- FTSE 100 up 44 points at 7,675
- Wage growth cools in three months to August
- Rolls-Royce to cut up to 2,500 jobs
4:40pm: FTSE 100 closes higher as wage inflation cools
The FTSE 100 closed higher as hopes grew that the US economy could enjoy a soft landing while cooling wage inflation in the UK added to hopes that interest rates have peaked.
At the close, London's lead index was up 44.58 points or 0.6% at 7,675.21 while the FTSE 250 jumped 1.0% to 17,689.46.
Over on Wall Street stocks remained in negative territory, but off earlier lows as the resilient US economy was once more reflected in strong retail sales figures.
Summarising the London session, cooling wage growth data provided an early focus with economists expecting interest rates to be left unchanged when the BoE's monetary policy committee next meets, in early November.
Rolls-Royce rose 1.1% after announcing plans to cut up to 2,500 jobs while a push by Frasers into Germany saw it advance 0.7%.
Bellway, shrugged aside early weakness to close up 4.1% despite analysts scaling back profit forecasts after today's results while Moneysupermarket.com (LSE:MONY) soared 9.4% after its update.
3:52pm: Tesco eyes sale of Tesco Bank
Tesco PLC (LSE:TSCO) has started the process for a potential sale of its banking arm, according to Bloomberg, citing people familiar with the matter.
The grocer has appointed Goldman Sachs (NYSE:GS) as its adviser and begun to reach out to potential buyers, with talks at an early stage.
Tesco Bank offers a range of credit cards, personal loans and insurance products to around 5 million customers.
It reported a total income of £702 million for the half year and had £7.4 billion customer loan book and £6.3 billion of deposits at the end of August, Tesco said earlier this month.
3.25pm: 'No justification' for Rolls cuts
After Rolls-Royce Holdings PLC (LSE:RR.) announced 2,500 more job cuts met with approval from investors, trade unions have pointed out that the company has cut many thousands of workers under previous management, to little avail.
The latest were 4,600 and 9,000 jobs cut by previous boss Warren East in 2018 and 2020.
Unite general secretary Sharon Graham said: “Rolls Royce has provided no justification why it believes these job losses are necessary.
“This announcement appears to be about appeasing the markets and its shareholders while ignoring its workers. Attempting to bypass unions will not be allowed.
“This approach only serves to create more stress and uncertainty and Unite will be seeking reassurances on jobs.”
Unite said it was told today that it will be three months before any more details are provided to employees on the cuts.
The union noted that there have been three previous 'transformations' of the group since 2016, resulting in thousands of job losses, with the UK workforce bearing the brunt of those losses "despite Rolls-Royce receiving hundreds of millions of pounds in taxpayers’ money via the UK government in support of the business".
3:15pm: UK wage growth has peaked says BofA
Bank of America thinks pay growth has likely peaked in the UK now following today’s figures.
It expects headline pay growth to slow sharply in the next few months as one-off payments to public sector workers over the summer drop out of the annual comparison.
Falling inflation and a gradually easing labour market should also slow pay growth further in coming quarters, it believes.
BofA thinks today’s data shifts the dial further towards interest rates staying on hold in November.
It reckons inflation would need to surprise on the upside by a wide margin tomorrow to trigger a rate hike.The slight wild card in that assessment is the delayed jobs data due next week, it added.
BofA expects the Bank of England to keep rates on hold at 5.25% until February 2025 and sees four 25 basis point cuts in 2025.
2:49pm: Wall Street on the back foot
The strong retail numbers in the US have sparked a weak open on Wall Street, while bond yields have risen once more.
Shortly after the opening bell, the Dow Jones Industrial Average was down 63.12 points, 0.2%, at 33,921.42, the S&P 500 was down 27.03 points, 0.6%, at 4,346.60 while the Nasdaq Composite was down 142.05 points, 1.1%, at 13,425.94.
Commenting on the retail sales, Michael Pearce at Oxford Economics said while “mounting headwinds to consumer incomes mean we expect spending growth to slow in the months ahead, the risks that spending contracts outright are fading.”
