- FTSE 100 closes down 27 points at 7,375
- Wall Street expected to open lower
- UK and US bond yields continue to rise
4:40pm: Stocks off lows as US markets rally
The FTSE 100 closed in negative territory but well off early lows as US markets rallied after opening sharply lower.
At the close, London's lead index was down 27.31 points, 0.4%, at 7,374.83 while the FTSE 250 was up 26.26 points, 0.2%, at 17,058.99.
Rolls-Royce Holdings PLC (LSE:RR.) rose 2.2% shrugging off reports the company could be facing a £350 million legal claim from investors after bribery allegations in 2017.
AstraZeneca remained lower, down 2.2%, despite its CEO Pascal Soriot dismissing recent reports that he was leaving the business while Rentokil Initial came off early lows as Jefferies and Barclays highlighted recent weakness as a buying opportunity.
In the FTSE 250, Keller rose 15% after its upbeat trading news while Indivior benefited from its US legal settlement, rising 6.1%.
3:52pm: Government could extend mortgage guarantee scheme
The City minister is to hold talks with some of Britain's biggest banks in the lead-up to the autumn statement as the government looks to extend its flagship scheme for first-time buyers, according to reports.
Sky News understands that Andrew Griffith is to meet with mortgage lenders within the next fortnight to discuss an extension of the Treasury's mortgage guarantee scheme into next year.
The timing of the meeting had yet to be finalised on Monday, but Whitehall and industry sources confirmed that major banks were expecting to be called in ahead of the chancellor's set-piece fiscal statement in late November.
The Sunday Times reported at the weekend that a package of support for first-time buyers was being lined up for the autumn statement.
3:21pm: German economy likely to have shrank in third quarter
Germany's central bank has cautioned that sluggish domestic consumption, weakening demand from abroad and higher interest rates slowed the German economy in the summer.
"Real gross domestic product is likely to have shrunk somewhat in the third quarter of 2023," the Bundesbank said in its monthly report.
According to the report, there was a tailwind from the still robust labour market as well as strong wage increases with declining inflation.
Another grim report from the #Bundesbank: German economy probably shrank in Q3 (first estimate due 31 October), which would be the fourth contraction in six quarters... ????
(not technically '#recession', as GDP was flat in Q2, but certainly 'stagnation')https://t.co/Pe2xGpeklj
— Julian Jessop (@julianHjessop) October 23, 2023
"However, private households probably did not yet use the additional scope for spending for higher consumer spending," the bank wrote.
According to the Bundesbank, economic growth was also slowed by the continuing weak demand from abroad for industrial products "Made in Germany."
2:50pm: Weak start in New York
It's been a weak start, as expected, in the US, with rising bond yields and anxiety about the Middle East continuing to deter investors from 'riskier' assets.
Shortly after the opening bell, the Dow Jones Industrial Average was down 224.22 points, 0.7%, at 32,903.06, the S&P 500 was down 28.99 points, 0.7%, at 4,195.17 and the Nasdaq Composite was down 124.32 points, 1.0%, at 12,859.49.
Fawad Razaqzada at Forex.com said: “Sentiment remains bearish towards risky assets, with global indices continuing to fall at the start of the new week following a tumultuous and eventful last week.”
“Price action at the start of this week mirrors thar of last week when global financial markets came under intense pressure. The situation in the Middle East remains a big concern for investors, compelling investors to remain defensive,” he added.
Bond yields rose once more, with the yield on benchmark 10-year Treasuries going above 5% for the first time since 2007, as investors bet that the Federal Reserve will keep interest rates at current high levels for longer.
Stocks on the move include Chevron, down 2.8%, after it unveiled the $53 billion acquisition of smaller rival, Hess, up 0.5%.
Investors are also looking ahead to a busy week of earnings with around 40% of S&P companies reporting.
2:13pm: AstraZeneca boss dismisses talk of exit
AstraZeneca boss Pascal Soriot has told Bloomberg that reports of his imminent departure from the drugmaker are “fake news.”
Soriot, speaking at the European Society for Medical Oncology in Madrid, said: "I read these rumors and I can tell you - there’s nothing further from the truth. This is totally made up. Absolutely made up.”
