- FTSE 100 closes up 39 points at 7,452
- Metro Bank reviewing options on financing
- Construction sector slumps in September
4:40pm: FTSE ends in postive territory but off highs
The FTSE 100 closed in the green but well off early highs as US markets fell back.
At the close London's leading index was up 39.09 points, 0.5%, at 7,451.54 while the FTSE 250 was up 107.08 points, 0.6%, at 17,599.98.
Michael Hewson chief market analyst at CMC Markets UK said: "European markets have enjoyed a modest rebound in the wake of a strong session in Asia markets, as yields give back some of the gains seen so far this week, in a continuation of the seesaw, yields up, stocks down, yields down, stocks up narrative, that has characterised this week’s trading activity."
Imperial Brands bounced back after yesterday's falls as it unveiled a £1.1 billion buy-back which pleased the City after the smoking and vape moves by Rishi Sunak.
Resco gained 3.7% after more positive comment followed well-received results on Wednesday while news IAG has agreed a deal with the pilots union over pay saw shares fly 2.4% higher.
4:15pm: Oil prices set for biggest weekly fall since March
Oil prices are on course for their largest weekly fall since March amid a sharp sell-off in financial markets triggered by concerns that interest rates will remain higher for longer.
The cost of a barrel of Brent crude has dropped by more than 11% this week - a decline of more than $10 - to less than $85 a barrel, with further falls today.
It was last at that price in late August and was worth more than $97 just last Thursday.
Oil had rallied by more than a quarter since mid-June when Russia and Saudi Arabia began imposing unilateral cuts to global supplies.
However, the price of crude has tumbled sharply against a backdrop of rising worries about elevated interest rates.
Meanwhile, there are worried about demand after the global economy was rattled this week by drops in bond and stock markets.
Higher US Treasury yields have also strengthened the value of the dollar, meaning fewer are needed to buy the commodity.
Warren Patterson, head of commodities strategy at ING said: “The current rates environment along with the USD strength has only provided stronger headwinds to the market.”
3:55pm: BoE official says clear signs rate rises slowing economy
There are now “clear signs” that interest rates are dragging on the UK economy and causing a pickup in unemployment, according to Bank of England Deputy Governor Ben Broadbent.
Speaking at the European Central Bank conference on monetary policy, Broadbent said that interest rate-sensitive indicators, ranging across consumer spending measures and housing investment, have “weakened quite a lot.”
He added: "There are now reasonably clear signs that monetary policy tightening is having some effect, not least in the shape of demand in the UK. Even in aggregate, we’ve seen weaker demand growth and the beginnings at least of some rise in unemployment.”
3:14pm: BA reaches deal with pilots to avert strikes
British Airways has now confirmed it has agreed a pay deal with unions representing pilots, which it hopes will prevent any strike action until at least 2027.
The airline said: "We are pleased that we have now reached an agreement in principle for the pilot pay award 2023-27."
"The British Airline Pilots’ Association (BALPA) will now ballot its members on the agreement in principle."
"The pay offer builds on a number of pay and reward changes made in 2022 to support colleagues throughout the business at a time of ongoing cost of living pressures."
2:45pm: Sluggish start in the US
It's early but US markets have barely moved in the first minutes of trading after data showed the jobs market remains resilient despite the slew of interest rates increases.
Shortly after the opening bell, the Dow Jones Industrial Average was down 1.00 point at 33,128.55, the S&P 500 rose 1.79 points at 4,265.54 and the Nasdaq Composite was up 0.37 points at 13,236.38.
US initial jobless claims were lower than expected in the week just gone, numbers on Thursday showed.
According to the US Department of Labor, initial claims for unemployment support rose to 207,000 in the week ended September 30, from 205,000 a week prior. The previous reading was upwardly revised by 1,000 from 204,000.
The latest figure fell sort of the FXStreet cited consensus, which predicted claims would rise to 210,000.
The four-week moving average fell by 2,500 to 208,750, from 211,250 in the prior week.
The figures followed mixed reports on the labour market earlier in the week, with the US jobs report to come on Friday.
Ian Shepherdson at Pantheon Macroeconomics said: “Stepping back from this noise, it is clear that the initial surge in layoffs late last year, concentrated in the tech sector, has flattened.”
2:14pm: BA close to striking deal with pilots - Sky
British Airways is close to agreeing a three-and-a-half-year pay deal with its pilots’ union, according to Sky News.
According to the report, the pilots would get a 4% pay rise this year, backdated to June, followed by further uplifts of 1.5% in December, 2.5% next June, and further increases after.
