- FTSE 100 down 62 points at 7,293
- NatWest sinks on lower margin outlook
- IAG delivers best ever third quarter
3:52pm: US consumer confidence falls
The FTSE 100 has fallen sharply heading into the close reflecting a worse than expected open by the Dow Jones on Wall Street.
Adding to the late angst, is a weak consumer confidence reading in the US - the University of Michigan’s Index of Consumer Sentiment dropped to 63.8 in October, down from September’s 67.9, following two months of little change.
The University of Michigan consumer sentiment final reading for October is 63.8, up from the preliminary 63.0 in early October, and down from the final 67.9 in September. #sentiment pic.twitter.com/fb7RJYB9Ot
— Econoday, Inc. (@Econoday) October 27, 2023
This decline was driven in large part by higher-income consumers and those with sizable stock holdings, consistent with recent weakness in equity markets.
Year-ahead inflation expectations rose from 3.2% last month to 4.2% this month, the highest reading since May 2023.
3:35pm: JPMorgan boss to offload shares next year
JPMorgan chief executive Jamie Dimon will sell 1 million shares in the bank next year, the first time he has reduced his personal stake in the group since joining nearly two decades ago.
At current market prices, the sale would net Dimon more than $140 million.
???? Just In: JPMorgan Chase CEO Jamie Dimon plans to sell $JPM shares for the first time after years of accumulating shares in the nation's largest bank.
Dimon said he and his family plan to sell roughly 1 million of their 8.6 million in $JPM shares.
The Dimon family's stake in… pic.twitter.com/mGtVkezabT
— Jesse Cohen (@JesseCohenInv) October 27, 2023
In a Securities and Exchange Commission filing, JPMorgan said the sale was for “financial diversification and tax-planning purposes”, adding that “Dimon continues to believe the company’s prospects are very strong and his stake in the company will remain very significant”.
2:48pm: Intel and Amazon fire up the Nasdaq, Chevron weighs on Dow
US stocks made a mixed start on Friday with Amazon spurring a rally in tech stocks while blue-chips edged lower, hit by falls in Chevron, despite an as expected inflation reading.
Shortly after the opening bell, the Dow Jones Industrial Average was down 70.87 points, 0.2%, at 32,713.43, the S&P 500 was up 5.96 points, 0.1%, at 4,143.19 and the Nasdaq Composite was up 101.21 points, 0.8%, at 12,696.82.
Figures showed the Federal Reserve's preferred inflation measure hit a two-year low, cooling in September.
ING Economics said the figures showed inflation remains “somewhat sticky,” with the core personal consumer expenditure deflator coming in at 0.3% month-on-month/3.7% as expected.
But it noted this follows three months where it has averaged 0.17% month-on-month, “which is exactly what we'd need to see over time to take us back to the 2% year-on-year rate that the Federal Reserve is targeting.”
“As such, it's a little disappointing – but with the Fed acknowledging the recent tightening of financial conditions brought about by the spike in Treasury yields and Fed Chair Jerome Powell’s recent comments that “given the fast pace of the tightening, there may still be meaningful tightening in the pipeline”, we continue to believe the Fed is finished hiking rates,” it said.
ING said the report also showed intensifying concerns are now coming to the fore over the path for real household disposable income – the key driver of consumer spending.
“Unless this turns around rapidly, recession will start to look more likely and inflation will fall more rapidly than the Federal Reserve expects,” it said.
Away from the economic data, and the market gave a warm reaction to results from Amazon, up 7.2%, and Intel, up 10.9%.
Oil majors Chevron and ExxonMobil were down 4.8% and 0.8% after their respective numbers.
2:18pm: FTSE 100 perks up after PCE hits two-year low
The FTSE 100 has perked up, and is trading close to opening levels, after the Federal Reserve's prefferred inflation measure hit a two-year low, cooling in September, as consumer spending strengthened, easing the pressure on the central bank to raise rates at its next meeting.
The “core” personal consumption expenditure index, which strips out volatile items such as food and energy, fell to an annualised rate of 3.7%, from a downwardly revised figure of 3.8% in August, the lowest level in two years.
Headline PCE remained unchanged at an annualised rate of 3.4%, owing to higher prices for petrol and services.
Both figures were as expected but will provide some relief to the market given rising energy prices.
On a monthly basis, personal consumption expenditures increased 0.4%, above forecasts of 0.3%, in September from August while core personal consumption expenditures rose 0.3%, quickening from a 0.1% rise.
The reading comes ahead of the latest Federal Reserve interest rate decision on Wednesday at which the central bank is expected to leave rates unchanged.