There were reports earlier this month that AstraZeneca Chairman Michel Demare had started to look for a replacement for Soriot, who has been at the helm since October 2012.
Since he took over, shares in the drugmaker have jumped by just over 250%.
1.30pm: Here’s a quick recap of the top risers and fallers on the junior market today
Shares in the oil and gas investment company Upland Resources (LSE:UPL) plc went stratospheric in early deals after it said it had received a "very preliminary" bid approach at 14p a share.
Shares were changing hands for 5.65p each, up 93%, having been up to 7p earlier in the session.
Shares in OptiBiotix Health PLC (AIM:OPTI, OTC:OPBXF) climbed 7% after the firm unveiled a licensing agreement with Tata Chemicals to roll out its weight loss products in India.
Mast Energy Developments PLC (LSE:MAST) rose 8% as it concluded a binding joint venture agreement with Proventure Holdings, an India-based renewable energy investments group.
Nuformix PLC (LSE:NFX), the pharmaceutical company, lifted over 6% after receiving patent approval from Japanese authorities for NXP002, its lead asset and a potential novel treatment.
Shares in MISSION Group (LSE:TMG) plc fell 60% after the digital marketing group sounded the earings alarm and cancelled the dividend in the face of difficult trading conditions.
1:03pm: Rentokil an opportunity not to be missed?
Rentokil Initial continues to fall following last week’s profit warning but two brokers reckon at these levels the shares have fallen far enough.
Barclays is still a fan, reiterating a buy rating and 700p price target, stating its long-term view hasn’t changed.
“Whilst disappointing the North American business has slowed, there is not sufficient evidence to affect our view of the quality of the combined business that will emerge post-integration,” it said.
“For those who 'missed out' on Rentokil's earlier share price gains, this is now an opportunity to buy the shares,” it suggested.
It thinks the share price reaction as excessive, noting shares are essentially back to where they were pre-pandemic.
“Even if North American organic growth remains below trend in FY24e, perhaps due to ongoing integrations and/or continued constrained consumer budgets, the downside risk to earnings in the business is small vs. the magnitude of the share price reaction,” it said.
Jefferies agrees. “Some time may be needed to rebuild confidence, but the implied c15% de-rating in the shares feels overdone and may offer a potential opportunity for investors willing to be patient,” it said.
The broker trimmed estimates by 2-6% and set a new 650p target price, down from 740p.
Shares are down 1.6% at 457p.
12:35pm: FirstGroup on the right track with more to come
FirstGroup PLC (LSE:FGP) is up 1% and Berenberg continues to see value despite the 43% rise in the share price year-to-date.
The broker pointed out that its recent strong trading update led to guidance upgrades for adjusted operating profit and adjusted attributable profit.
But it believes there is value given the continued positive trends in the bus and rail businesses, consistent upgrades, as well as the strong balance sheet optionality and headroom for further investment looking ahead.
It said a recent site visit further emphasised this view, given the steps the company is taking in terms of electrification, which could also open up further revenue adjacencies.
Berenberg has a buy rating and has raised its price target to 185p from 170p.
12:03pm: Weak open expected on Wall Street
Across to the US, and it looks like another downbeat day for equities as bond yields continue to march higher.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.6% lower, while those for the S&P 500 were down 0.6%, and contracts for the Nasdaq 100 futures fell 0.7%.
The 10-year Treasury yield crossed 5% for the first time in 16 years, propelled by expectations the Federal Reserve will maintain elevated interest rates and that the government will further boost bond sales to cover widening deficits.
The yield rose 11 basis points to 5.02%, the highest since 2007.
Federal Reserve chair Jerome Powell suggested last week that central bankers are inclined to hold rates steady at their November meeting, but remain open to hiking again if a resilient economy fans inflation risks.
11:39am: UBS highlights winners and losers from rising yields
UBS thinks the rise in bond yields will keep equity valuations under pressure given that this is not a factor likely to reverse quickly.
It believes equities could remain under the cosh until lower growth and inflation leads to a policy response which it currently forecasts only from the middle of next year.
It thinks leading indicators will reverse back into the 'downturn' regime soon - as they did in 2003 - because creaks in yields and margins are finally causing low quality companies to crack.