“The strength of the economy also means that Fed officials will leave the door open for additional rate hikes,” he felt.
The data followed some resilient looking earnings from Bank of America, up 0.5%, and Goldman Sachs (NYSE:GS), down 0.5% - both beat market expectations.
Johnson & Johnson (NYSE:JNJ), unchanged, was another updating investors today and the pharma giant raised guidance after a strong third quarter.
2:15pm: FTSE off highs after strong US retail sales
The FTSE 100 has come off its highs and the pound has dipped after strong retail sales figures in the US.
Retail sales outstripped expectations last month as the US consumer shows continued resilience in the face of robust Federal Reserve interest rates.
According to the Census Bureau, retail sales increased 0.7% on-month in September, beating the FXStreet cited consensus of a 0.3% climb.
US retail sales surprise strongly on the upside, increasing 0.7% in September or more than twice the consensus forecast of 0.3%.
This comes ahead of lots of Fed speakers per this Bloomberg slide.#economy #econtwitter @markets @economics #FederalReserve pic.twitter.com/NiXE4dgKrx
— Mohamed A. El-Erian (@elerianm) October 17, 2023
Growth eased from the 0.8% rise registered in August from July. August's reading was upwardly revised from a 0.6% rise.
On an annual basis, retail sales grew 3.8% in September, picking up speed from a 2.9% climb in August.
The figures have boosted the dollar on the likelihood that interest rates will remain inflated for some time with the pound down 0.5% at $1.2156.
1:12pm: Goldman beats forecasts, eyes capital markets upturn
Results from Goldman Sachs (NYSE:GS) are always a good gauge of how the banking world sits and the investment bank has beaten forecasts today, despite reporting a fall in revenue and net income.
Boss David Solomon also struck a more optimistic tone on the outlook for the industry.
"We’re confident that the work we’re doing now provides us a much stronger platform for 2024. I also expect a continued recovery in both capital markets and strategic activity if conditions remain conducive," he said.
“As the leader in M&A advisory and equity underwriting, a resurgence in activity will undoubtedly be a tailwind for Goldman Sachs (NYSE:GS),” he said.
Goldman said in the third quarter net revenue totalled $11.82 billion, ahead of the $11.19 billion expected, although down from $11.98 billion the year before.
Goldman said net income fell to $2.06 billion from $3.07 billion while diluted earnings per share of $5.47 compared to $8.25 a year ago, ahead of forecasts of $5.31.
The bank said the results reflected significantly lower net revenues in Asset & Wealth Management, offset by higher net revenues in Global Banking & Markets and Platform Solutions.
12:37pm: Moneysupermarket impresses City with strong update
Moneysupermarket.com (LSE:MONY) Group PLC is racing ahead today with shares up 7.9% to 264.40p.
Group revenue at the comparison site for the nine months of the year so far was ahead by 14% and 12% in the third quarter led by insurance and travel both of which were up 38% in the latest quarter.
The City was impressed. Analysts at Jefferies said the “significant acceleration in growth within insurance (+37.5%) from already high levels in 2Q (+23%) should come as a positive surprise.”
It said it was “welcome evidence of solid execution in a complex trading backdrop.”
The broker has a buy rating and 305p price target.
Shore Capital was also upbeat after what it called a ”robust” trading update.
It said the strong performance in insurance reflected strong growth across all channels and strong switching activity in car and home, supported by premium inflation and rebounding volumes.
Travel also performed strongly driven by a recovery in wider market conditions and particularly package holidays.
ShoreCap said it does not “believe that these positive dynamics, which are rooted in the group’s proven ability to deliver substantial savings across a range of categories and longstanding commitment to investing in technology, and the quality and functionality of its offering, are adequately reflected in its current stock valuation.”
It also has a buy rating on the firm.
Peel Hunt upgraded its rating to add from hold.
"Growth remains solid, as consumers continue to look for save on bills," it said, noting the shares offer 18% upside to its price target.
