- FTSE 100 down 58 points at 7,412
- Tesco raises profit outlook, picks up market share
- BAT and Imperial Tobacco hit by smoking plans
4:40pm: FTSE 100 closes down as oil stocks weigh
The FTSE 100 fell into the close as tobacco and energy stocks fell.
At the close, London's lead index was down 57.71 points, 0.8%, at 7,412.45 while the FTSE 250 fell 184.86 points, 1.1%, at 17,492.90.
Michael Hewson at CMC Markets said: "The FTSE100 and FTSE250 have both underperformed, with the FTSE100 sliding to 3-week lows on the back of weakness in crude oil as well as metals prices, with copper prices sliding to their lowest levels this year, and Brent crude prices falling to one-month lows."
"BP and Shell are acting as a major drag, along with tobacco," he noted.
BP fell 3.4% and Shell fell 2.2%.
Imperial Brands and British American Tobacco have come under pressure on today’s announcement that the UK will raise the legal smoking age over time, he noted, while the defence sector is also feeling the heat on concerns over future US spending, after a commitment to spend another $6 billion for future Ukraine aid was left out of the latest US government funding plan, he explained.
3:56pm: Ascential receives bid for events business, says Sky
Shares in Ascential, the data and analytics company, have climbed around 7% after Sky News reported that the company has received an approach for its events business, which runs the Cannes Lions advertising festival.
That comes after the company was reported last week to have entered talks with private-equity house Apax for the sale of its WGSN consumer trend-spotting unit.
Sky said it has learnt that Hyve, a private equity-backed exhibitions company, and MediaLink, a media and marketing advisory firm owned by United Talent Agency, tabled an offer to acquire Ascential's events arm in the last few weeks.
3:15pm: Pendragon falls as one suitor walks away
Pendragon shares have fallen 7% after one of its suitors pulled out.
Hedin and PAG confirmed that they do not intend to make an offer for Pendragon, a statement said, ruling them out for six months under takeover rules.
The two had joined forces in a 32p bid approach, the same terms as a rival approach from US auto retailer AutoNation.
But Pendragon has pursued its own deal with Lithia Motors.
On Monday, Pendragon announced that it has agreed to improved terms with Lithia Motors for the sale of its UK motor business and leasing business.
Lithia has agreed to pay £367 million for Pendragon’s UK motor business and leasing business, a 42% increase from the original £250 million plan.
Shareholders are expected to receive a 24.5p cash dividend, a 49% increase, as part of the deal taking the implied total initial value to around 35.4p per share.
The Nottingham-based car dealership said the transaction structure provides substantial upside for Pendragon shareholders through enhanced growth prospects for Pinewood as a standalone, pure-play SaaS business and through the strategic partnership.
disposal to GBP367 million from GBP250 million previously.
2:44pm: Bright start on Wall Street after weak payrolls data
Off and running in the US and it's been a bright start.
Shortly after the opening bell, the Dow Jones Industrial Average was up 57.71 points, 0.2%, at 33,060.09, the S&P 500 up 16.97 points, 0.4%, at 4,246.42 and the Nasdaq Composite was up 89.12 points, 0.7%, at 13,148.58.
A report from ADP showed job growth in the US private sector slowed significantly in September, with private sector employment increasing by 89,000 jobs in September, well below forecasts of 160,000.
In August, private sector employment increased by 180,000 jobs, it was upwardly revised from 177,000
"September showed the slowest pace of growth since January 2021, when private employers shed jobs. Large establishments drove the slowdown, losing 83,000 jobs and wiping out gains they made in August," ADP said.
But Ian Shepherdson at Pantheon Macroeconomics is not fan of the report.
"ADP is both an unreliable indicator of the official private payroll numbers and essentially unforecastable, due to the short run of data since major methodological changes in August 2022," he said, noting errors since last August, relative to the initial official private payroll print, have ranged from an undershoot of 337,000 in January to an overshoot of 348,000 in June, with a mean absolute error of 85,000.
