- FTSE 100 closes 95 points lower at 7,361
- UK economy flatlines in third quarter
- Diageo hit by weak LatAm & Caribbean sales
4.45pm: FTSE 100 flattened by Diageo hangover
At the close, London's blue-chip index was heavily down following a disappointing print from Diageo. The UK's blue chip index lost 1.3% on the day to finish at 7,361.
3:48pm: Bank of England to stress test bond market
The Bank of England has asked more than 50 City institutions to model the impact of a sharp movement in bond prices caused by a severe geopolitical shock as part of its first financial system-wide stress test.
The request comes after the September 2022 crisis in bond markets and sterling that followed Liz Truss’s mini-budget, when pension funds came under pressure and some were driven to near-collapse.
Big banks, asset managers, hedge funds, pension funds and major insurers have now been asked to model how their operations might be affected by an unexpected swing in bond prices, sharing the results with the central bank by January.
3:13pm: Smith & Nephew’s underperformance set to change
Smith & Nephew’s underperformance is set to change, according to Goldman Sachs (NYSE:GS).
The investment bank has initiated coverage of the medical technology outfit with a buy rating and price target of 1,400p, around 40% higher than today’s share price.
Goldman pointed out S&N shares have underperformed European Medtech in 3 of the last 4 years and have lagged the sector by 12% year-to-date.
The cumulative underperformance since 2019 is more than 45%, but the bank thinks that is set to change.
It sees a clear case for improved performance leading to 5/13/15% revenue/Ebit/EPS compound annual growth rate between 2023-25 which is a meaningful acceleration and looks compelling in the context of valuation.
The bank accepts operational and commercial issues weighed on performance in Ortho but thinks improving commercial execution, innovation and disciplined pricing can drive better growth.
Improving visibility on margin in 2024 guidance could be a catalyst, especially in the context of valuation, the bank thinks.
Goldman also acknowledged GLP1 concerns but pointed out previous phase 111 trials of GLP1s did not show a statistically significant reduction in knee pain.
2:42pm: Bright start in the US fails to lift FTSE
US stocks rallied on Friday, as bond yields ebbed, after hawkish comments from Fed chair Jerome Powell had sparked heavy falls on Thursday.
Shortly after the opening bell, the Dow Jones Industrial Average was up 83.26 points, 0.3%, at 33,975.20, the S&P 500 was up 10.30 points, 0.2%, at 4,357.65 and the Nasdaq Composite was 61.90 points, 0.5%, at 13,583.35.
The Trade Deck crashed 30% after the digital ad company offered weak revenue guidance for the fourth quarter after the closing bell Thursday, while Illumina slid 12% after it lowered full-year guidance after third quarter revenue missed expectations.
Wynn Resorts (NASDAQ:WYNN) rose 5.2% after the casino operator reported better than expected results in the third-quarter and inked a pay deal with unions ending a strike threat against the firm.
Still to come, the University of Michigan is set to issue a preliminary reading on its consumer sentiment index for November.
But the bright start has so far failed to lift the FTSE which remains near session lows.
2:11pm: ECB's Lagarde says fall in inflation should not be taken for granted
European Central Bank Chief Christine Lagarde warned Friday recent steep falls in eurozone inflation should not be "taken for granted" and there will probably be a "resurgence" in price rises.
Speaking at an event organised by the Financial Times, Lagarde acknowledged that "inflation has come down massively".
The latest figure is "a huge, huge change and one could argue that... monetary policy has done its job", she said.
But she added that a "bit of humility helps as well", adding that everybody "recognises that a lot of that downside has to do with... the price of energy".
She said that if interest rates were kept at their current levels for “long enough” it would bring eurozone inflation down to its 2% target.
But she added: “It is not something that [means] in the next couple of quarters we will be seeing a change. Long enough has to be long enough.”
1:03pm: Ratcliffe closing in on Man Utd deal - BBC
British billionaire Jim Ratcliffe could finalise a deal to become a minority shareholder at Manchester United during this month's international break, according to reports on Friday.
Ratcliffe's INEOS Group is expected to pay about £1.25 billion for a 25% stake in the Old Trafford club, while also acquiring significant control over footballing operations.
There is no a firm timetable for the deal to be finalised, but the BBC said it could come as early as next week.
The Glazer family announced last November that they were considering "strategic alternatives" to help the club grow, which included consideration of a sale.
12:32pm: Babcock seals £750 million submarine deal
Babcock International Group PLC has signed a four-year £750 million contract with the UK Ministry of Defence's (MOD) Submarine Delivery Agency (SDA), to deliver the infrastructure required to support and sustain the UK's submarines for decades to come.
The international defence company, said as part of the major infrastructure programme underway at the Devonport site, it will deliver substantial upgrades to existing infrastructure that will support the future capability of the Royal Navy and the UK's Defence Nuclear Enterprise.
The contract for the delivery of infrastructure to support submarine maintenance includes a dock, logistics and modern support facilities, and underpins the wider role Babcock plays in sustaining the entirety of the UK submarine fleet, the company said.
Shares rallied from early lows to trade unchanged on the news.
