- FTSE 100 down 87 points at 7,588
- UK inflation unchanged in September at 6.7%
- Whitbread jumps after strong results
4:40pm: Threat of rising interest rates dents housebuilders
The FTSE 100 fell sharply after stubborn inflation raised the likelihood of interest rates staying high for some time and the conflict in the Middle East threatened to escalate.
At the close, London's blue chip index was down 87.21 points, 1.1%, at 7,588.00 while the FTSE 250 tumbled 286.00 points, 1.6%, at 17,403.46.
Whitbread led the risers, up 1.4%, after its strong results while Reckitt Benckiser gained 0.9% on the back of strong numbers from US consumer goods firm, Procter & Gamble (NYSE:PG).
BT rose 0.8% after reports it was planning to branch out into electricals, which knocked retailers Currys, down 1.6%, and AO World, down 5.6%.
The threat of more interest rate rises after the strong inflation figures sent housebuilders lower - Barratt Developments, which fell 5.5%, also warned of uncertainty in the housing market as rising mortgage costs bite.
Taylor Wimpey was another casualty, down 4.2% while in the FTSE 250, Persimmon fell 6.9%.
The Middle East tensions, the rising oil price and a warning from United Airlines sent UK-listed airlines lower - IAG fell 3.1%, easyJet fell 4.2% and Wizz Air - which was downgraded by Citi to sell - fell 4.1%.
Reports that terror threats had closed a number of European airports also dented the sector.
3:50pm: Shell strikes gas supply deal with Qatar
Shell PLC (LSE:SHEL, NYSE:SHEL) has struck a deal with Qatar that will see the Gulf state supply gas to the Netherlands for the next 27 years.
Agreements for its North Field gas project will see Qatar supply 3.5 million tonnes of gas a year.
Saad al-Kaabi, Qatar’s energy minister, said: “These agreements reaffirm Qatar’s commitment to help meet Europe’s energy demands and bolstering its energy security with a source known for its superior economic and environmental qualities.”
Earlier this month, Qatar announced a similar deal with Total to supply gas to France and elsewhere.
3:12pm: Reckitt lifted by Procter & Gamble (NYSE:PG) results
Shares in Reckitt Benckiser have risen following better-than-expected results from Procter & Gamble (NYSE:PG) in the US.
The Cincinnati, Ohio-based consumer goods firm posted net income of $4.52 billion, or $1.83 a share, for the quarter ending September, up from $3.96 billion, or $1.57 a share, in the year prior.
Adjusted EPS also came to $1.83, ahead of the $1.72 FactSet consensus while sales rose 6%, boosted by rising prices, to $21.87 billion from $20.61, also ahead of the $21.58 billion FactSet consensus.
P&G, which owns brands such as Gillette, Head & Shoulders and Pampers, said Health Care was the strongest performing division with sales up 11%, followed by Fabric & Home Care up 8%, Grooming up 6%, Baby, Feminine & Family Care up 5% and Beauty up 3%.
2:45pm: Wall Street on the back foot
US stocks opened lower as investors digested the latest earnings amid the backdrop of rising tensions in the Middle East.
Shortly after the opening bell, the Dow Jones Industrial Average was down 88.48 points, 0.3%, at 33,909.17, the S&P 500 was down 20.10 points, 0.5%, at 4,353.10 while the Nasdaq Composite was down 75.57 points, 0.6%, at 13,458.17.
United Airlines tumbled 7.0% after it warned the ongoing disruption to flights to Israel would dent earnings, while the raised rhetoric on both sides of the Middle East conflict pushed the oil price higher, a further negative for airlines.
Other airlines fell with Delta Air Lines (NYSE:DAL) (Delta Air Lines (NYSE:DAL)) down 2.9% and Southwest Airlines Co down 2.2%.
Procter & Gamble (NYSE:PG) (Procter & Gamble (NYSE:PG)) fared better, up 3.0%, after it beat expectations as rising prices boosted sales but a drop in deal-making hurt Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)) which fell 5.8% as profits fell 9%.
In economic news, housing starts in September increased 7% from August, the US commerce department said.
The key driver was an uptick in single family housing starts, up 3.2% in the month and 8.6% from a year earlier.
2:14pm: Pendragon falls as Autonation backs out
Shares in Pendragon are 8.9% lower after Autonation pulled out of the running to buy the car dealership.
Autonation issued the statement after the market close Tuesday, after suggesting it was considering bidding 32p per share for the Nottingham-based firm.
Pendragon was subject to a three-way tussle with Hedin Mobility and PAG International also mullin a rival offer but that fell by the wayside too.