Nonetheless, the weaker figures did contribute to the yield on the benchmark 10-year US Treasury falling 0.07 percentage points at 4.73% lower than before their, continuing a reversal from a 16-year high of 4.88%.
The yield on the 2-year Treasury, which tracks interest rate expectations, was down 0.06 percentage points at 5.09%.
2:00pm: Here are some of today's risers and fallers
Superdry PLC (LSE:SDRY) shares soared 22% after it inked a £40 million licensing deal with one of India's largest companies that should cement its financial position and pave the way for the international expansion of the UK fashion brand.
The intellectual property (IP) joint venture with Reliance Brands involves transferring Superdry's brand and related trademarks in India, Sri Lanka, and Bangladesh to a newly established entity.
Shares in Neometals Ltd (ASX:NMT, OTC:RDRUY, AIM:NMT) rose by more than 4% on Wednesday after it reported an increase in lithium recovery yields.
The battery recycling company said in a statement on Wednesday that new lithium recovery yields have improved from 83% or more to over 93%.
Shareholders in Swedish airline SAS may well have been sending SOS signals today, as shares in the carrier plummeted by over 80% early on following news of a rescue deal.
Having filed for bankruptcy protection in the US last year, SAS announced on Tuesday that American investor Castlelake and Air France-KLM (OTC:AFLYY) would become major shareholders as part of a restructuring of the business.
Spirent Communications (LSE:SPT)’s share price plunged by more than 30% on Wednesday after the company released a profit warning for the third quarter.
The provider of automated test solutions for next-generation devices and networks said its revenue is expected to be “down broadly 20 per cent” for the first nine months of 2023, “in line with the reduction seen in the first half”.
1:08pm: L&G lacks near-term catalysts ahead of new CEO
We'll keep an eye on the PM's speech for any other market moving nuggets of information.
Back to the insurance sector and along with its upgrade of Aviva, Jefferies has downgraded Legal & General PLC to hold from buy.
“Whilst Legal & General's long-term prospects remain attractive, we believe there are limited near-term catalysts until the incoming CEO updates the market on his strategy,” it said.
It thinks very large pension risk transfer deals are more likely than a buyback, with the latter being the market's preference in its view.
Losses in the investment portfolio are unlikely, however the current negative sentiment towards credit risk and commercial real estate is unlikely to improve soon, Jefferies thinks.
It notes L&G's incoming CEO, António Simões, joins from the start of next year which is a key catalyst, and an update on strategic direction is highly anticipated, which should also provide clarity around capital allocation priorities.
Over the long term, L&G's prospects look attractive, the broker said, with a 2024 dividend yield of 10%, though this is slightly below the average total capital return yield amongst UK life insurance peers (12%).
Jefferies has reduced its price target to 230p from 335p reflecting a 13% reduction to its 2024-26 capital generation forecasts and a higher cost of equity to reflect elevated credit risk.
12:49pm: BAT and Imperial Brands slip on smoking, vape changes
Shares in tobacco firms BAT and Imperial Brands slipped into the red after PM Rishi Sunak confirmed the government will raise the smoking age every year.
That means a 14 year old today will never be able to buy cigarettes.
"I propose that in future we raise the smoking age by one year, every year. That means a 14 year old today will never be legally sold a cigarette… …and that they—and their generation—can grow up smoke free. We know that this works. When we raised the smoking age to 18, smoking prevalence dropped by 30 percent in that age group," he said.
Sunak pledges, as expected, to raise the smoking age by one year, every single year, to create a smoking free UK (over circa 70 years). Part of preventative health policy. Very much the New Zealand model. Detail below. “So, I propose that in future we raise the smoking age by…
— Robert Peston (@Peston) October 4, 2023
Sunak also wants to restrict the availability of vapes to children.
The government will look at flavoured vapes, disposable one and packaging, he said.
BAT shares fell 0.7% and Imperial Brands dipped 1.3% after the news.
12:28pm: UBS questions whether Vistry plan can be delivered
Vistry shares are down 5% today at 791p, hurt by a downgrade by UBS to sell from neutral.