The Swiss bank has identified companies that are higher and lower quality using a variety of financial statement metrics (eg debt/assets, cash flow variation, cashflow/assets and gross profits/assets).
Into this downturn it expects quality to drive divergences.
UK stocks on the high quality list include Auto Trader, Next, Softcat (LSE:SCT), Relx, Rotork and Man.
The vulnerable list includes London Stock Exchange Group, Rentokil, Entain and IDS, the owner of Royal Mail.
11:10am: Equity sell-off picks up pace as bond yields rise
The sell-off in London has gathered pace with the FTSE 100 now down 53 points at 7,350.
Bond yields in the UK are moving higher - as we reported below the 10-year has climbed - while the 30-year has hit a 25-year high, at 5.200%, its highest since the summer of 1998.
Mining stocks continue to lead the FTSE lower with Fresnillo down 4.6%,Anglo American down 3.3% and Glencore off 2.6%.
Rentokil Initial is another 4.0% lower after last week's profit warning while rates worries are knocking housebuilder Taylor Wimpey, down 2.1%.
On the upside, retailers are in the green with gains, for Next, Frasers, M&S and B&M.
10:36am: US 10-year bond yield hits 5%, UK yields rising too
Still in the US and the yield on 10-year US government bonds has risen above 5.0% for the first time since 2007 during the height of the subprime mortgage crisis.
10-year US Treasury yield exceeds 5% for the first time since 2007, signaling more pain for bond investors pic.twitter.com/2KGNK1UbCs
— Markets Today (@marketsday) October 23, 2023
The rate on 10-year Treasury bonds hit 5.008% as investors worry the US Federal Reserve will need to keep interest rates higher for longer in the face of stubborn inflation and a resilient US economy.
In the UK, bond yields are also rising with the yield on 10-year up 9 percentage point to 4.75%.
10:23am: Chevron buys Hess for $53 billion
Another big deal in the US oil market.
Chevron Corp has bought Hess in an all-stock transaction valued at $53 billion, or $171 per share based on Chevron's closing price on Friday.
Hess shareholders will receive 1.0250 shares of Chevron for each Hess share, with the total enterprise value, including debt, of the transaction is $60 billion.
"The acquisition of Hess upgrades and diversifies Chevron's already advantaged portfolio," it said in a statement.
It's the second major deal in the US oil industry in just a few weeks after Exxon Mobil agreed to buy shale-oil producer Pioneer Natural Resources (NYSE:PXD) for $58 billion.
The combined company is expected to grow production and free cash flow faster and for longer than Chevron's current five-year guidance, it said.
"This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets," said Chevron chairman and CEO Mike Wirth.
10:08am: Chinese equities at pre-pandemis lows
Chinese shares have fallem to the lowest level since before the Covid-19 pandemic, as Beijing’s latest efforts to prop up the country’s stock market failed to stem a sell-off driven by slowing economic growth, a liquidity crisis in the property sector and geopolitical tensions.
The CSI 300 index of large and liquid Shanghai- and Shenzhen-listed stocks fell as much as 1.3% on Monday to about 3,463, marking the equity benchmark’s lowest level since 2019.
The gauge has fallen about 15% so far this year, in dollar terms.
Chinese equities outperformed global markets early in the pandemic and staged a rally at the start of this year on hopes of a rebound from disruptive zero-Covid policies.
But falling growth expectations have seen these hopes diminish.
9:47am: Synthomer (LSE:SYNT) faces reduce demand in latex market
Synthomer (LSE:SYNT) PLC is on the back foot, down 3%, after a broker highlighted concerns of reduced demand in a key market.
UBS has moved the stock to neutral from buy to reflect continued weakness in the nitrile butadiene rubber latex market beyond the end of this year, plus analysis which suggests that any pick-up in demand or restocking across the rest of business will not materialise until the first half of 2024.
UBS explained its latest hospital business survey suggests the majority of hospitals are still destocking (around 30%) or maintaining inventories (around 50%) of PPE (including medical gloves) and the majority of respondents believe current inventory levels of PPE will last for 3-6 months.
Its Ebitda forecast for Health & Protection in 2023 is £29 million, down 65% y/y and recovering to £45 million in 2024.
“While we agree that destocking is close to coming to an end, lead indicator data still paints a bearish picture of volumes for the rest of the year,” it said.