That leaves the firm's original plan to to sell its entire UK motor business and leasing business to its North American rival, Lithia Motors in pole position.
Shares are sitting just below 31p, down 8.9%.
1:35pm: Here are some of today's risers and fallers
Gama Aviation (LSE:GMAA) PLC shares shot up 55% on Wednesday after the firm announced the sale of maintenance and repair subsidiary Jet East.
Net proceeds from the sale were US$100 million, Gama said in a statement, with this translating to “not less” than 55p per share.
Manolete Partners PLC (AIM:MANO)’s share price got a 10% boost after the company said in a trading update that it had sustained record levels of new case investments since Covid-19.
The insolvency litigation financing company said in a trading update for the first half of fiscal 2024 that new case investments had doubled to 179, up from 83 a year ago
Whitbread PLC (LSE:WTB) shares booked in with gains of 2.7% as the Premier Inn owner boosted its dividend 40% and launched a new £300 million share buyback after strong demand lifted half-year revenue and profits.
The FTSE 100-listed group also expressed confidence in its hopes for 2024 and beyond, saying UK hotel demand is strong but that supply is not now expected to return to pre-pandemic levels for at least five years.
AstraZeneca PLC (LSE:AZN) shares were the biggest fallers on the FTSE 100 on Wednesday, down 3.6%, with no obvious reason for the sell-off.
News and broker comments on the Anglo-Swedish drug giant seemed positive, following the release of late-stage clinical trial data from the company the day before.
1:12pm: Goldman Sachs (NYSE:GS) sees UK rates on hold despite inflation
Goldman Sachs (NYSE:GS) expects the Bank of England to leave interest rates unchanged at its next meeting despite the slightly stronger than expected inflation figures today.
The investment bank noted today's print showed a larger than expected rebound in sequential services inflation, reflecting continued concerns around the stickiness in services inflation.
“That said, part of this rebound was driven by volatile components and in conjunction with the downside surprise last month, today's services and headline inflation numbers were still below the BoE's August MPR projections,” the bank explained.
Taken together with yesterday's wage data and an expectation of the unemployment rate remaining unchanged at 4.3% in the upcoming print, Goldman continues to “expect the MPC to remain on hold at its November meeting.”
12:18pm: BT to branch out into electricals, says FT
BT Group PLC (LSE:BT.A) is to start selling kitchen appliances such as smart fridges, kettles and coffee machines as the telecoms group looks for ways to boost growth and raise the profile of its consumer brand, according to the Financial Times.
The FT said EE, BT's mobile and retail division, will sell the household electronic goods from next year in addition to the entertainment products such as laptops, cameras and smart TVs it already sells.
EE also plans to expand its gaming, insurance and subscription services.
Marc Allera, chief executive of EE, told the Financial Times: "We think we can do it better than other retailers,” pointing to EE’s network of stores and UK call centres as well as a new online customer portal, which he said made it a good rival to online-only retailers.
Shares in BT rose 1.6%, against a weak market, while electricals retailers Currys fell 1.7% and AO World fell 1.1% on the threat of rising competition.
12:02pm: US markets set to open lower
Heading over to the US and it looks like a weak start as tensions rise in the Middle East and as another batch of earnings hit the wires.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.4% lower, while those for the S&P 500 fell 0.5%, and contracts for the Nasdaq 100 futures were down 0.6%.
US president Joe Biden has travelled to Israel after an attack on a hospital in Gaza sparked a war of words with both sides of the conflict blaming the other.
The flaming rhetoric saw the oil price jump by around 3%.
Earnings today are due from Tesla, Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)), Proctor & Gamble and Netflix amongst others.
In economic news, US housing starts are forecast to have risen to an annualised rate of 1.38 million in September from 1.28 million in August.
Investors will also cast an eye on the Beige Book later in the session, the US Federal Reserve’s anecdotal assessment of regional economic conditions gathered by each central bank branch.
Elsewhere, a number of Federal Reserve officials are due to speak.
Philadelphia Federal Reserve President Patrick Harker was quick out of the blocks today, saying rates are at a level where further increases may not be needed.
“This is a time where we just sit for a little bit. It may be for an extended period; it may not. But let’s see how things evolve over the next few months,” Harker told The Wall Street Journal.
11:28am: Rising oil price and Middle East tensions dent airlines
Airlines are facing a further hit as the oil price rises once more pushing upward pressuure on fuel bills and as flights to Tel Aviv remain disrupted.
IAG is down 2.1%, easyJet is 4.5% lower and Wizz Air (downgraded by Citi to sell today as well) off 3.7%.
