Next has increased its full price sales guidance for the second half to be up 2.0% on last year, compared with previous guidance of 0.5%, which would take full year growth to 2.6%.
It also believes it can deliver £46 million more cost savings this year than originally planned.
Earnings Per Share is forecast to be 723.9p, up +3.2%, and the firm expects to book an exceptional gain of £110 million from the Reiss acquisition - a pure accounting gain and not included in the profit guidance.
Looking ahead to 2024/25 it is likely that inflationary pressures on selling prices and operating costs will continue to ease, Next thinks.
The guidance came alongside, results for the half-year to July 31, which saw sales rise 5.4% to £2.64 billion from £2.50 billion and pre-tax profit climb 4.8% to £420 million from £401 million. EPS edged up to 264.5p from 262.3p.
Next said sales were better than expected, its online service has significantly improved, costs are lower than expected and all three streams of new business are showing signs of promise.
Overseas, in particular, has taken a big step forward in the second quarter.
7:00am: FTSE seen lower after Fed signals one more rate rise
The FTSE 100 is expected to nurse heavy losses at the open on Thursday ahead of the interest rate decision by the Bank of England after a ‘hawkish hold’ by the US central bank on Wednesday.
Spread betting companies are calling London’s lead index to open down around 61 points after closing up 71.45 points at 7,731.65 on Wednesday.
US stocks retreated after the Federal Reserve signalled one more rate rise this year and fewer cuts next, as it left interest rates unchanged at a 22-year high.
The Federal Open Market Committee opted against an interest rate increase following its latest two-day meeting and voted unanimously to hold the federal funds rate between 5.25-5.5%.
Projections released in the Fed’s dot-plot showed the likelihood of one more increase this year, then two reductions in 2024, two fewer than were indicated during the last update in June.
Ian Shepherdson chief economist at Pantheon Macroeconomics said: "This is a hawkish hold, signalling higher-for-longer, but the Fed’s intentions today are not a set of promises. They will react to the data, and our take on the data is that core inflation will fall faster than they expect, and the labor market will loosen more than they expect."
Back in the UK and the Bank of England’s rate decision is seen as a 50/50 call after better-than-expected inflation figures on Wednesday.
Deutsche Bank’s Sanjay Raja said the decision is “finely balanced.”
“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."
Away from central banks, and updates from JD Sports Fashion, Next and Halma will provide the early focus.