- FTSE 100 closes up down 40 points at 7,492
- House prices fall for sixth month in a row
- Aviva soars on bid speculation
4:49pm: Choppy session ends on the right side of the flatline
The FTSE 100 closed up 40 points, 0.5%, at 7,492, while the FTSE 250 added 137 points, 0.8%, to 17,737.
At the end of an up-and-down session, during which the indexes were initially pushed lower by a hotter-than-expected jobs report across the pond, a late-afternoon rally salvaged a winning day.
Axel Rudolph, senior market analyst at online trading platform IG, said: “European stock indices were initially dragged lower by their US counterparts as the country's economy added nearly twice as many jobs as expected in September, the most in eight months. They recovered towards the end of the session on short-covering ahead of the weekend, though. Next week traders will focus on German industrial production, US inflation and UK GDP."
3:50pm: UBS turns more positive on BHP and Rio
The FTSE is in a volatile mood after the payrolls figures, now standing in negative territory.
Holding firm is Rio Tinto which alongside BHP has had 'sell' recommendations removed by UBS as it sees the iron ore price stabilizing in the near future.
Both mining giants have been upgraded to a 'neutral' rating, given the bank's expectation that iron ore prices will hold within the $100-130 per tonne range over the next six months.
In a separate note, the bank said it now expects iron ore prices to fall by less than previously thought, due to costs likely to remain higher for longer and also lifted its long-term iron ore price to US $85/t, compared to US$65/t previously and the US$75/t consensus.
3:15pm: Stealth taxes create bounty for Treasury
Away from the excitement of the payrolls and to the more mundane matters of tax and spend.
The extra tax haul from Rishi Sunak’s multiyear freeze to income tax allowances and thresholds is set to reach £40 billion a year by 2028 because of stubborn inflation — £10 billion more than estimated just a few months ago — according to research.
The calculation by the Resolution Foundation think-tank for the Financial Times demonstrates how the prime minister is quietly securing vastly higher tax revenues from the public through a process called “fiscal drag,” the FT said.
When the Treasury freezes income tax thresholds while people’s salaries are growing, as they are doing amid the highest inflation for a generation, its revenues increase.
“Abandoning the usual uprating of tax thresholds is a tried and tested way governments of all stripes raise revenues in a stealthy way. But it is the far bigger than anticipated scale of the government’s £40 billion stealth tax rise that stands out,” said Adam Corlett, principal economist at the Resolution Foundation.
2:45pm: US stocks fall, bond yields jump after blow-out payrolls
US stocks retreated in early trading after the blow-out non-farm payrolls figures raised the spectre of a further interest rate increase by the end of the year.
Shortly after the opening bell, the Dow Jones Industrial Average was down 187.33 points, 0.6%, at 32,932.24, the S&P 500 was down 33.13 points, 0.8%, at 4,225.06 and the Nasdaq Composite was down 113.24 points, 0.9%, at 13,106.60.
The bumper payrolls figure for September was accompanied by upward revisions to the numbers for August and JUly, although there was good news for the Federal Reserve as growth in average earnings cooled.
"Ultimately, the Fed cares about inflation, not payroll growth per se, so decent job growth coupled with falling inflation will do just fine," said Ian Shepherdson at Pantheon Macroeconomics.
"We think the Fed will not hike again, but it is a much closer call than we would like," he added.
However, the market now puts the chances of an interest rate increase at 50/50 by the end of the year, while expectations of the first rate cut have been pushed back to September 2024, from July.
The figures saw the yield on longer-dated Treasuries hit fresh 16-year highs, with the yield on the 30-year bond topping 5%, up 12 percentage points.
The dollar also soared with the pound down 0.4% to $1.2146.
Back in London, and despite the falls in the US, the FTSE 100 has risen again, up over 30 points.
2:10pm: Strong payrolls see market pricing in hiugher chance of US rate rise
Paul Ashworth chief North American economist at Capital Economics said the “surprisingly strong” increase in non-farm payrolls adds to the evidence on real activity that the economy is holding up well despite the headwind from higher interest rates.