Brent crude is now up 3% at $92.73 as tensions in the Middle East rise following an attack on a hospital in Gaza with both sides blaming the other.
After the US market close, United Airlines said if the suspension of flights to Tel Aviv continued it would impact fourth quarter earnings.
The US carrier said adjusted profit will be $1.80 a share if Tel Aviv flights are grounded through October 31, and $1.50 if the ban lasts through the end of 2023.
United has the most service to Tel Aviv among US-based airlines, accounting for 2% of the carrier’s annual capacity.
10:49am: Eurozone inflation in line with initial estimate
We've also inflation news from the eurozone where figures have confirmed that pricing pressures eased in September, falling to the lowest level since October 2021.
The single currency area's annual inflation rate cooled to 4.3% in September from 5.2% in August, Eurostat confirmed.
This was in line with expectations and the initial estimate, with the core figure easing to 4.5% in September, from 5.3% in August, also in line with the initial estimate.
Euro area annual #inflation at 4.3% in September 2023, down from 5.2% in August https://t.co/MK1My4xKNu pic.twitter.com/mzDd4r68jo
— EU_Eurostat (@EU_Eurostat) October 18, 2023
September likely marks the beginning of an accelerated slide in eurozone inflation, according to Melanie Debono at Pantheon Macroeconomics.
"In all, we look for headline inflation to nearly half by the middle of next year, as it falls to 2.4%, before it continues to decline gradually to 2.0% by year-end."
"This leaves our forecast well below the ECB’s, adding support to our view that its forecasts will come down further in December, setting the ground up for a likely first policy rate cut in March," she said.
10:37am: House prices slow further - ONS
Annual growth in UK house prices slowed further in August, according to data from HM Land Registry.
The Office for National Statistics said, on an annual basis, average house prices rose 0.2%, easing from a revised 0.7% in July.
The average UK house price was £291,000 in August 2023, which was little changed from 12 months ago, but £9,000 above the recent low point in March 2023.
Average house prices over the 12 months to August 2023 remained little changed in England to £310,000 (0.0%), decreased in Wales to £217,000 (negative 0.1%) and increased in Scotland to £194,000 (1.1%), the ONS said.
The North East saw the highest annual percentage change of all English regions in the 12 months to August 2023 (3.6%), while the East of England saw the lowest (negative 1.6%).
9:47am: Wizz Air dives on Citi downgrade to sell
Shares in Wizz Air Holdings are flying low, down 3.2% at 1,642p after Citi put the stock on its sell list.
"We believe pricing will lose momentum in short haul compared to long haul," the broker said.
In short haul, it expects Ryanair will outperform on pricing against peers, driven by the network flexibility.
But it thinks the recent engine-related bottlenecks will impact around 4% of short haul capacity, with Wizz the most exposed, with around 23% exposure of current capacity.
"We downgrade Wizz to sell, given the impact on capacity ramp-up will result in unit cost pressure," Citi said.
The broker also more than halved its price target to 1,400p from 3,100p.
Citi has also moved the price target for IAG, the owner of British Airways, to 175p from 195p although it has kept a buy rating.
Lufthansa has been downgraded to neutral, due to downside risk to its 2024 margin target.
Lufthansa shares are down 2.4% to €6.95 in Frankfurt today.
9:32am: Upgrades to follow strong Whitbread results
Whitbread’s results have gone down well in the City with shares top of the FTSE 100 risers, up 3.7%.
Jefferies said the results were “strong” with sales a 1.4% beat and adjusted pre-tax profit a 14.5% beat against consensus.
It thinks the further £300 million of buybacks announced this morning should be taken well and it estimates a 10-11% upgrade to financial 2024 EPS forecasts today.
It highlighted current trading appears strong with the 6 weeks to 12 October growing 12% in the UK with the only negative some softness in the German market over the summer.
“We see re-rating potential from a stronger business model, benign supply conditions and greater reinvestment potential vs history. We also see scope for further earnings momentum in the year” Jefferies said.
It reiterated its buy rating.
As we reported earlier Shore Capital was also upbeat on Whitbread, reiterating a buy rating.
“We continue to see such valuation as too low given the robust trading, leading market position, freehold rich and debt-free estate, attractive return metrics and medium-term opportunities,” the broker said.
It said the better than expected profit was driven by the UK (up £90 million), reduced German losses (£11 million) and net interest income (£24 million).
It also sees scope for further buy-backs of more than £1 billion over the medium term.
Peel Hunt is also a buyer with a 4,000p price target.