The Swiss bank is cautious that the recently presented business plan can be executed because it assumes record volumes (>20,000) for any single UK housebuilder to have ever delivered at a record level of ROCE of 40%.
The broker thinks finding sufficient "capital light" development opportunities with PRS and affordable housing providers at that scale could be challenging, while current reported profitability levels are supported by fair value adjustments following M&A activity which it thinks overstates the economic returns to shareholders.
It also noted the plans include a high level of financial gearing with average net debt of £400 million and £700 million of lend creditors (highest gearing in the sector).
Added to a relatively high valuation, with the shares now trading at the top end of the sector range, UBS has taken a more cautious view.
On Tuesday, Jefferies lowered the stock to hold from buy.
12:02pm: Subdued start expected in the US
Across to the US now and it looks like a flat start, after heavy falls on Tuesday, as the market prepares for a further batch of economic updates.
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 flat.
Stocks fell sharply on Tuesday after robust jobs vacancies figures gave further credence to the belief interest rates will stay elevated for some to come.
Bond yields jumped once more and their trajectory will be closely watched again.
Deutsche Bank’s Jim Reid noted the last 24 hours saw the “relentless bond sell-off continue, with yields rising to fresh multi-year highs on both sides of the Atlantic.” Risky times, he said.
“If all that wasn't enough, the US House speaker Kevin McCarthy was ousted late last night leaving a leadership vacuum with large uncertainty as to how this will be filled ahead of the next government shutdown deadline of November 17th,” he added.
Today, the data driven Federal Reserve will have another indication as to the health of the jobs markets, plus a services sector reading.
Figures from ADP are expected to show the US added 153,000 private sector jobs in September, down from 177,000 in August, while the Institute for Supply Management’s purchasing managers’ index for services for September, is likely to fall to 53.6, down from 54.5 in August.
Factory order numbers are also due, and are expected to show an increase of 0.2% after slipping 2.1% in July.
11:25am: Capital Economics still expects mild recession
Capital Economics is sticking to its call that the UK faces a mild recession due to the growing drag from higher interest rates.
The economics thinktank said while overall recent reports suggest the economy has lost momentum and may be dangerously close to a recession.
"We are sticking to our view that the growing drag from higher interest rates will generate a mild recession involving a 0.5% peak-to-trough fall in real GDP over the coming quarters," it said.
"While some measures of optimism have been improving, the majority of the survey evidence suggests the economy is weakening and the chances of the mild recession we have been forecasting have increased," it added.
11:00am: Asos turnaround 'underappreciated,' says UBS
It's been a better day for Asos PLC with shares up 3.5% to 391.80p.
UBS thinks the turnaround at the online retailer under boss José Antonio Ramos Calamonte is “underappreciated.”
It believes the retailer is addressing the “key areas” of underperformance such as basket economics, assortment management, sourcing and inventory management through its 'Driving Change' plan.
“The margin rebuild and profit recovery from this plan are underappreciated, in our view,” it added.
The Swiss bank said date showed lower promotions year-on-year in the second half from a reduction in stock keeping unit count which gives it encouraging evidence of delivery on the new strategy.
It thinks results due in October should point to clear progress in profit and cash delivery and reassure investors.
UBS has moved the stock to buy from neutral although its 12-month price target moved to 550p from 660p.
10:31am: Aviva jumps as Jefferies forecasts bumper returns
Shares in Aviva PLC (LSE:AV.) have jumped 2.2% to 383.90p after broker Jefferies upgraded to buy from hold with a 480p price target.
“We forecast Aviva to deliver a best-in-class capital return yield, underpinned by excess capital and the strongest free cash flow amongst peers,” it said.
Earnings should start to shift towards capital-light business, which is well-timed given improving market conditions, and should warrant a premium valuation versus peers, Jefferies added.
Jefferies forecasts £5.3 billion of capital returns between 2023-26, equivalent to 51% of Aviva's current market cap, underpinned by a strong solvency II ratio (2023 forecast: 205%) and the best free cash flow yield versus UK life insurance peers.
It said its capital generation forecasts for 2025 (£1.69 billion) are 10% ahead of consensus largely driven by a more positive outlook in general insurance.