He pointed alongside the strong figure for September, the gains in the preceding two months were also revised up by a cumulative 119,000, the first upward revisions this year.
“Overall, the report suggests the labour market is enjoying a soft landing,” he added.
Payroll employment rises by 336,000 in September
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Unemployment rate unchanged at 3.8% https://t.co/HLxxEuDdcH pic.twitter.com/VRvh6McpI2
— Ayesha Tariq, CFA (@AyeshaTariq) October 6, 2023
If payrolls continue to rise at an elevated pace, then the Fed might be tempted to push on with further rate hikes, he suggested.
“That said, with wage growth and price inflation rapidly fading and the rise in long yields triggering a significant tightening in financial conditions, we still think the Fed is done hiking,” he added.
Neil Wilson at markets.com described as a “mega blowout” with the labour market looking “very hot indeed.”
He pointed out markets now see a 32% chance of a November FOMC hike, which is up from 23% prior to the data drop, and a 50% chance of a hike by year-end.
The first cut is now priced for September versus July prior to the report, he added.
1:55pm: FTSE off highs as US payrolls smash forecasts
Stock futures tumbled, bond yeilds jumped and the dollar leapt after figures showed the labour market remains robust, adding fuel to concerns that interest rates will stay inflated for some time to come.
The US economy added 336,000 new jobs in September, smashing expectations for a rise of 170,000, figures from the US Bureau of Labor Statistics reported.
Figures for July were revised up by 79,000, from 157,000 to 236,000, and the change for August was revised up by 40,000, from 187,000 to +227,000.
Woof
U.S NONFARM PAYROLLS (SEP) ACTUAL: 336K VS 187K PREVIOUS; EST 170K pic.twitter.com/Fp4q16dRmi
— Neil Wilson (@marketsneil) October 6, 2023
Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance.
Average hourly earnings rose 0.2% in September compared to August taking the annual increase to 4.2%.
Economists had forecast a monthly increase of 0.3%.
The unemployment rate remained unchanged at 3.8%.
The dollar rose against the pound, euro and the yen, while the yield on the US 30-year Treasury closed in on 5%.
1:30pm: Here are some of today's risers and fallers
Aviva PLC (LSE:AV.) shares jumped more than 7% on Friday as bid rumours continue to swirl around the insurance giant.
The FTSE 100 firm could be the subject of a £6 per share bid, according to The Times, with a number of parties interested in the firm, run by Amanda Blanc.
Shares in under-pressure lender Metro Bank Holdings PLC (LSE:MTRO) have bounced back 28% today after being mauled on Thursday on reports it needed to shore up its finances.
On Thursday, Metro Bank said it "continues to consider how best to enhance its capital resources” and was “evaluating the merits of a range of options”.
SRT Marine Systems PLC (LSE:SRT) fell by over 7% on Friday meanwhile, as the maritime surveillance firm reiterated that results would be heavily weighted to the second half, presenting risk.
First-half revenue is expected to be £5.5 million, the group said, with a large jump anticipated later in the year from the firm’s £160 million forward contract order book.
And finally, shares in Quartix Technologies PLC (AIM:QTX) fell a quarter early on after the vehicle tracking group downgraded its revenue expectations following a review by returning founder and new chairman Andy Walters.
12:58pm: Boohoo rises as Frasers snaps up more shares
A bit more on Boohoo Group PLC where shares have risen on news that Mike Ashley’s Frasers Group PLC has increased its stake in the online fashion retailer again.
In a stock exchange filing, Frasers said it has raised its stake in the company from 10.4% to 13.4%.
In September, Frasers said it has raised its holding to 9.1%.
It continues Frasers’ acquisition spree which has seen it pick up stakes in electricals giant Curry’s, its online counterpart AO World and Boohoo’s rival ASOS.
This adds to other investments in German fashion designer Hugo Boss, Manchester-based clothing label N Brown, luxury handbag brand Mulberry and even a sliver of Next.
Boohoo shares rose 2.3% to 30.69p on the news while Frasers was up 1.8% at 819.78p.