11:58am: US stocks seen lower ahead of retail sales, earnings
Across to the US and it's a busy day of earnings with retail sales figures thrown into the mix as well.
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 0.2%.
Alongside the earnings releases, US retail sales figures will be scrutinised to see if the interest rate increases are hitting consumer spending.
Economists expect sales to have moderated to a 0.3% increase in September, following a 0.6% gain in August.
Otherwise, results from Johnson & Johnson (NYSE:JNJ), Bank of America, Lockheed Martin and Goldman Sachs (NYSE:GS) are among those to be released today.
J&J’s numbers are already out and the pharma giant has raised full-year guidance after a third quarter earnings and revenue beat.
Shares are up 1% in response.
11:32am: BoE's Dhingra sees further easing in wage pressures
The Bank of England’s Swati Dhingra said she anticipates a further “letting up” of wage pressures in the UK which will result in inflation cooling further.
“It’s very hard to imagine where further momentum in wage growth is going to come from,” she said Tuesday on a panel at a Royal Economic Society Summit.
Bank of England MPC's Dhingra: We Should See Some Relenting Of Domestic Inflation Pressures
— LiveSquawk (@LiveSquawk) October 17, 2023
“We should see some relenting of domestic inflationary pressures," she said.
She added that increases in youth unemployment are a sign of overtightening in policy and said this could also damage supply capacity in the economy.
11:03am: CVC Capital Partners close to kicking off IPO - Bloomberg
Signs of life in the IPO markets after the recent high profile listings of chip designer Arm Holdings PLC (NASDAQ:ARM) and sandal maker Birkenstock Holding Plc.
Bloomberg reported that CVC Capital Partners is preparing to kick off its initial public offering, citing people with knowledge of the matter.
The European private equity firm is discussing plans to unveil its intention to float in Amsterdam as soon as the coming days, according to the people.
Mega!
CVC Capital Is Said to Near Kickoff of Mega Private Equity IPO - Bloomberg
— Neil Wilson (@marketsneil) October 17, 2023
It hasn’t yet set an exact timeline and the announcement could spill into next week, the people said.
It has been previously reported that the firm could start trading in November valued at around $15 billion.
CVC is one of Europe’s best known buyout firms and manages more than €160 billion, according to its website.
It raised €26 billion in July for the world’s biggest-ever buyout fund and has also been diversifying its business into new areas, including infrastructure and secondaries.
10:48am: Rsing debt interest and sluggish leave less scope for tax cuts - IFS
Soaring debt interest payments and sluggish growth have left the UK chancellor Jeremy Hunt with little scope for pre-election tax cuts, latest analysis suggests.
Hunt warned last week of “difficult decisions” for the public finances in his Autumn Statement on November 22, as the government faces up to a difficult economic backdrop.
Today’s report from the Institute for Fiscal Studies think-tank, backs this up, highlighting the tough situation Hunt faces as he deals with calls from the right of the Conservative party to push through tax giveaways before the next general election.
Inflation has offsetting effects on borrowing.
But across different scenarios for inflation, borrowing is well above what was forecast before the cost-of-living crisis, though well below the – very loose – 3% cap imposed by the supplementary target.
[4/12] pic.twitter.com/UwbVgKxRUr
— Institute for Fiscal Studies (@TheIFS) October 17, 2023
It said an “ill-timed fiscal loosening might give a short-term economic sugar rush, but could ultimately mean a protracted recession as interest rates rise even further to bring inflation back under control.”
Public borrowing is forecast to reach £112 billion this year, or 4.2% of gross domestic product, said the IFS.
The figure is below March predictions but well above its long-run average, and £60 billion more than forecast in the 2022 spring Budget.
As a result, national debt will remain stuck at close to 100% of national income, even with tight public spending settlements and further increases in taxes lying ahead.
The IFS said adjusting the OBR’s March 2023 forecast for current market expectations for interest rates could, on its own, add £20 billion to debt interest spending in 2026-27.
Hunt’s headroom against his own fiscal targets relies on tax and spending plans whose credibility is “questionable”, the IFS said.