Further sales are possible and Jefferies views it as “increasingly likely” that Aviva will also sell its operations in India and China which could sell for more than £1 billion, funding additional special capital returns or M&A.
10:10am: Superdry flies on IP deal
Another big share price move at Superdry PLC (LSE:SDRY) where shares are up 26%.
The branded retailer has sold a share of its intellectual property assets in India, Sri Lanka, and Bangladesh to Reliance Brands Holding UK Ltd (RBUK) for £40 million.
A new joint vehicle will be set up owned 76% by RBUK and 24% by Superdry.
RBUK is held by Reliance Retail Ventures Ltd, through its subsidiary Reliance Brands Limited, Superdry’s exclusive franchise partner in India since 2012.
Superdry expects to receiving gross cash proceeds of £30.4 million.
Proceeds will be used to increase the strength of the balance sheet, boost liquidity, and fund its ongoing working capital requirements as part of the turnaround plan.
9:50am: Service sector falls but not as much as first feared
The UK’s service sector fell in September but not by as much as first feared, according to figures just released.
The headline seasonally adjusted S&P Global / CIPS UK Services PMI business activity index posted 49.3 in September, down from 49.5 in August.
Although this was the lowest level since January, it was above the earlier 'flash' reading for September of 47.2.
The #UK Services #PMI indicated a further downturn in service sector activity in Sept (49.3), which was the greatest since the start of the year despite pulling higher from ‘flash’ estimates. Read more: https://t.co/ytJALvn379@SPGlobal @cipsnews pic.twitter.com/geptg1pNt4
— S&P Global PMI™ (@SPGlobalPMI) October 4, 2023
Businesses cited subdued demand and cutbacks to non-essential spending among clients but remained resilient for the outlook supported by hopes of a further moderation in inflationary pressures.
However, service providers reported a renewed fall in employment, in part due to cost considerations, and the rate of job shedding was the fastest since January 2021.
Tim Moore, economics director at S&P Global Market Intelligence said: “Although only modest and slower than indicated by the earlier 'flash' PMI reading, the downturn in UK service sector output was the greatest seen since the beginning of this year and stood in contrast to solid growth during the spring months.”
The news has given a boost the FTSE, now up 11 points at 7,481.
9:35am: UK bond yields at highest levels since 1998
Britain’s long-term cost of borrowing has hit its highest level since 1998 this morning, as the sell-off in the bond market continues.
The yield on 30-year UK government bonds hit 5.115% this morning, above the levels seen a year ago in the panic after Liz Truss’s mini-budget.
The price has eased a touch but remains 5 basis points higher at 5.097%.
30-year gilt yield rises this morning to highest level since 1998.
Unlike a year ago, this move truly is global - big rout going on across bond markets. pic.twitter.com/nU0CXCtH0J
— Andy Bruce (@BruceReuters) October 4, 2023
Neil Wilson at markets.com said it looks as though rates are starting “to assert a new narrative that has long been touted by central banks.”
“Multi-year highs across govt bond yields – US 10yr to a new 16-year high at 4.887%, the German 10yr bund back above 3% for the first time since 2011...we are seeing some terrible destruction of capital in fixed income that is going to produce second round effects down the line,” he added.
“The 30yr long bond briefly rose above 5% and the UK 30yr gilt yield has hit its highest since 1998 this morning – these moves are large and rapid and catching many offside,” he said.
9:03am: Spirent plunges after cutting outlook
Spirent Communications (LSE:SPT) shares have plunged 34% after it cut its annual outlook, warning of a weak near-term orderbook.
"The impact of negative operating leverage will very materially affect operating profit in this financial year," the automated test and assurance solutions provider warned.
The uptick in Telecommunications orders seen over the second quarter "dissipated" over the summer, and the expected rebound in September has not materialised.
However, it saw strong growth in its non-telecommunications end markets.
Elsewhere, Seven Trent is up 1.2% after JPMorgan moved the stock to neutral from underperform.