12:26pm: Metro Bank bounces but outlook challenging
Barclays has taken at the look at the options for Metro Bank as reports continue to emerge regarding its financing options.
Shares in the under pressure lender have bounced back 20% today after being mauled on Thursday on reports it needed to shore its finances.
On Thursday, Metro Bank said it "continues to consider how best to enhance its capital resources,” and was “evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and/or refinancing and asset sales.”
Barclays thinks to fully offset any headwinds from maturing MREL debt, “there would need to be a sale of a £5.5 billion mortgage portfolio, £2.6 billion consumer credit portfolio or £2.1 billion commercial portfolio,” Barclays said.
Barclays said this would be equivalent to a £1.9 billion reduction in risk-weighted assets, benefiting the CET1 ratio by 3.4% and MREL ratio by 6.0%.
The Bank of England requires all banks, building societies and certain investment firms to maintain a minimum requirement for own funds and eligible liabilities – or MREL.
In the absence of AIRB approval to ease capital burdens, Barclays thinks asset sales are key whilst Metro Bank continues to operate within its capital buffers.
“Whilst the bank may be able to modestly build revenue without growing the balance sheet further given the higher-for-longer rates backdrop, we think AIRB approval is key to realising growth and delivering a capital-generative business,” it added.
"We continue to see the outlook challenged whilst capital constrains growth," it added.
The bank has an underweight rating on Metro.
Metro Bank announced last month it had not received permission from regulators to change the way it calculated the capital requirements on its mortgage book.
That change would have improved the bank's capital position and made it more profitable.
11:54am: US futures climb ahead of payrolls
US stock futures have climbed as the market awaits the employment report which includes figures for non-farm payrolls.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.3% higher, while those for the S&P 500 rose 0.3%, and contracts for the Nasdaq 100 futures were up 0.4%.
“A slowdown in US jobs growth is expected to be the talking point of the day when new figures are released,” says Russ Mould, investment director at AJ Bell.
“Nonfarm payrolls are expected to have increased by 170,000 last month, down from 187,000 in August and continuing a trend of sub-200,000 monthly gains," he noted.
"While the slowdown is notable, achieving such a figure would not be disastrous and so the market is likely to take the view that the economy is still resilient and interest rates will stay higher for longer."
Ahead of the figures, bond yields ticked higher with the yield on 10-year US Treasuries rising 0.03 percentage points to 4.74%, edging back towards the 16-year high they touched earlier this week.
Stocks to watch include Levi Strauss & Co (NYSE:LEVI), down 1.8% in pre-market trading after the iconic denim apparel company slashed its full-year sales forecast and fell short of quarterly revenue expectations.
11:18am: Slimmed down Aviva cheap, while excess capital appeals
Aviva PLC (LSE:AV.) shares continue to surge on bid rumours, up 9.3% at 424.54p.
Russ Mould at AJ Bell noted the chat we reported earlier that foreign players Allianz, Intact Financial (TSX:IFC) and Tryg are among the potential interested parties, hot on the heels of a bullish broker note earlier this week.
“What might they see in Aviva? Well, the business is forecast to have strong free cash flow and excess capital and its valuation is cheap," Mould explained.
"It has slimmed down in recent years to focus on the stronger parts of the group and there is now an opportunity to increase its position in bulk annuities which looks like a more prosperous market thanks to higher gilt yields," he added.
“One of the obvious times to buy a company is when it has made solid progress with a turnaround programme," he noted, adding "Aviva has cast off the shackles of being a conglomerate and sharpened its focus as a result of asset disposals."
On Wednesday, Jefferies upgraded the insurer to 'buy' from 'hold' with a 480p price target, estimating the insurer could return around £5 billion to shareholders.
“We forecast Aviva to deliver a best-in-class capital return yield, underpinned by excess capital and the strongest free cash flow amongst peers,” the broker said.
Jefferies suggetsed further disposals are possible viewing it as “increasingly likely” that Aviva will also offload its operations in India and China, which could sell for more than £1 billion.