1:12pm: Full steam ahead for Trainline shares
Some more on the upgrade on Trainline shares which has seen shares surge 5.9%.
JPMorgan thinks regulatory changes in UK Rail are manageable and the shares are now at an attractive valuation.
It noted the shares have de-rated relative to its peers driven, it believes, by investor concerns on the complexity around changes in UK rail regulation which has overshadowed strong passenger momentum.
But JPMorgan sees a limited financial impact, even on highly cautious scenarios, with a £8 million Ebitda loss potential overall - arround 6% of group adjusted Ebitda for 2026.
On the plus side, it sees upside risk from rapidly rising online share in the UK with Trainline the key beneficiary, and increasing carrier fragmentation in Europe driving online ticket sales momentum.
It has upgraded the stock to overweight from neutral with a price target of 300p, up from 295p.
12:49pm: Flutter gains as International potential highlighted
Shares in Flutter Entertainment have risen 1.8% after positive feedback from a presentation on its International division in Milan on Thursday.
The mood was also helped as broker, Citi, placed the betting operator on positive catalyst watch.
The update included a deep dive into Sisal, the Italian online gaming operator which Flutter picked up in December 2021.
The presentation offered insight into the underlying market trends and relative positions of strength of the Flutter brands (particularly local heroes) in key growth markets.
Analysts at Barclays said the key message was there was "much more to go for" internationally in regulated markets and further regulating markets.
The presentation noted there is a Rest of World (ex UK, US, Australia) total addressable market (TAM) of £227 billion, of which £120 billion is regulated and 30% of that is online.
Today, the consolidate-and-invest countries of the International division are in c20% of the regulated RoW TAM.
Barclays said Flutter will concentrate investment into key markets to achieve or maintain podium positions, targeting organic and inorganic growth of local hero brands by leveraging what it called the "Flutter Edge" and brand strengths.
It said the market often struggles to grasp the underlying market and brand trends of the International division as detailed market data is scarce with the exception of Italy. T
Therefore, further information was provided on Italy, Tunisia, Morocco, Turkey, Serbia, Georgia and Armenia which was helpful.
Barclays thinks the international platform is set for organic growth primarily from businesses acquired in the last five or so years but also from further acquisitions after proven successful M&A in recent years.
It thinks M&A is highly likely but consolidation of existing markets is more likely than a fresh new market.
Barclays has an equal weight rating on Flutter, on the basis that too much value was priced into the shares for the US opportunity, but it did point out its £160 price target now offers 24% potential upside.
12:04pm: Amazon and Intel lift the mood in the US
Across to the US and stocks are expected to open on the front foot after Amazon brought some much needed cheer to technology stocks, although investors will also be keeping a wary eye on a key inflation gauge.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% higher, while those for the S&P 500 were up 0.5%, and contracts for the Nasdaq 100 futures rose 0.9%.
After a torrid week, tech stocks look set to bounce, with Amazon up 6.3% in pre-market trading after third quarter revenue and profits topped forecast.
AJ Bell investment director Russ Mould said: “A steady performance from the e-commerce and, particularly, the AWS cloud business helped reassure investors.”
“AWS is the real profit engine of the group and there was a risk an uncertain economic backdrop might have affected demand from clients. Solid sales and margins here will therefore be positively received,” he felt.
Intel also lifted the tech world after its strong results after the close Thursday, with shares up 7.2% ahead of the open.
Aside from earnings, the other early focus will be the core personal consumption expenditures index, the Federal Reserve’s preferred inflation measure, which is expected to have accelerated 0.3% in September, following a 0.1%rise in August
That would bring the annualised rate down to 3.7% from 3.9|%.
Headline PCE is also expected to increase 0.3% on a monthly basis, taking the annual rise to 3.4% from 3.5%.
Other stocks to watch include Ford which is down 3.5% after missing third-quarter earnings expectations and pulling guidance for the year, citing the UAW strike.
Oil majors, Exxon Mobil and Chevron dominate the earnings picture on Friday.
11:25am: BofE likely to hold rates ahead of prolonged pause
Looking ahead to next and the Bank of England's Monetary Policy Committee meets next week as it plots its next monetary policy move.
Rates are expected to remain unchanged 5.25% following the 5-4 vote in favour of a pause in September.
Economists think the vote could be a more decisive pause next week, with Morgan Stanley (NYSE:MS) expected a 6-3 vote in favour of a hold and Bank of America pitching at 7-2.
UBS economist Anna Titareva agrees seeing a more convincing majority in favour of a pause compared to the September meeting, with possibly only a few dissenters (Mann and Haskel).