“Following the share consolidation and rights issue coupled with the challenging trading environment and lack of order book visibility we downgrade our rating to neutral with target price of 215p,” the Swiss bank said.
It has also lowered 2023-25 Ebitda forecasts by 30% pa.
9:19am: Indivior legal settlement makes story "cleaner"
Indivior’s US legal settlement continues to push the share price higher, up 3% at 1,551p.
Analysts at Liberum said while the $385m payment is $228m above the $157m already provided the market had been worried that the firm would not be able to settle the last group of plaintiffs.
It thinks the settlement today is a positive for the shares, making “the story much cleaner and palatable for investors.”
It estimates the settlement implies a further 115 pence drag to its target price but pointed out this court case was the “biggest risk to our forecasts and the going concern.”
“So while the settlement is greater than the provision, resolving this risk at a level that won’t exceed cash reserves is a major win for the business,” it believes.
Jefferies agreed. “Although the final amount for the remaining class action is above the current provision, we are encouraged that Indivior can finally put its legacy multi-district antitrust matter behind it.”
It pointed out the action has been a barrier to some longer-term investors entering the stock.
Both Liberum and Jefferies rate Indivior at ‘buy’.
8:44am: FTSE weighed by falling mining and energy stocks
The FTSE 100 remains in the red in early dealings, although losses are modest, now down 29 points at 7,373.
Mining and energy stocks are lower, with Fresnillo and Anglo American the top two fallers, down 1.6% and 1.2% respectively.
Richard Hunter, head of markets at interactive investor, commented “The rotation towards bonds continued, with equity investors under pressure from any number of angles.”
“Escalating tensions in the Middle East and Treasury yields topping 5% for the first time since just prior to the great financial crisis are currently burdens which equity markets are finding difficult to bear.”
“The ongoing strength of the latter also impacts on the broader economy as it is seen as a benchmark for borrowing levels,” he added.
In the FTSE 250, Keller, up 13.7%, and Indivior, up 8.3%, lead the way but Vistry continues to lag, down 4.8%, after its trading update.
8:18am: FTSE 100 edges lower as oil majors ease
The FTSE 100 made a subdued start to the week as a fall in the oil price dragged BP and Shell lower as investors continue to monitor developments in the Middle East.
At 8:15am, London's lead index was down 11.44 points, 0.2%, at 7,390.70 while the FTSE 250 was up 5.02 points at 17,037.75.
Events in the Middle East continue to provide an unsettling backdrop for markets while rising bond yields are also prompting concerns.
Jim Reid at Deutsche Bank said: “I continue to be concerned as to how markets will cope with such high yields at the back end of markets, especially those in the US.”
He suggested one “of the biggest 2-3 year yield sell-offs in history risks causing a lot of pain beyond any seen so far.”
In London, and Keller was a star performer, up 9.5%, after forecasting operating profits “materially ahead” of current market expectations as strong trading continued into the third quarter.
Liberum called the update “positive,” and has raised its price target to 1,400p from 1,340p.
An easing in the oil price saw oil majors BP, down 0.7%, and Shell, down 0.4%, weighing on the blue-chip index.
Vistry fell 3.5% after reporting it had not seen an expected seasonal upturn in trading in September.
Peel Hunt noted the housebuilder is now targeting adjusted pre-tax profit of £450 million – a “slight lowering” of expectations from interim results when it expected to exceed £450 million.
But it remains positive on the stock.
“We continue to believe the move to be wholly focused on Partnerships housing will unlock capital, which will most likely be used to buy shares back,” it said.
Indivior was up 7.6%, despite taking a higher-than-expected charge to settle a legal action.
Liberum said the “settlement today is a positive for the shares, making the story much cleaner and palatable for investors.”
7:53am: Indivior pays $385 million to settle legal action
Indivior said it has agreed to pay $385 million to resolve the final lawsuit claims against it in the long-running Suboxone anti-trust case.
The addiction treatment company said it would take a $228 million charge in the third quarter, which will be excluded from adjusted earnings.
"This charge represents the additional amount above the current remaining provision of $157 million for the antitrust multi-district litigation (MDL), which reflects the previously announced settlement agreements with the States and End Payors," Indivior said in a statement.