Revealed: British Airways has struck a three-and-a-half year pay deal with BALPA, its pilots' union, that includes a new reward scheme paying out bonuses based on the airline's future operating profit performance. The agreement should be announced today. https://t.co/awRlBiyrcM
— Mark Kleinman (@MarkKleinmanSky) October 5, 2023
The three-and-a-half-year deal, which has been the subject of months of negotiation, expected to secure the agreement of BALPA, the pilots union, which would then ballot its members on the proposal.
Shares in IAG, the parent of British Airways, are up 2% today, boosted by the recent fall in the oil price as much well.
1:14pm: Thursday's biggest movers
A summary of some of the movers in London on Thursday
Risers
Shares in Ramsdens Holdings PLC (AIM:RFX), not the fish and chip chain but the pawnbroker and currency services provider, jumped over 6% in trading as it said it expects record profits for the past year to 30 September 2023.
KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF) has soared over 22% after achieving approval from the Ethiopian Central Bank for its Tulu Kapi project, providing the company with the all-clear to receive funding and begin operations.
Fallers
Metro Bank Holdings PLC (LSE:MTRO) slumped close to 25% after revealing it is seeking to raise £600 million from investors to fortify its beleaguered balance sheet following a series of financial setbacks and regulatory hurdles.
Helium One Global Ltd (AIM:HE1, OTCQB:HLOGF) dropped by around 20% due to one of its rigs suffering a component failure, which means production is expected to be halted for around two weeks.
12:58pm: Deliveroo outperformance to continue, says BofA
Deliveroo PLC (LSE:ROO) shares pushed 2.6% to 125p higher supported by positive comments from Bank of America.
The broker reinstated coverage of the food delivery outfit with a buy rating and price objective of 151p.
The bank pointed out the firm has outperformed in the UK & Ireland in recent years and continues to ramp up profits.
“We think that this growth should be sustainable, as its expansion into grocery leads to greater ad opportunities and further supports profitability expansion,” BofA said.
Further, early next year, the two-tier share structure should end, levelling the playing field in terms of voting rights for shareholders and acting as a potential catalyst, it believes.
“We argue that these positives and its strong UK&I positioning are not reflected in the current share price,” the broker added, with Deliveroo trading at c10x EV/Ebitda and 0.6x EV/sales for 2024 versus European peers at c10x and 0.7x, respectively.
12:28pm: Metro Bank bosses hauled in by BoE for urgent talks
Metro Bank’s chair and chief executive have been summoned to urgent talks with the UK’s top financial regulators on Thursday, according to the Financial Times.
Metro’s chief executive Daniel Frumkin and chair Robert Sharpe have both been asked to meet officials from the Bank of England’s Prudential Regulation Authority and Financial Conduct Authority later on Thursday, according to two people familiar with the situation, the FT said.
Shares remain in the doldrums, down 24%, after it responded to reports suggesting was looking at riaisng funds but saying it was reviewing all options.
12:02pm: US stock futures edge lower
Across to the US and it looks like a subdued start to proceedings.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% lower, while those for the S&P 500 fell 0.2%, and contracts for the Nasdaq 100 futures were down 0.1%.
On Friday, the US employment report will be released, while weekly jobless claims figures, a proxy for lay-offs, will be reported today.
Initial US state unemployment claims are expected to have ticked up to 210,000 last week from 204,000 the previous week.
In company news, Amazon and Microsoft both face an competition probe in the UK over their cloud dominance after Ofcom alleged that certain market features could limit competition.
BlackBerry rose 4.2% after announcing it would split into two separate businesses, and planned to spin off its Internet-of-Things business in an initial public offering.
The IPO would be targeted for the first half of the next fiscal year, BlackBerry said.
11:30am: RBC Wealth takes less negative view on UK equities
RBC Wealth Management has taken a more positive (less negative) stance on UK equities upgrading to market weight from underweight.
"UK equity valuations appear undemanding, with almost every sector trading on an abnormally high discount relative to history," it pointed out.
It suggests prospects may be improving with investors are hoping that the Bank of England’s recent decision to pause rate hikes could be a positive catalyst.
The pound has been weakening as a result of the pause, mitigating an important headwind for equities, it explained.
RBC said moreover, the UK’s blue-chip equity index, the FTSE 100, typically outperforms when value stocks outperform growth stocks given the index’s bias to “old economy” industries such as Energy, Mining, and Banks.
"This dynamic has been supportive recently, with rising oil prices helping to buoy the energy sector," it noted
Despite the upgrade, RBC acknowledged the challenging domestic economic prospects and remain cautious on domestic stocks.
"But we would be alert to opportunities in the energy sector, as well as in leading globally diversified, high-quality businesses whose valuations remain at a notable discount versus international peers listed in other," it said.