11:08am: Bond yields climb ahead of non-farm payrolls
Bond yields rose on both sides of the Atlantic on Friday, as investors prepared for key US jobs data later in the day.
Yields on 10-year US Treasuries rose 0.03 percentage points to 4.74%, edging back towards the 16-year high they hit earlier this week while yields on the 10-year German Bund, the regional benchmark in Europe, rose 0.01 percentage point to 2.90%.
In the UK, the 10-year gilt yield rose 0.03 percentage points to 4.58% while the 2-year gilt yield rose 0.04 percentage points to 4.68%.
US non-farm payrolls are expected to have increased by 170,000 in September according to a Reuters poll of economists, less than in the previous month.
Investors will be watching closely to see if the Federal Reserve’s rate rising spree is beginning to feed through to the so-far resilient labour market.
10:57am: THG share price could nearly double, says BofA
One share motoring along nicely today is THG PLC - and there could be more to come according to analysts at Bank of America.
The bank has set a 125p price target and reiterated a buy rating, helping drive shares 5.2% higher to 69.08p.
BofA noted while the revenue decline in recent first half results was greater than expected - especially in the Beauty division - the worst now appears to be behind.
In the UK, the two largest headwinds - falling online penetration and low consumer purchasing power - began to show signs of improvement for the first time since 2021 this summer, it pointed out.
“Management called out positive growth in Beauty starting in August, and we expect group-level growth to turn positive again in 4Q23 as Beauty improves with manufacturing revenue picking up again,” the broker said.
BofA sees reasons for optimism at all three core divisions.
In addition to a return to positive growth in August, the Beauty division should see improved margins in the second half of the financial year as the margin-accretive manufacturing business ramps back up following destocking throughout much of 2022 and 2023.
BofA thinks current prices, input costs should remain a tailwind for the Nutrition division for second half of the financial year and beyond, allowing the flexibility to re-invest in pricing to drive growth.
Ingenuity's strategic shift continues as THG exits smaller, less profitable contracts leaving it on track to add £1 billion gross merchandise value in new contracts in the financial year.
10:18am: Exxon eyeing Pioneer in $60 billion deal - WSJ
There could be a big deal in the offing in the energy sector - Exxon Mobil Corp is reported to be close to snapping up the third-largest US shale producer, Pioneer Natural Resources for US$60 billion.
Talks were reported to be at an advanced stage, sources close to the matter told Reuters, confirming initial reports from the Wall Street Journal. A deal is potentially possible within days, the people said.
That report has sent Pioneer shares up by around 10% in premarket trading in New York, while Exxon Mobil is trading about 2.1% lower.
For Exxon Mobil, it would be the biggest deal it has done since the merger of Exxon and Mobil to form its current incarnation back in 1999.
And if the Pioneer deal does materialise, it would also be the biggest in the world this year.
9:41am: Metro Bank mulls mortgage book sale
Metro Bank Holdings PLC (LSE:MTRO) has begun a process to sell a £3 billion chunk of its mortgage book to shore up its finances, Sky News reported.
The under pressure lender as sized up high street banking neighbours as possible buyers, including Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG), Sky News reported, citing City sources.
The measures would form part of a wider capital raising plan, which Sky News reported would include a £100 million equity raise and a refinancing of £350 million worth of debt which is due roughly this time next year.
The Financial Times had that Metro Bank's possible balance sheet boosting efforts would be worth £600 million, £250 million in equity funding and £350 million in debt.
On Thursday, Metro Bank said it "continues to consider how best to enhance its capital resources." In particular, it noted its £350 million senior non-preferred notes due in October 2025.
"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. No decision has been made on whether to proceed with any of these options," it said.
9:17am: Aviva jumps on talk of £6 a share bid
Aviva continues to drive higher, up 7.6% now.
Bid rumours continue to circulate around the insurance giant with The Times stating City sources are insisting that at least two potential suitors are running a "slide rule over the business," attracted by its excess capital and strong cash flow.
The report said "talk is that the likes of Allianz of Germany, Intact Financial (TSX:IFC) Corporation of Canada and the Scandinavian group Tryg are considering their options, with at least one mulling a £6 a share proposal."