8:42am: Tesco's results lift Sainsbury; L&G hit by downgrade
The FTSE 100 remains in the red, after a brief spell in the green, despite strong results from Tesco which have given a lift to industry rival J Sainsbury, which is up 1.1%.
SSE PLC (LSE:SSE) rose 0.4% after its trading update despite weakness in renewables.
Aarin Chiekrie at Hargreaves Lansdown said: “Mother nature weighs on performance at SSE. The pivot towards renewable energy is a bold and admirable move for the power utility company but it comes with a hefty dose of risk, since they are not always reliable. Adverse weather conditions in the first half meant that renewables output was around 19% behind plan.
But he noted that’s where the group’s diverse portfolio of assets comes in. “Flexible thermal assets continue to demonstrate their value in the group’s energy system, helping to plug some of the energy shortfalls from renewable assets,” he noted
Relx PLC was on the rise, up 0.8%, as Goldman Sachs (NYSE:GS) upgraded to buy with a 3,405p price target, while Aviva PLC (LSE:AV.) climbed 0.6% as Jefferies upgraded to buy from hold with a 480p price target.
But Legal & General PLC fell as Jefferies doengraded the stock to hold from buy with a reduced price target of 230p, down 335p.
Compass Group PLC (LSE:CPG) advanced 1.4% as RBC raises the firm to sector perform from underperform while Asos got a boost from USB which upgraded to buy from hold, sending shares up 1.9%.
8:15am: FTSE lower but Tesco pushes higher
The FTSE 100 opened lower after rising bond yields sparked a sharp sell-off in US equities on Tuesday but it was a brighter picture at grocer, Tesco.
At 8:15am, London’s lead index was down 8.43 points, 0.1%, at 7,461.73 while the FTSE 250 fell 105.52 points, 0.6%, at 17,572.24.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’Chill winds of worry are swirling about high interest rates settling in and there is set to be little respite from the sell-off.”
“Investors have again been reminded by central bank policymakers in the US that the screws may have to be tightened on monetary policy again, and kept there for some time, to stop inflation whipping higher again.”
The renewed worries followed strong jobs data in the US where vacancies unexpectedly rose in August – markets now see a near 40% chance that the Federal Reserve will increase rates at its December meeting, although no change is still forecast in November.
Bucking the weak market was the UK’s largest retailer Tesco which raised profit guidance after a strong first half which saw it pick up market share from its rivals.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “Tesco has delivered another strong set of results, as its long-term turnaround strategy continues to pay off.”
Sophie Lund-Yates at at Hargreaves Lansdown suggested Tesco was “performing its own supermarket sweep, knocking competition out the way in the process and loading up on market share.”
The firm reported increased market share in the UK and Republic of Ireland.
Ken Murphy, chief executive said: “We're seeing the results at both ends of the basket, with strong growth in our Finest range as shoppers look to save by treating themselves at home, voting with their feet as they switch from premium retailers to Tesco.”
Elsewhere, SSE PLC (LSE:SSE) was little changed as it held guidance despite a weak performance in renewables but it was a grim morning for shareholders in Spirent Communications (LSE:SPT), which fell 34% to 86.59p after it cut its annual outlook, warning of a weak near-term orderbook.
7:57am: SSE holds guidance despite weak renewables
SSE PLC (LSE:SSE) has also updated on trading.
It expects to report half-year adjusted earnings per share of at least 30p and full-year adjusted earnings per share of more than 150p.
The firm explained the lower first half contribution largely reflects the normal seasonal nature of operations that deliver the majority of annual earnings in the second half of SSE's financial year.
The generator said the guidance takes into account renewables performance which remains below expectations, with output around 19% behind plan for the six months to September 30, mainly due to adverse weather conditions.
This represents around a 7% shortfall relative to the full year's planned output, SSE said.
SSE added it also reflects a more stable market environment which is expected to drive a seasonal half-year loss for gas storage, before reverting back to a profit for the full year when gas is withdrawn.
Despite this, SSE expects to deliver full-year adjusted EPS of more than 150 pence which is unchanged from guidance given in May.