The plans include a six-year freeze in personal tax allowances and thresholds that amounted to a “colossal” £52 billion tax increase, the IFS said, arguing Hunt would come under political pressure to end it early.
“We are in a horrible fiscal bind,” said Paul Johnson, director of the IFS. “The price of our high levels of indebtedness, failure to stimulate growth, and high borrowing costs is likely to be a protracted period of high taxes and tight spending.”
10:13am: Rolls-Roye job cuts could save up to £215 milliion
UBS estimates the plans by Rolls-Royce to reduce 2,000-2,500 roles could result in cost savings of around £175 million to £215 million.
“We do not believe this will impact 2023 financials materially and so are not surprised that guidance of Ebit £1.2-1.4 billion are unchanged,” the Swiss Bank said.
The broker said conversations with investors suggest a cost reduction programme of this scale is likely to be in line with expectations.
UBS reiterated a buy rating and 350p price target.
It pointed the next key catalyst will be the Capital Markets Day on November 28.
It said many investors “we speak to are concerned by a 'travel and arrive' trading situation pattern around this event.”
But “given the strength of this narrative and our above consensus estimates we see potential upside risk.”
Rolls-Royce shares are up 2.1% at 218.30p.
9:54am: Cooling wage growth adds to odds rates will be held
The EY ITEM Club thinks today’s wage inflation and job vacancies figures “add to the odds” of the Monetary Policy Committee keeping interest rates as they are in its November meeting.
It noted another fall in job vacancies was a further sign of declining demand for workers and while pay growth remained strong, there was some evidence of easing.
But it noted the release was lacking the usual data on employment and unemployment, with falling response rates to the Labour Force Survey leading the Office for National Statistics to delay publication of these measures until later this month.
“This raises questions about the quality of the data and suggests the MPC may choose to react more cautiously to movements in the official numbers,” it added.
Simon French at Panmure Gordon agrees.
Softening labour market picture in the UK. Lagged impact of rate increase, erosion of real terms value of excess savings both starting to bite. Vacancies, pay inflation and payroll numbers all on the turn. Very little case for a November rate hike.
— Simon French (@shjfrench) October 17, 2023
9:39am: Frasers pushes into Germany in "pivotal" move
Frasers Group PLC (LSE:FRAS) has announced a push into Germany with the acquisition o SportScheck, "one of the leading sports retailers in Germany", from Signa Retail Department Store Holding for an undisclosed fee.
Frasers, which owns House of Fraser, Sports Direct and Flannels retail chains, said the deal will enable it to grow its presence in Germany, one of the biggest sports markets in Europe and a key focus area for the sports segment.
SportScheck has over 75 years of expertise in sports retail, Frasers said, with 34 stores in "prime city locations" across Germany, revenue of around €350 million and a customer base of over 13 million visitors per year.
Shore Capital felt it was “significant” move, and a “pivotal step in Frasers Group's journey towards becoming the top sports retailer in Europe.”
It allows Frasers to expand its presence in Germany, a substantial sports market in Europe, aligning with the group's focus on the sports segment, the broker said.
“This move will be further bolstered by Frasers' Elevation Strategy, known for its success in enhancing business performance through investments in store concepts, digital capabilities, and brand relationships,” it added.
“Furthermore, the endorsement and support of major global brands such as Adidas and Nike are indicative of the momentum generated by Frasers' CEO, Michael Murray, behind his 'Elevation' strategy,” it said.
Frasers expects closure of the deal to occur in the first quarter of 2024.
Not a huge reaction in the City with shares flat.
9:12am: St James's Place rejigs charging structure
St James’s Place PLC is back in the news updating investors on its performance in the third quarter plus an update on its charging structure which saw shares plunge on Friday.
Shares, which opened lower, are now trading 2.1% higher 686.36p.
In a statement, the investment manager said it would create a new charging structure for the majority of new investment bonds and pensions.
“These will operate with an initial charge and ongoing charges applicable from the outset, and without any early withdrawal charges (EWC) or gestation period, as is already the case with our unit trust and ISA business.”