Morgan Stanley (NYSE:MS)’s Bruna Skarica said “the broader economic picture is similar to how the MPC described it in the September minutes: wage and underlying inflation pressures have likely peaked; economic momentum is slowing; the labour market is slackening.”
So, the case for "higher for longer" still seems to be there, she thinks, with no sign of inflation expectations drifting up either.
Bank of America’s Robert Wood agrees that rates will be put on hold.
“In our view the Bank of England’s high bar to a hike at next week’s meeting has not been breached.”
With the broad consensus being that interest rates have peaked, the debate then shifts to when rates could start coming down.
Titareva is going for May 2024, albeit with the risk skewed towards a later cut, BofA’s Wood doesn't expect a reduction until February 2025 while Morgan Stanley (NYSE:MS)’s Skarica predicts a cut could come as early as May 2024.
She thinks rates could be as low as 4.00% by the end of 2024.
10:44am: Rose says review confirms what she told NatWest was correct
Alison Rose, NatWest’s former boss, has commented on the independent legal inquiry into the Nigel Farage debanking row, whose key findings were released this morning.
Rose said the report "confirms everything I told the Board in July was correct."
"Both Travers Smith and the Information Commissioner’s Office have concluded that I inadvertently confirmed what had already been widely reported, that Mr Farage held an account at Coutts."
"The ICO also concluded the ‘impact around this specific disclosure was minimal’."
“Travers Smith is clear that ‘there was no leak of specific detailed financial information’."
"Travers Smith also confirmed I knew nothing about the comments made by Coutts staff about Mr Farage, which were deeply unpleasant and unfair.”
Meanwhile, the Financial Conduct Authority confirmed it is looking into NatWest following the review which has "highlighted potential regulatory breaches and a number of areas for improvement."
Statement regarding NatWest Group.
The initial report commissioned by NatWest, & additional information we've considered, highlight potential regulatory breaches & areas for improvement.
We update on our supervisory work.https://t.co/aYYrBJaQwE#financialservices #regulatory
— Financial Conduct Authority (@TheFCA) October 27, 2023
These include "the firms’ processes, systems and controls around how they consider potential closure of accounts and handle complaints from their customers."
The FCA said that ir will be "reviewing how the firms’ governance, systems and controls are working to identify and address any significant shortcomings."
"This supervisory work will include use of our statutory information gathering powers, interviews with relevant bank staff and reviews of appropriate policies or procedures."
10:14am: St James's Place, Trainline lifted by upgrades
St James's Place PLC is 0.7% higher today, although down 44% year-to-date, boosted by an upgrade by UBS.
The Swiss bank has moved the stock to buy from hold with a reduced price target of 735p, down from 990p.
It acepets some of the underperformance this year is justified given regulatory and macro headwinds but the current valuation "screens cheap."
Significant EPS cuts, long-term fee pressure, and a high cost of equity, reflecting uncertainty under a new charging structure, already appear priced in, in UBS's opinion.
While significant long-term growth prospects (up to 24% p.a.), do not appear to be reflected in the valuation, it said.
With the stock now trading at a 14% discount to peer QLT, where historically it has traded at a 30% premium, the broker has shifted its rating to buy on valuation grounds.
Over in the FTSE 250, Trainline is up 5.2% following an upgrade by JPMorgan to overweight from neutral.
The investment bank has raised its price target to 300p from 295p.
Also on the right track today, are Mobico, formerly National Express, up 2.0%, and train operator First Group, up 1.7%.
9:56am: Is IAG's 'stellar quarter' as good as it is going to be?
British Airways owner, International Consolidated Airlines, has given back its early gains despite what AJ Bell’s Russ Mould called “pretty stellar” third quarter results which beat forecasts thanks to a summer of heavy demand.
Shares are down 0.6% at 142.05p after opening higher.
“If the first post-Covid summer season in 2022 was something of a damp squib thanks to airport disruption, this time round the recovery in the airline space has been truly impressive,” Mould said.
“The question now is: is this as good as it’s going to get,” he asked.
He said “there must be limits to households’ capacity to keep spending at the levels we’re seeing right now and events in the Middle East are once again pushing up crude oil prices, feeding into a higher cost of fuel.”
“Not to mention that geopolitical tensions often have a negative impact on the travel sector in of themselves”, he added.
“When you add concerns about IAG’s debt position to the mix, it’s easy to see why today’s update got raspberries rather than garlands from the market,” he said.
9:18am: Farage calls Travers review a "white-wash"
Nigel farage has had his say on the findings of the Travers Review into the closure of his Coutts account, calling it a "white-wash."
"This comes as little surprise to me given Travers Smith’s Emeritus Chair, Chris Hale, is a pro-Remain lawyer who once described Brexiteers as racist and xenophobic," he said.