7:49am: Topps Tiles sees record sales but growth slows in final quarter
Topps Tiles PLC (LSE:TPT) expects to report record sales despite a moderation of sales growth in the final growth.
In a trading update for the 52-week to September 30 the firm said group sales in the year were around £263 million, up 6.4% year-on-year, and around £40 million higher than the last financial year before the Covid pandemic.
The company said it was “a significant outperformance relative to the UK tiling market.”
In the fourth quarter sales grew by 3.2%, Topps Tiles said.
“As expected, sales growth moderated in the final quarter, reflecting the impact on residential RMI spend of the prolonged period of inflation, higher interest rates and the slowing housing market,” the firm added.
Profitability improved in the second half as expected and adjusted pre-tax profit for the year is expected to be in line with market expectations.
Rob Parker, chief executive, said: “It was also a year of strong strategic progress, in which Topps Tiles continued to take significant market share, Parkside was set-up for profitable growth and Pro Tiler's performance went from strength to strength.”
“As a result of this progress, we anticipate delivering our goal of '1 in 5 by 2025' significantly ahead of schedule,” he added.
7:35am: Tesco ups guidance as picks up shoppers from rivals
We start today with Tesco PLC which raised its profit guidance for the year after a strong first half and signalled it expects food inflation to fall in the second half of the year.
The grocer now expects retail adjusted operating profit between £2.6 billion and £2.7 billion for the 2023/24 financial year, ahead of previous guidance of £2.5 billion.
The UK’s biggest retailer said sales in the 26 weeks to August 26 rose 8.9% to £30.75 billion from £28.24 billion with UK like-for-like (LFL) sales up 8.7%, Republic of Ireland LFL sales up 8.4% and Booker LFL sales up 7.5%.
Tesco said it had increased its market share by 30 basis points in the UK with gains in both stores and online and by 70bps in the ROI with volume and sales mix trends ahead of expectations.
Ken Murphy, chief executive said: “We're seeing the results at both ends of the basket, with strong growth in our Finest range as shoppers look to save by treating themselves at home, voting with their feet as they switch from premium retailers to Tesco.”
Adjusted operating profit jumped 14% to £1.48 billion from £1.30 billion, retail cash flow improved 6.6% to £1.37 billion from £1.28 billion and EPS climbed 17% to 12.26p from 10.50p.
Murphy said food inflation fell across the half “and while external pressures remain, we expect that it will continue to do so in the second half of the year.”
Tesco said it had cut prices on c.2,500 products by the end of the half, from bread to broccoli, with average saving of c.12%.
Tesco Bank adjusted operating profit rose 25% to £65 million,, primarily driven by strong income growth;
The dividend was unchanged at 3.85p.
7:00am: FTSE set to fall after heavy falls in the US
Good morning and the FTSE 100 is expected to open lower after heavy falls in the US as bond yields hit 16 year highs.
Spread betting firms are calling London’s lead index down by around 15 points after closing down 40.56 points at 7,470.16 on Tuesday.
Stocks slumped as bond yields hit fresh highs, after robust jobs data added weight to the case for the Federal Reserve to keep interest rates elevated.
The Dow Jones Industrial Average closed down 1.3%, the S&P 500 fell 1.4% and the Nasdaq Composite declined 1.9%.
Yield on the 30-year US Treasury rose 0.05 percentage points to 4.97%, building on a 16-year high touched on Tuesday, while the yield on the benchmark 10-year US Treasury rose 0.04 percentage points to 4.84%.
"The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy," said Michael Hewson at CMC Markets.
"If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead," he warned.
Adding to the uncertainty Kevin McCarthy was axed from his role as speaker of the US House of Representatives in a ruthless overthrow by far-right Republican lawmakers furious over his cooperation with Democrats.
For the first time in its 234-year history, the House backed a resolution "to vacate the office of the speaker" with a 216-210 vote setting the stage for an unprecedented contest to replace McCarthy a year before the presidential election.
The downbeat mood spread to Asia where the Nikkei 225 fell 2.1%.
Back in London, and the early focus will be results from the UK’s largest retailer Tesco and specialist retailer, Topps Tiles.