An American insurer is also rumoured to be interested in the business, The Times said.
9:07am: Decline in footfall worsens in September - BRC
The decline in UK retail footfall worsened last month, in a "subdued" end to the third-quarter, figures showed, with the focus now turning to the vital Christmas period.
According to the latest British Retail Consortium-Sensormatic IQ tracker, UK retail footfall fell 2.9% on-year in September, worsening from a 1.6% fall in August.
"During the warmer-than-expected weather, footfall slowed in September, with fewer shoppers across all shopping locations," BRC chief executive Helen Dickinson said.
In high street alone, footfall decreased by 1.7% annually in September, after a 0.9% fall in August. Retail parks suffered a 2.4% footfall decline. Footfall in retail parks had been flat on-year in August. Shopping centre footfall fell 4.0% yearly last month, worsening from a 3.8% decline previously.
8:48am: FTSE climbs, Aviva leads insurers higher
The FTSE 100 continues to push higher with Aviva PLC (LSE:AV.) top of the pile.
The insurance company, run by Amanda Blanc, is up 6.3% in early exchanges with dealers reporting vague bid rumours as a possible reason for the jump.
Earlier in the week financial blog Betaville flagged the company as a potential target of takeover interest.
It has dragged others in the sector higher, with Legal & General Group PLC (LSE:LGEN) and Prudential PLC (LSE:PRU) up.
Imperial Brands is up 1.3% as it kicks off its share buy-back and as Citi upgrades to buy.
Bunzl is up 0.7%, benefiting from an upgrade by Barclays to equal weight from underweight.
Elsewhere, Metro Bank is up 3.1% after reports it is considering selling part of its mortgage portfolio to shore up its finances.
Boohoo is another stock on the rise, up 1.5%, to 30.46 after Mike Ashley’s Frasers Group picks up more stock, taking its holding to 13.4% from 10.4%.
8:16am: FTSE rallies despite another drop in house prices
The FTSE 100 made a bright start to the day despite a further drop in house prices and as a leading City bank downgraded UK equities to underweight.
At 8:15am, London’s blue-chip index was up 26.72 points, 0.4%, at 7,478.26 while the FTSE 250 climbed 100.54 points, 0.6%, at 17,700.52.
House prices fell for a sixth month in a row, according to figures from lender Halifax.
The lender said the average property price fell by 0.4% last month, a smaller fall than in August when it shrank by 1.8%, extending a fall in prices, month-on-month, which began in April.
On an annual basis, prices fell by 4.7%, an acceleration on August’s 4.5% drop, and the biggest annual fall since August 2009 (when they fell -5.5%).
Sarah Coles, head of personal finance, Hargreaves Lansdown said: “A sluggish September saw house prices drift further south.”
“Mortgage rates were starting to ease back from the peak a month earlier, but even by the end of the month were only back around the same levels as mid-June and still a significant step up from the spring. “
She thinks “while mortgage rates are falling, prices may have further to drop.”
Citi has downgraded its UK equity weighting to underweight.
“Headwinds associated with tighter monetary policy are now building momentum, with unemployment increasing,” it said, adding “this suggests a recession beginning in 1Q24, and BoE rate cuts in mid-24.”
It sees the oil price falling further which could result in earnings downgrades.
“We also worry that the UK’s 50% defensive exposure could weigh on performance,” it said.
Citi does however like UK miners given discount valuations and potential upside from China.
7:59am: GSK sells further chunk of Haleon stake
GSK PLC (LSE:GSK, NYSE:GSK) has completed the sale of a further 270 million shares in Haleon PLC (LSE:HLN, NYSE:HLN) at a price of 328p per share raising around £885.6 million.
It leaves the Brentford, UK-based pharmaceutical company firm with a 7.4% in Haleon, the the consumer healthcare business it demerged last year.
GSK announced the sale after the market close on Thursday, and the disposal follows a sale of 240 million shares in May.