11:01am: Weak construction data adds to signs economy under pressure
The EY ITEM Club thinks the weak construction purchasing managers’ index adds to signs that the economy experienced a weak third quarter.
But it pointed out the PMIs haven’t been a great guide to the official output measures in recent months, and the EY ITEM Club thinks the economy isn’t quite as soft as the survey measures suggest.
But construction is particularly exposed to the adverse effects of higher interest rates on the property market, it added.
“Its performance therefore may well undershoot what is likely to be a period of near-stagnation for the economy as a whole,” the economic thinktank added.
Samuel Tombs at Pantheon Macroeconomics said the renewed rise in borrowing costs over the summer weighed heavily on construction output in September.
But he thinks a downturn still can be avoided “if, as we expect, labour market slack continues to increase and the pace of consumer price rises slows, bearing down on risk-free interest rates soon.”
10:35am: BoE inflation survey shows slight pick up in expectations
The Bank of England’s latest inflation expectations report is out, showing a slight increase for CPI predictions.
The Decision Maker Panel survey, which involves chief financial officers from across UK businesses, showed one-year ahead CPI expectations increased to 4.9% in September, from 4.8% in August.
Three-year ahead CPI inflation expectations remained flat at 3.2% in September, the same value as the August figure.
However, the three-month moving average for the survey still fell to 5%. Year-ahead wage growth expectations were unchanged.
Output price inflation is seen falling further over the coming year, which chimes with what we’ve heard from companies across sectors in recent weeks.
Firms reported that their output prices rose by an average annual rate of 7.4% in the three months to September; the rate was unchanged for third consecutive month.
ING Economics said while policymakers appear wary about putting too much emphasis on surveys, but the findings do bolster the case for another "on hold" decision in November.
There are, however, two caveats to bear in mind, it said.
"Firstly, the survey has consistently shown that “realised” price/wage growth has been higher than what firms are projecting for the future."
"In other words, companies are saying they expect to do one thing and ultimately, they're ending up acting more aggressively, as the chart below shows," it explained.
10:10am: Housebuilding slides, dragging construction lower
The UK’s construction sector started contracting again in September, according to latest figures.
The latest S&P Global/CIPS construction purchasing managers’ index was 45.0 in September, a steep drop from 50.8 in August, the first contraction since June.
The report showed all three main segments of construction work posted a reduction in business activity, led by a steep and accelerated fall in house building.
Residential work (index at 38.1) was by far the worstperforming area of construction output during September, which aside from the pandemic, was the steepest since April 2009.
Civil engineering activity registered 45.7 while commercial building declined at only a modest pace in September (index at 47.7), a considerable setback after the solid growth seen throughout the summer.
Tim Moore, economics director at S&P Global Market Intelligence, said: "Output levels declined across the UK construction sector for the first time in three months during September and the latest downturn marked the worst overall performance since the early stages of the pandemic."
"A rapid decline in house building activity acted as a major drag on workloads, with construction companies widely commenting on cutbacks to new residential development projects in the wake of sluggish demand and rising borrowing costs," he added.
9:50am: Goldman sticks to $100/barrel forecast despite oil price falls
Goldman Sachs (NYSE:GS) believes the selloff in Brent of 6% yesterday and 11% over the past week reflects three main factors, which it thinks will prove to be transitory.
First, very weak US Department of Energy (DoE) data on gasoline demand and inventories have amplified a sharp selloff in gasoline margins, which has spilled over into crude markets.
“We see this as overdone because alternative measures of demand implied by ethanol blending and from the DoE and physical prices suggest demand remains robust.”
As a result, it thinks that resilient underlying demand, low stocks, and refiners’ supply response will ultimately provide support to gasoline margins.
Second, yesterday’s shift in the crude futures curve, and conversations suggest investors worry again about a rates-driven 2024 recession.
While higher rates will likely weigh on GDP and oil demand growth, the soft landing remains on track as the impulse from financial conditions to 2024 US growth is only modestly negative (-¼pp), and as global core inflation is falling quickly, Goldman believes.
Third, technical factors, including last Friday’s expiration of the November Brent contract and CTA selling, have likely contributed to the decline in prompt Brent futures contract, the bank said.
“While a significant recovery in crude prices likely requires a recovery in gasoline margins, some stabilization in financial conditions, and evidence of stock draws, we expect all three of these drivers to play out,” it said.
The investment bank reckons robust demand and elevated pricing power will allow OPEC to keep Brent in a $80-$105/bbl range, and in particular to push Brent to $100/bbl by next spring.