"The Travers Smith report is inconclusive and ignores the elephant in the room," he added.
"What really matters now is the next steps that the ICO takes and, perhaps more importantly, what the FCA, the regulator of this industry, does about this scandal."
The NatWest / Travers Smith report out this morning is a whitewash.
They say my political views “not aligning with the bank” was not in itself a political decision.
They also find no evidence my “pro-Brexit” views were a factor, despite Brexit appearing 86 times in the SAR. pic.twitter.com/dhKeXET3FT
— Nigel Farage (@Nigel_Farage) October 27, 2023
9:03am: Oil majors provide support to FTSE
The FTSE 100 has pushed into the green, up 8 points, at 7,363.
Oil majors, BP PLC (LSE:BP.) and Shell are higher lifted by the rising oil price providing support, with mining stocks also higher.
This is keeping the falls in banking shares at bay for now - NatWest is down around 12%, Lloyds is down 2.3% and Barclays is down 1.6%.
In the FTSE 250, the big riser is Digital 9 Infrastructure PLC which has jumped 9.5% following news the group is considering offloading its stake in Verne Global group of companies, the IT group.
This move comes after receiving indicative offers during a competitive process to syndicate a majority stake in Verne Global.
Digital 9 told investors that this proposed transaction, expected to be finalised in Q4 2023, would speed up balance sheet deleveraging and strengthen the company's financial position, thereby maximising shareholder value.
8:31am: NatWest tumbles on "sizeable" downgrade to margin guidance
Michael Hewson chief market analyst at CMC Markets UK notes it’s not been a great year for the NatWest share price, and it got even worse this morning, with the shares plunging to 30-month lows, after the bank lowered its full year guidance on net interest margin.
“Given what has happened this week with Barclays and Lloyds and their NIM guidance, it wasn’t a surprise to see a further downgrade here,” he said but the cut from 3.15% to “greater than” 3%, is a “sizeable downgrade.”
*NATWEST DROPS 16% AFTER BANK CUTS MARGIN GUIDANCE
— Michael Brown (@MrMBrown) October 27, 2023
He also felt the Farage findings were from a reputational standpoint “hugely damaging.”
He suggested the revelations could prompt some customers to take their business elsewhere.
Shares are down 12.4%.
8:17am: NatWest plunges on margin squeeze, Farage fall-out
The FTSE 100 edged lower on Friday after NatWest ended a miserable week for banks by lowering its outlook.
At 8:15am, London's blue-chip index was down 7.86 points, 0.1%, at 7,346.71 while the FTSE 250 was down 4.57 points at 16,778.52.
NatWest Group PLC (LSE:NWG) plunged 15% at the open to 172.15p after reporting a 19 basis point fall in net interest margin (NIM) in the third quarter as customers switched funds to lower margin savings accounts, in the search for higher interest rates.
The lender said it now expected full-year NIM to be "greater than 3%" compared to a previous view of around 3.15%.
The bank is also dealing with the fall-out from the Nigel Farage banking fiasco and today admitted to “serious failings” in its handling of the case although an independent review found the account closure was lawful.
Matt Britzman, equity analyst at Hargreaves Lansdown said the results were “largely disappointing as net interest margin dipped below 3%, and the outlook was lowered.”
Deposit levels did grow, he noted, but it’s less profitable business than non/low-interest current accounts.
“Add in mortgage headwinds as highly profitable business written over the pandemic rolls off, and that’s caused the hit to net interest margin,” he said.
Analysts at Jefferies felt the drop in NIM shouldn’t come as a significant surprise but said “the
'something new' in the results is the CET1 miss on higher risk weighted assets (RWAs): investors will not welcome either the 30bps capital miss, or the 2025 RWA guide at the high-end of prior guidance,” the broker said.
There was better news for British Airways owner, IAG, which edged higher, after what Peel Hunt called “fantastic results.”
The broker said the “record 3Q results were ahead of our and consensus estimates due to revenue outperformance from higher passenger yields.”
“Revenue of €8,646 million was c.€230 million higher than we expected, entirely from passengers, with cargo and other in line, costs were c.€40 million higher due to higher fuel, with operating profit €190 million higher at €1,745 million.
8:00am: NatWest admits to serious failings in treatment of Farage
Some more on NatWest now which admitted to “serious failings” in the treatment of Nigel Farage and “clear shortcomings” in how the decision to close his bank account with Coutts came about.
The high street lender was commenting after findings from the Travers Smith independent review into the decision to close the account and a potential breach of confidentiality.
The debacle claimed the head of the previous chief executive Alison Rose after she disclosed details of the account closure to the BBC’s Business Editor, Simon Jack.