“In addition, charges across all our wrappers, which have historically been disclosed primarily on an all-inclusive basis, will be separated into component parts”, it added.
The company reported gross inflows of £3.68 billion in the quarter ended September, down from £4.05 billion in the year prior, with net inflows of £0.91 billion, down from £2.19 billion.
Closing funds under management though were up sharply at £158.57 billion from £143.14 billion.
Andrew Croft, Chief Executive Officer, said the “demand for trusted, face-to-face financial advice remains as strong as ever, but client capacity and confidence to commit to long-term investment continues to be impacted by an environment characterised by higher interest rates, stubbornly high inflation and short-term alternatives in the form of cash.”
8:42am: Bellway forecasts on weak outlook
Shares in Bellway PLC (LSE:BWY) are around 2.5% lower as analysts cut forecasts following today’s trading update.
The housebuilder said private reservations since 1 August are running at 99 per week against 133 a year ago.
Bellway said that this lower demand will mean a "material reduction in volume" in the current financial year with its target now to sell 7,500 homes against 10,945 in the year just ended.
Analysts at Liberum expect consensus pre-tax profit forecasts to come down by 20% to £200 million from £250 million.
Peel Hunt said it expects a 15% fall in the consensus figure while it noted the group also guided to 2.5x dividend cover policy, which would imply a 48p dividend, compared to its current estimate of 140p.
Liberum noted customer demand continues to be affected by mortgage affordability constraints and as a result private reservations are below prior year at 0.38 sales per outlet per week down from 0.58 in the year prior, although slightly better than the sales rate in July.
For financial 2024, management has guided to around 7,500 completions at £295,000, which assumes the 2023 sales rate of 0.46, a rebuilding of the order book and lower site numbers.
“This is lower than consensus, which expected 8,200 completions at £302,000,” Liberum said.
Operating margin is expected to be 600bps lower than 2023 at 10%, due to persistent cost inflation and the use of sales incentives.
8:15am: FTSE 100 boosted by cooling wage pressures
The FTSE 100 pushed higher after figures showing wage inflation cooling in the three months to September boosted hopes that interest rates have peaked.
At 8:15am, London’s blue-chip index was up 25.55 points, 0.3%, at 7,656.18 while the FTSE 250 was up 28.09 points, 0.2%, at 17,547.48.
The Office for National Statistics said in the three months to August, annual growth in average total pay, excluding bonuses, was 7.8%.
This was in line with market consensus, and a touch below the figure for the previous three-months which was revised upwards to 7.9% from 7.8%.
Including bonuses, average pay growth cooled to 8.1%, below market expectations of 8.3%. It was 8.5% in the three months to July.
Samuel Tombs at Pantheon Macroeconomics said that “signs that wage growth is losing momentum should persuade the MPC to keep Bank Rate at 5.25% again next month.”
“Timely indicators also suggest that the emergence of excess supply of labour is bearing down on wage growth,” he added.
Ashley Webb at Capital Economics agreed: “Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August.”
“That supports our view that interest rates have peaked at 5.25%.”
“But as we suspect wage growth will fall only slowly, interest rates will probably stay at their peak until late in 2024.”
In company news, Rolls-Royce rose 1.9% after it announced plans to cut up to 6% of its global workforce, as its transformation under new chief executive Tufan Erginbilgic’s gathers pace.
The Derby-based firm said the new structure will create a more agile business better able to serve customers and remove duplication and deliver cost efficiencies.
St James’s Place was on the back foot again, with shares down 2.0%, after responding to regulatory pressure over fees with an overhaul of its charging structure.
The firm said it would create a new charging structure for the majority of new investment bonds and pensions.
Bellway fell 4.1% after it said it anticipates a “material reduction” in the number of homes it will build in its current financial year.
It added that its reservation rates for its homes was weaker year-on-year and that customer demand is taking a hit from the higher cost of mortgages.
Other housebuilders including Berkeley Group PLC and Barratt Developments PLC (LSE:BDEV) fell 1.5% and 1.2% respectively.