9:19am: Metro Bank continues to review funding options
Metro Bank has responded to the press speculation regarding a potential capital raise but it said no final decision has been made.
In a statement, it said it "continues to consider how best to enhance its capital resources, with particular regard to the £350 million senior non-preferred notes due in October 2025."
It stressed it continues to meet its minimum regulatory capital requirements and had a total capital plus MREL ratio of 18.1% and a leverage ratio of 4.4% as at 30 June 2023.
The MREL - the minimum requirement for own funds and eligible liabilities - is set by authorities.
"The company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales," it said.
"No decision has been made on whether to proceed with any of these options," it added.
Metro said it been profitable on an underlying basis for three consecutive quarters to June 30 and it expects the third quarter trading update to show continued momentum in Personal and Business Current Account growth and customer acquisition, in line with expectations.
"Metro Bank continues to be well positioned for future growth," it concluded,
Shares remain down 23% after the update.
9:02am: Oil majors limit gains in blue-chips
The FTSE 100 continues to hold modest gains, up 8 points now, with oil majors keeping a lid on further rises.
BP is down 1.2% and Shell 0.9%, after falling heavily in late trading on Wednesday, after official US data showed the weakest seasonal demand for gasoline in 25 years and a small build in crude holdings at the Cushing, Oklahoma, storage hub.
The US Energy Information Administration reported finished motor gasoline supplied, a proxy for demand, fell last week to about 8 million bpd.
Eslsewhere, Tesco rose a further 2.0% as it results continue to be well-received and Imperial Brands buyback has gone down well in the City, with shares up 1.4%.
Over to the FTSE 250, and the big winner is Volution Group, up 6.5%, after its results.
"We view this as another really good year of delivery at the company, which continues to demonstrate some of the trends seen in our more European-industrials-focused products businesses, such as diversification, strong margins and consistent delivery," said analysts at Berenberg.
While Royal Mail owner, International Distributions Services rose 6.4% as Goldman Sachs (NYSE:GS) raised its price target to 369p from 341p and reiterated buy.
8:35am: Supporting Metro fundraise "akin to throwing good money after bad"
Shares in Metro Bank remain under the cosh, down 23%, after reports it is seeking to raise up to £600 million to shore up its finances.
The Financial Times reported the news, alongside others, citing people with knowledge of the plan.
The UK challenger bank is in talks with investors about raising £250 million in equity funding and £350 million in debt to shore up its balance sheet, the report said.
Metro Bank in talks about urgent £600mn capital raise https://t.co/c5E9wB2Zdk
— Financial Times (@FT) October 4, 2023
The talks came after regulators last month failed to approve a request from Metro to lower the capital requirements attached to its mortgage business.
Rating agency Fitch on Wednesday put Metro on negative watch, citing increased risks to its business model, capital position and funding of the company.
Fitch said: "We expect the group’s earnings prospects to come under pressure in the short term due to rising funding costs, resulting from higher competition for deposits and given likely more expensive access to wholesale funding. In addition, capitalisation is tight."
Fitch also called attention to the GBP350 million of senior bonds that Metro must refinance by next October.
Broker Shore Capital believes investors should look to "higher quality banks" instead of backing a possible Metro Bank Holdings fundraise.
“We believe that Metro Bank's issues are company-specific and do not provide significant read across to the rest of the sector.”
“Supporting a further capital raise for this struggling bank would be akin to throwing good money after bad, in our view, as it has already had enough time and opportunity to sort itself out and has been unable to do so.”
“Investors and bondholders may therefore be better served investing their money elsewhere.”
8:15am: FTSE creeps higher, Metro Bank plunges
The FTSE 100 made a bright start to trading after US markets rallied after softer economic data but Metro Bank plunged after reports it was seeking fresh funding to bolster its finances.
At 8:15am, London’s lead index was up 8.99 points, 0.1%, at 7,421.44 while the FTSE 250 advanced 71.99 points, 0.4%, at 17,564.89.
The US JOLTS data earlier in the week had pointed to a hotter-than-expected jobs market, prompting fears of a protracted period of high interest rates in the US.
However, on Wednesday, the ADP national employment report showed job growth in the US private sector slowed significantly in September.
"The score is now one to one. One good news for the US jobs market, and one bad news. Everyone is now holding his or her breath into Friday’s jobs data, which will determine whether we will end this week with a sweet or a sour taste in our mouth," said Swissquote Bank's Ipek Ozkardeskaya.
On Friday, the US employment report will be released while today weekly jobless claims figures, a proxy for lay-offs, will be released.
Back in London, and Imperial Brands rose after launching a new £1.1 billion buy-back and said it was on track to deliver full-year guidance.