GSK and Pfizer Inc (NYSE:PFE). (which holds a 32% stake in Haleon) have each undertaken not to dispose of any shares in Haleon for a period of 60 days.
Haleon owns Sensodyne toothpaste, Panadol and Advil painkillers and Centrum vitamins.
7:53am: House prices fall for sixth month in a row
House prices continued to fall in September and the downward pressure could last into 2024, Halifax warned.
The lender said the average property price fell by 0.4% last month, a smaller fall than in August when it shrank by 1.8%, extending a fall in prices, month-on-month, which began in April.
On an annual basis, prices fell by 4.7%, an acceleration on August’s 4.5% drop, and the biggest annual fall since August 2009 (when they fell -5.5%).
The average home now costs £278,601, a drop of around £1,200 since last month.
Kim Kinnaird, director, Halifax Mortgages, pointed out economists now predict interest rates will remain “higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target.”
She thinks these factors “are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.”
7:44am: Shell sees rebound in gas trading in third quarter
Oil giant Shell PLC (LSE:SHEL, NYSE:SHEL) said its earnings from gas trading rebounded in the third quarter from the dip seen in the previous three-month period.
In a statement the oil major said while production of liquid natural gas was affected by scheduled maintenance, trading and optimization performed better than it did from March to June.
Earnings at the chemicals and marketing segments are expected to be in line with the weaker performance seen in the second quarter.
Shell forecast adjusted earnings in its Integrated Gas business between $1.2-1.6 billion with production of 880 - 920kboe/d.
It predicted adjusted earnings between $2.7-3.1 billion in its Upstream business with exploration well write-offs of around $0.2 billion.
In Chemicals, the firm forecast an indicative refining margin of $16/barrel and an indicative chemicals margin of $116/barrel.
7:25am: JD Wetherspoon back in profit
Pub chain JD Wetherspoon kicks off Friday and investors are cheering a return to profit as the sales revival post-Covid continues.
The pub chain said in the 52 weeks to ended July revenue rose 10.6% to £1,925.0 million from £1,740.5 million the year before.
Like-for-like sales increased by 12.7% year-on-year.
Like-for-like bar sales increased by 9.0%, food sales by 17.7%, slot/fruit machine sales by 26.4% and hotel rooms by 11.8%.
The increase in sales helped the firm post a pre-tax profit of £42.6 million compared to a pre-tax loss of £30.4 million.
Chair Tim Martin said: “Wetherspoon continues to perform well. In the first nine weeks of the current financial year, to 1 October 2023, like-for-like sales increased by 9.9%, compared with the nine weeks to 2 October 2022.”
He added that perhaps the “biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions.”
JD Wetherspoon opened three pubs during the year and sold, closed or terminated the leases of 31 pubs, leaving 826 pubs at the financial year end.
It said the net book value of the property, plant and equipment of the company was £1.38 billion.
No dividend was paid, unchanged from the year before.
7:00am: FTSE 100 expected to open higher
The FTSE 100 is expected make a firm start to proceedings on Friday ahead of the US non-farm payrolls figures later in the session.
Spread betting companies are expecting London’s blue-chip index to open around 19 points higher after closing up 39.09 points at 7,451.54 on Thursday.
Ipek Ozkardeskaya at Swissquote Bank thinks the US jobs market must do the rest of the “heavy lifting” if the Fed wants to see inflation return and steady around its 2% monetary policy target.
“That makes the US employment and unemployment numbers critical for investors, again.”
“Today’s data could be one of the most important jobs data of the year because the US bond and equity markets are at a crossroads,” she said.
“The US 2-year yield refuses to lose the 5% mark from sight, while the US 10 and 30-year claim a further rise to 5% on expectations that inflation will remain higher for longer and that would require interest rates to stay higher for longer.”
The US economy is expected to have added 170,000 jobs in September, down from last month’s figure of 187,000.
Back in London, and pub chain JD Wetherspoon will update investors on trading with no doubt a few words of wisdom from the shy and retiring Tim Martin.
Halifax house price figures are also due for release while retailers will be in focus after a survey showed a further drop in footfall in September.