7:55am: Wage growth cools, job vacancies drop
We've also had data for wage inflation and job vacancies from the Office for National Statistics - remember the unemployment figures which usually form part of this release have been delayed.
The ONS said in the three months to August, annual growth in average total pay, excluding bonuses, was 7.8%.
This was in line with market consensus, as cited by FXStreet, and a touch below the figure for the previous three-months which was was revised upwards to 7.9% from 7.8%.
Annual growth in regular pay (excluding bonuses) was 7.8% in June to August 2023.
This is similar to recent periods and is one of the highest regular annual growth rates since comparable records began in 2001.
— Office for National Statistics (ONS) (@ONS) October 17, 2023
Including bonuses, average pay growth cooled to 8.1%, below market expectations of 8.3%. It was 8.5% in the three months to July.
"This total growth rate is affected by the NHS and civil service one-off payments made in June, July and August 2023," the ONS noted.
The number of job vacancies in July to September was 988,000, a decrease of 43,000 from April to June, the 15th consecutive quarterly fall.
Vacancies fell in 14 of 18 industry sectors surveyed.
In July to September 2023, total vacancies were down by 256,000 from the level of a year ago, although they remained 187,000 above their pre-coronavirus (COVID-19) pandemic January to March 2020 levels.
7:49am: THG backs guidance but third quarter revenue drops
THG PLC (LSE:THG), owner of the Hut Group, backed guidance for the full-year after what it called its best quarterly performance in the past year, even though revenue fell 4.4%, with declines in all areas of the business.
But THG pointed to an improving performance each month in the quarter, with the group returning to constant currency growth in September.
Full year revenue guidance of 0% to negative 5% remains unchanged, while guidance for adjusted Ebitda and cash generation was also held.
Matthew Moulding, chief executive, said: “The group is exceptionally well invested with a strong balance sheet, with each division well positioned to grow market share in any market conditions."
7:25am: Rolls-Royce confirms up to 2,500 job cuts
We start Tuesday with confirmation that Rolls-Royce Holdings PLC (LSE:RR.) is to axe up to 2,500 jobs as new-ish boss Tufan Erginbilgic’s restructuring gathers pace.
The Derby-based firm said the new structure will create a more agile business better able to serve customers and remove duplication and deliver cost efficiencies.
The aircraft engine manufacturer said between 2,000-2,500 roles will be removed globally, up to 6% of its 42,000 strong workforce.
As well as delivering savings, a greater focus on these areas will lead to improvements in customer service, reducing supply chain delays.
Tufan Erginbilgic, chief executive, said: "We are building a Rolls-Royce that is fit for the future. That means a more streamlined and efficient organisation that will deliver for our customers, partners and shareholders."
7:00am: Flat start expected in London
Good morning and the FTSE 100 is expected to make a subdued open as investors await UK wage inflation figures and ponder developments in the Middle East.
Spread betting companies are calling London’s lead index up by around 3 points after closing up 31.03 points at 7,630.63 on Monday.
Excluding bonuses, UK wage inflation is expected to remain unchanged at 7.8% in the three months to August, compared to the three-month period to July. Including bonuses, it's expected to cool to 8.3% from 8.5%, according to FXStreet-cited market consensus.
Hopes that a diplomatic push in the Middle East would stop the crisis in the Middle East spreading boosted US markets with the Dow Jones Industrial Average up 0.9%, the S&P 500 up 1.1% and the Nasdaq Composite 1.2%.
US President Joe Biden will visit the region and meet with leaders, in a bid to prevent the Israel-Hamas conflict from drawing in other countries.
Asian markets followed suit with the Nikkei 225 in Tokyo up 1.0%. In China, the Shanghai Composite was marginally higher, while the Hang Seng index in Hong Kong was up 0.5%.
Back in London, and the early focus will be updates from Bellway and moneysupermarket.
Rolls-Royce will attract attention after reports it is set to axe 2,500 jobs, while Frasers is in the news on reports it is set to expand in Germany.