However, there was no comment on plans announced by Prime Minister Rishi Sunak to crackdown on vapes and impose a lifetime ban on younger generations smoking.
Student accommodation company Unite also climbed, up 1.2%, after reporting "record" occupancy and strong rental growth for the 2023/2024 academic year.
The firm also said chief executive Richard Smith will step down at the end of the year, having been in post since 2016, and with the company for 13 years.
But Metro Bank slumped 25% to 37.85p after reports it was seeking to raise money to shore up its finances.
7:59am: Diversified Energy scraps plans for US listing
Diversified Energy Co PLC has scrapped plans to list in the US given what it called the “current equity market dynamics.”
The firm made the announcement as it said it was "unaware of any operational or company specific reason" for the recent decline in its share price.
The stock is down 18% over the past five days.
The company said there has been no material change in its financial or operational condition since its updates on September 1 and 26.
It also updated on its third-quarter production results, expecting them to be in a range of 805-830 million cubic feet equivalent per day, in line with expectations.
7:46am: Natonal Grid trading in line, earnings weighted to second half
A few trading updates as firms head into the closed period.
National Grid PLC (LSE:NG.) reported trading remains in line with expectations, although it expects earnings to be more weighted to the second half, reflecting contributions from its US operation.
In a trading update, the company which runs the UK’s electricity distribution network said it expects contributions from its UK regulated businesses, to operating profit to be broadly evenly split across the year.
For the US regulated businesses, it expects contributions to be more heavily weighted towards the second half.
National Grid expects its New York business to deliver 10-15% of its full year operating profit in the first half, given a higher non-cash environmental provision charge.
The company expects a broadly even split of operating profit between the first and second half in National Grid Ventures.
Half year results will be announced on November 9.
7:30am: Imperial Brands silient on smoking plans, launches £1.1 billion buyback
Imperial Brands launched a new £1.1 billion share buy-back as it said it was on track to deliver full-year guidance despite forex headwinds.
However, there was no comment on plans announced by Prime Minister Rishi Sunak to crackdown on vapes and impose a lifetime ban on younger generations smoking.
Instead, the owner of Rizla and Golden Virginia focused on its current trading performance.
It reported growth in market share in its top-five priority markets with strong tobacco pricing driving constant currency net revenue and adjusted operating profit growth.
Imperial expects tobacco and NGP net revenue is expected to grow in the low single digits and group adjusted operating profit growth to accelerate to the lower end of its mid-single digit range.
The firm expects foreign exchange to be a c. 2% tailwind to full-year net revenue and adjusted operating profit.
It said tobacco net revenue growth improved in the second half of the year, as continued strong pricing helped to offset the relatively higher volume declines against historic averages.
Tobacco net revenue growth has remained strong in Europe and the AAACE region, more than offsetting declines in the US.
Momentum is also building behind next generation product net revenue growth across all categories, it added.
Revenue growth in NGP products accelerated in the second half of the year, driven by strong growth in Europe, with all categories of next generation products - vape, heated tobacco and oral nicotine – delivering a step-up in product and market launches during the year.
The £1.1 billion buyback was a 10% increase on the previous financial year and Imperial expects, including dividends, returns to shareholders to exceed £2.4 billion in the coming fiscal year, around 17% of its current market value.
7:00am: FTSE seen higher, Metro Bank plans fundraise - reports
The FTSE 100 is expected to open higher on Thursday after strong gains in the US although the future of Metro Bank that may attract the early headlines.
Spread betting companies are calling London’s lead index up by around 25 points after closing down 57.71 points at 7,412.45 on Wednesday.
In the US, the Dow Jones Industrial Average closed up 0.4%, the S&P 500 rose 0.8% and the Nasdaq Composite climbed 1.4%.
Softer economic data boosted equities along with a slide in bond yields although a sharp fall in oil prices limited gains in the Dow.
Thursday sees weekly jobless claims figures in the US ahead of non-farm payrolls figures on Friday.
Back in London, and the early focus will be a trading update from Imperial Brands – in the spotlight after moves by Prime Minister Rishi Sunak to cut cigarette use and review the vape industry.
While Metro Bank will also be watched after the Financial Times reported it is seeking to raise up to £600 million to shore up its finances.
The UK challenger bank is in talks with investors about raising £250 million in equity funding and £350 million in debt, the report said.
The talks came after regulators last month failed to approve a request from Metro to lower the capital requirements attached to its mortgage business.
Metro told the FT: "As previously stated, Metro Bank continues to consider how best to optimise its capital resources to allow it to take advantage of the deposit and asset origination platform that has been built."