“While there are clearly concerns over this cyclical business for FY25E and beyond, we can see the scope for upgrades for this year as competitors come under further pressure,” it said.
9:08am: Kin & Carta soars on £203 million takeover
Other stocks on the move include Kin & Carta which is up 41% after agreeing to a £203 million takeover offer from from private-equity firm Apax.
The bid values each share of the software consultant at 110p.
Marshalls is also in the green, up 7.4%, after it said trading has remained in line with its expectations.
Peel Hunt noted the shares “have dropped c.25% in the last month on fears that forecasts would be cut further but this update should reassure as we see no change to forecasts post this update.”
The update follows warnings from builders’ merchants like Travis Perkins (LSE:TPK) and SIG.
“We retain our 310p price target and believe the recent sell off represents a great 2-3 year buying opportunity,” the broker said.
8:45am: Adidas gives JD Sports a lift
The FTSE 100 remains in the red, now down 27 points, at 7,648.
Top of the risers is Whitbread, up 3.7%, as its market beating results, bumper dividend and fresh share buy-back.
Following closely behind is JD Sports Fashion PLC (LSE:JD.), up 1.5%, on a positive read across from adidas, which is up 3.7% in Frankfurt after the sports retailer raised guidance for the year in results announced after the market close Tuesday.
The rising oil price has lifted BP, up 0.5%, and Shell, up 0.2% but it is not such a good morning for housebuilders after Barratt Developments downbeat trading update.
Barratt said the “outlook for the year remains uncertain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.”
Shares are down 1.9%, with Taylor Wimpey, down 1.6%, and Berkeley Group PLC down 1.5%.
The stubborn inflation figures are also adding to pressure on the sector with the possibility of another interest rate increase likely to keep the pressure on mortgage rates.
8:15am: FTSE 100 falls on stubborn inflation, Middle East tensions
The FTSE 100 opened lower after stubborn inflation figures raised the possibility of another interest rate increase by the Bank of England while rising tensions in the Middle East saw the oil price jump once more.
At 8:15am, London’s blue-chip index was down 24.25 points, 0.3%, at 7,650.96 while the FTSE 250 was down 80.28 points, 0.5%, at 17,609.18.
Inflation remained unchanged in September, dashing hopes for a further fall, as rising fuel costs maintained the pressure on the Bank of England to keep interest rates high in its efforts to curb price growth.
The consumer prices index rose by 6.7% in the 12 months to September, the same rate as in August, confounding hopes for a fall to 6.5%, according to figures from the Office for National Statistics.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August, compared to forecasts of a fall to 6.0%.
But Nathaniel Casey, investment strategist at wealth manager Evelyn Partners said: “Despite the recent rise in crude oil prices pushing fuel prices higher, and this pause in monthly falls in annual inflation, we think the broad downward trend in inflation remains intact.”
“The cooling labour market conditions are reducing the risks of a wage price spiral materialising.”
Casey noted money markets continue to price in a 50/50 chance of one more rate hike at some point over the coming quarters.
“Regardless of whether they deliver one more hike or not, we’re unlikely to see rate cuts materialise before the tail end of 2024,” Casey added.
In company news, Whitbread rose 3% after the Premier Inn boosted the dividend, launched a £300 million share buy-back as it reported better-than-expected profit expectations.
Shore Capital said it was a “strong performance,” and it anticipates “further upgrades to forecasts (our fourth of the year) post today’s update”.
“We continue to see such valuation as too low given the robust trading, leading market position, freehold rich and debt-free estate, attractive return metrics and medium-term opportunities,” the broker said.
7:59am: Inflation still expected to fall in coming months
Samuel Tombs at Pantheon Macroeconomics said the strength in inflation figures today reflected a sharp, one-off price rise in two components.
Motor fuel prices leapt by 3.6% month-to-month in September, in response to the jump in oil prices, while the education CPI rose by 1.8%, driven by a 6.0% hike in private school and nursery fees, well above last year’s 3.7% increase.
In both cases, September's momentum will not be sustained over the coming months, Tombs said.
By contrast, food prices fell while consumers will also benefit in October from the 7% reduction in Ofgem’s energy price cap, which will subtract 0.3 percentage points from the all-items index.
“All told, then, we continue to think that consumer prices will rise slowly enough over the coming months to drag down the headline rate of CPI inflation to an average rate of 4.5% in Q4 and 4.0% in Q1.”
“Then we expect the headline rate to hover between 2.0% and 3.0% for the rest of 2024. If so, then the MPC needn’t leave Bank Rate at 5.25% for very long next year,” Tombs said.