The review did point out that Rose played no part in the decision to close the account, this was made at a Wealth Reputational Risk Committee meeting in November 2022.
The review found that the bank had been compliant with legal obligations, including customer confidentiality and data protection laws, and that the exit decision was lawful.
But it also identified a number of shortcomings in how the decision was reached, how the bank communicated with Farage and how it treated his confidential information.
NatWest said it has accepted - and will implement - all of the recommendations made by Travers Smith.
The bank said it was considering these findings and deciding on appropriate outcomes, including a “disclosure obligation” with regard to Rose’s pay.
NatWest Chairman, Sir Howard Davies, said: “This report sets out a number of serious failings in the treatment of Mr Farage.”
“Although Travers Smith confirm the lawful basis for the exit decision, the findings set out clear shortcomings in how it was reached as well as failures in how we communicated with him and in relation to client confidentiality.”
“We apologise once again to Mr Farage for how he has been treated.”
7:45am: British Airways owner enjoys best ever third quarter
British Airways-owner International Consolidated Airlines Group enjoyed a 43% increase in operating profit to €1.7 billion in what was its best-ever third quarter, helped by improved demand and lower costs.
The FTSE 100-listed airline said bookings for the fourth quarter are in line with expectations, meaning there is no change in full-year guidance.
“We expect 2023 to be a year of strong recovery in our margins, operating profit and balance sheet and towards pre-COVID-19 levels of capacity,” the Anglo-Iberian group said.
It used the cash generated during the period to trim borrowings built up during the pandemic, cutting net debt to €8 billion at the end of September from €10.4 billion a year earlier.
Operating profit margins improved to 20.2% from 16.6% due to an 18% boost to capacity since last year, supported by 20 aircraft deliveries year to date.
Passenger unit revenue increased 2.2% year-on-year, while non-fuel costs for the quarter were down 3.5% and fuel costs down 6.2%.
7:38am: NatWest margins under pressure, Farage exit was "lawful"
NatWest Group PLC (LSE:NWG) saw its net interest margin fall in the third quarter as more customers moved funds to savings accounts to benefit from higher interest rates.
The bank also published findings from the Travers Smith review into the bank’s closure Nigel Farage’s accounts with Coutts which saw the previous chief executive Alison Rose lose her job.
The report said the “exit decision was lawful and was made in accordance with the relevant bank policies and processes, but also identifies a number of shortcomings in how the decision was reached, how the bank communicated with Mr Farage and how it treated his confidential information.”
NatWest Group Chairman, Sir Howard Davies, said: "This report sets out a number of serious failings in the treatment of Mr Farage."
Back to the results, and the high street lender said net interest margin (NIM) of 2.94% in the quarter ended September was 19 basis points lower than the second quarter with the reduction largely due to changes in deposit mix.
Customers have shifted balances from non-interest bearing current accounts to interest bearing savings accounts, as well as the continued impact on mortgage margins as the higher margin Covid-era book rolls off and is replaced at lower margins
NatWest said it expects full-year NIM to still greater than 3%, compared to the 3.11% reported year-to-date.
In the third quarter, total income rose to £3.49 billion from £3.23 billion a year ago with attributable profit of £866 million, up from £187 million and a return on tangible equity of 14.7%.
Net loans to customers increased by £1.8 billion to £354.5 billion including a £1.3 billion uplift in Commercial & Institutional.
Retail Banking gross new mortgage lending was £7.5 billion in the quarter, down slightly from £7.6 billion in the second quarter.
Bad debt charges were £229 million, down from £247 million last year, or 24 basis points of gross customer loans, and the bank expects its impairment loss rate for 2023 to be below its through the cycle range of 20-30 basis points.
Customer deposits of £423.5 billion were £2.4 billion higher than the second quarter while the Common Equity Tier 1 ratio of 13.5% was in line with the position at the end of June.
7:03am: FTSE set for modest losses at the open
The FTSE 100 is expected to post modest gains when trading starts on Friday after a torrid week ahead of a US inflation reading.
Spread betting firms are calling London’s lead index up by around 11 points after closing down 59.77 points at 7,354.57 on Thursday.
Better-than-expected results from Amazon after the US close on Thursday lifted the mood after Wall Street saw further heavy losses with the tech-heavy Nasdaq shedding another 1.8%.
The online retailer beat sales and expectations, sending shares more than 5% higher in after hours trading.
Back in London, and the early focus will be updates from NatWest and British Airways owner, International Consolidated Airlines.
Attention will switch back to the US for personal consumption expenditures data, the Federal Reserve’s preferred inflation gauge.