Indivior said this agreement will mark the conclusion of the MDL and the trial scheduled to begin later this month, will be cancelled.
Payment of the $385 million is expected to be made in November 2023 and funded from Indivior's existing cash.
Indivior chief executive Mark Crossley said: “The resolution of this litigation, which was filed over a decade ago, provides greater certainty for all Indivior stakeholders and allows us to continue focusing on our important work for patients suffering from opioid use disorder and mental health illnesses around the world."
Indivior said it expects that court approval of the agreement will remove the previously disclosed material uncertainty related to Indivior's going concern basis of accounting.
7:43am: Keller sees profit "materially ahead" of expectations
Keller Group PLC (LSE:KLR) expects underlying operating profit to be materially ahead of current market expectations as strong trading continued into the third quarter.
In a trading update, the geotechnical specialist contractor said in North America it saw more resilient pricing than expected in Suncoast and sustained operational improvements in the foundations business which have resulted in a strong performance.
The recovery in operation margin had been higher than forecast although the pricing benefit at Suncoast is expected to moderate into 2024 with the margin returning to more normalised levels.
In Europe, the macro-economic environment remains a challenge for the business, resulting in weak demand in the residential and commercial sectors across the region.
Profitability continues to be impacted by the competitive pricing environment and the impact of some challenging projects, whilst the effect of several large successful projects in the prior year, provides a tough comparator for the period.
Accordingly, the anticipated profitability improvement in the second half will “be less than expected and as a result we are taking appropriate corrective actions,” the firm said.
In Asia-Pacific, Middle East and Africa, Keller Australia is performing strongly, particularly in the infrastructure sector, and Austral has returned to profit in the third quarter as expected.
Cash generation for the year to date is considerably ahead of the prior year and better than expectations, Keller said.
It now expects the year-end net debt/Ebitda leverage ratio to be below 1.0x, well within the target range of 0.5x - 1.5x (2022: 1.2x).
7:28am: Vistry sales slowdown continues, expects higher debt
Vistry Group PLC (LSE:VTY) said it expects net debt to be higher than expected due to slower sales as it warned it had not seen a seasonal upturn in business that it had expected.
The housebuilder said it expects financial 2023 adjusted pre-tax profit of £410 million, including a £40 million reduction in full-year site margins, reflecting the impact of transitioning the Housebuilding business to Partnerships.
Vistry said the slowdown in open market private sales see during the summer months has continued and it has seen the seasonal increase in private sales since September that it had forecast.
The group's average weekly sales rate since July 1 has been 0.60, down from 0.64 the year before, and 0.76 for the year to date compared to 0.77 before.
Reflecting the timing of completions, average net debt for the full year is expected to be higher than previously expected at around £450 million, the firm said.
But it continues to expect net debt to reduce to c. £100 million as at December 31, 2023.
Cost savings from the integration of Partnerships and Housebuilding are expected to deliver around £25 million of annualised cost savings with around 200 jobs to go.
Vistry also said it remains confident that provision made for cladding remedial work is sufficient.
7:00am: Subdued start expected in London
The FTSE 100 is expected to make a muted start as events in the Middle East continue to spark nerves and ahead of earnings from some of the leading names of the business world.
Spread betting companies are calling London’s lead index little changed after closing down 97.39 points at 7,402.14 on Friday.
Overnight, Israel said its forces had hit targets from the Hizbollah militant group in Lebanon, as its conflict with Hamas threatened to spill over into other theatres in the region.
Michael Hewson said: “How much longer this market weakness can continue could well come down to events later this week and which may not be connected to events in the Middle East, with the release of the latest quarterly earnings from 4 of the so-called “Magnificent 7” which have helped to underpin the bulk of the gains in the Nasdaq 100, given that collectively they still account for 40% of the indexes market cap.”
“With Google owner Alphabet, Microsoft, Amazon and Facebook owner Meta Platforms all reporting this week the scope for a further lurch lower is high in the event of any sort of disappointment.”
“Complicating matters further is the fact that even if the numbers a good an escalation in the Middle East could open the trapdoor to further losses.”
Back in London, and ahead of a busy week of earnings, the early focus will be updates from Shanta Gold and South32.