7:50am: Barratt Development trading in line, tough market conditions
Barratt Developments PLC (LSE:BDEV) said it continued to trade in line with expectations despite a difficult trading environment.
David Thomas, chief executive said: “We have continued to trade in line with the expectations set out in our announcement in September. The trading environment remains difficult, with potential homebuyers still facing mortgage challenges.”
Thomas said against this backdrop the firm is focused on driving revenue whilst continuing to manage build activity and carefully control its cost base.
The housebuilder said between July 1 and October 8, net private reservations per average week were 169 compared to 188 the year before and net private reservations per active outlet per average week were 0.46 against 0.55.
Rising mortgage rates and the absence of Help to Buy reservation activity which accounted for 12% of private reservations in the prior year period, dented figures.
Reflecting the slower reservation rate, total forward sales totalled 9,221 homes, down from 13,314 homes last year.
It continues to expect to deliver total home completions of between 13,250 and 14,250 homes in financial 2024, including c. 650 home completions from JVs and c. 750 completions for the private rental sector.
All other guidance remains unchanged, the firm said.
Barratt said the “outlook for the year remains uncertain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.”
The FTSE 100 housebuilder was updating investors ahead of today’s AGM.
7:30am: Whitbread hikes dividend 40%, new buy-back
A bullish update from Whitbread PLC (LSE:WTB) which boosted the dividend 40% as it reported strong demand lifted half-year revenue and profits.
The owner of Premier Inn also launched a new £300 million share buyback as it expressed confidence in its hopes for 2024 and beyond.
The firm reported revenue in the first half of the financial year rose 17% to £1.57 billion from £1.35 billion the year before while adjusted pre-tax profit jumped 44% to £391 million from £272 million.
Adjusted basic EPS rose 37% to 146.1p from 107.0p and the interim dividend was increased by 40% to 34.1p from 24.4p.
Premier Inn UK saw total UK accommodation sales 15% ahead of last year and 55% above the first half of 2020, with strong revenue per available room growth in both London and the regions.
UK hotel demand is strong and supply is not now expected to return to pre-pandemic levels for at least five years, Whitbread said, adding it is seeking opportunities to grow its pipeline towards a long-term potential of 125,000 rooms across the UK and Ireland.
UK adjusted pre-tax margins increased to 27.5% from 24.4% and UK return on capital employed improved to 14.9% from 11.0%, well ahead of pre-pandemic levels.
In Germany, the company said it continues to make good progress, reconfirming previous guidance for the year.
Whitbread increased its capex guidance to £500-£550 million from £400-£450 million before but left other guidance unchanged.
“We remain optimistic about the outlook; leisure and business demand remains strong as evidenced by our forward booked position; favourable supply dynamics are set to continue for some time with the continued decline of independent hotels and constrained UK room supply growth,” Whitbread said.
7:12am: Headline inflation rate unchanged, core eases slightly
Inflation remained unchanged in September, dashing hopes for a further fall, as rising fuel costs kept the pressure on the Bank of England.
The Consumer Prices Index rose by 6.7% in the 12 months to September, the same rate as in August, confounding hopes for a fall to 6.5%, according to figures from the Office for National Statistics.
On a monthly basis, CPI rose by 0.5% in September, the same rate as in September 2022.
Annual inflation was unchanged in September 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to September, unchanged from August
▪️ Consumer Prices Index (CPI) rose by 6.7%, unchanged from August.
— Office for National Statistics (ONS) (@ONS) October 18, 2023
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August, compared to forecasts of a fall to 6.0%.
The ONS said the the largest downward contributions to the monthly change in CPI annual rates came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021, and furniture and household goods, where prices rose by less than a year ago.
But rising prices for motor fuel made the largest upward contribution to the change in the annual rates.
7:00am: Bright start expected in London with inflation the focus
The FTSE 100 is expected to make a bright start on Wednesday ahead of consumer price index figures and more US earnings.
Spread betting are calling London’s lead index up 21 points after closing up 44.58 points at 7,675.21 on Tuesday.
UK inflation is expected to have eased in September. The headline annual rate is expected to have eased to 6.5% last month from 6.7% in August, according to FXStreet-cited market consensus.
The core inflation is predicted to cool to 6.0% from 6.2%.
Elsewhere, the ongoing conflict in the Middle East will be in focus as an attack on a hospital in Gaza sparked a war of words as to who was responsible and pushed oil prices higher.
Back in London, and aside from inflation, updates from Whitbread, Antofagasta, Segro, Quilter and 888 will provide the early focus.