12:08pm: Subdued start expected on Wall Street
Across to the US now, and stocks are expected to open modestly lower after comments by Federal Reserve chair Jerome Powell sparked heavy falls in equities on Thursday.
In pre-market trading, futures for the Dow Jones Industrial Average were flat, while those for the S&P 500 were 0.1% lower, and contracts for the Nasdaq 100 futures were down 0.3%.
The US Federal Reserve is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term two percent target, Fed Chair Jerome Powell said.
"We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes," Powell told a conference in Washington. "If it becomes appropriate to tighten policy further, we will not hesitate to do so," he added.
Joshua Mahoney at Scope Markets noted Powell’s comments helped bring the equity market resurgence to a “grinding halt,” with his apparent hawkish tone pertinent ahead of US inflation figures next Tuesday.
In economic news, the University of Michigan will release the preliminary reading of its consumer sentiment index for November, which economists expect will be essentially unchanged at a level of 63.7, compared with 63.8 in October.
11:45am: Burberry dragged lower by Richemont update
Burberry Group PLC (LSE:BRBY) is down 3.7% with the luxury goods sector under pressure after disappointing results from Richemont today.
Shares in the Swiss firm, which owns Cartier and Montblanc, fell 6.9%, after it reported a surprise fall in operating profit in a release today.
Sales grew 6% led by a 14% jump in Asia Pacific.
"Growth eased in the second quarter as inflationary pressure, slowing economic growth and geopolitical tensions began to affect customer sentiment, compounded by strong comparatives," the company said in a statement.
But more positively, the firm said "a soft-landing scenario seems to be prevailing in major economies with still higher growth expected from China, which should benefit from stimulus measures."
The statement follows Gucci-owner Kering and French giant LVMH both who reported weakening demand recently.
In Europe, LVMH has fallen 3.9% and Kering is down 4.7%.
11:08am: Relx's insurance seminar impressive and reassuring
The FTSE 100 remains down sharply and it would be worse but for a rise in tthe oil price which has propped up BP and Shell.
One ofher stock just about holding in positive territory, is Relx PLC, following an investor seminar on Thursday on its Risk division.
Analysts at Berenberg said the seminar focused on Insurance.
Risk is Relx’s largest division, accounting for 35% of the company’s revenue and 40% of its operating profit, Berenberg explained.
Within the division, insurance accounts for c40% of revenue, of a similar size to Business Services, while the balance of the division’s revenue is from government and specialised industry data services.
Berenberg said it found the presentation "very impressive and reassuring."
It noted the firm is still confident of high-single-digit growth for the next decade with Mark Kelsey, CEO of the Risk division, saying that he believes the Risk division can “sustain strong underlying revenue growth in the high-single-digits for a long time to come, another decade or more”.
This reflected a healthy blend of growth between old and new products with scope for incremental margin improvement over time.
Going forward, Kelsey said “there is nothing we need at the moment that we are looking at that we need to acquire”.
However, he did not rule out further acquisitions, adding that he would consider anything that might accelerate the Risk division’s growth.
10:35am: Warpaint London rises amid a gloomy day for markets
One share heading higher is Warpaint London PLC, which expects annual results to be ahead of market expectations after continued strong trading in the second half of the year.
Shares in the specialist supplier of colour cosmetics and owner of the W7 and Technic brands rose 5.8% after it said trading was strong, with significant growth in all geographic areas.
Group sales for the year ending December 2023 are now expected to be at least £85 million, up from £64.1 million a year ago, with the key pre-Christmas sales period still ongoing.
Gross product margin remains robust and continues to be at a level in excess of that achieved in 2022, the company said.
Pre-tax profit for the year is now expected to be in excess of £16 million, more than double last year’s £7.7 million.
House broker Shore Capital said the unscheduled trading update "once again makes for very pleasant and welcome reading."
"Current trading has been above management and market expectations, and the growing list of new retail customers and store expansion with existing customers bodes very well for the medium to long term," the broker believes.
Shore has raised its 2023 EPS forecast by around 11% to 16.0p, implying more than 40% annual growth.
"We view Warpaint as being increasingly well set for sustained medium to long-term growth, with the quality of the growth building and driving significant cash generation as well, we see much to like," it added.
10:22am: Diageo being tested as consumers trade down
Diageo is taking a hammering this morning, now down 14%, and the warning has taken its toll on European peers, Pernod Ricard, down 4.3%, and Remy Cointreau, down 3.1%.
Russ Mould at AJ Bell said that it is a “rarity to see Diageo issue bad news,” with the last time it issued a major profit warning back in February 2020 when it said the spread of Covid-19 in China would hit earnings.
“The company’s success over the past decade or so has been driven by sales of spirits,” which generate a “high margin and have created the means through which to invest not only in its business but also to make acquisitions to expand its brand estate.”
“There has been a premiumisation trend among consumers in many parts of the world whereby people have been happy to spend more to get what they perceive to be a higher quality product,” he noted, adding, Diageo rode this tailwind with great success.
But he explained this shift in drinking habits is now being tested by a gloomier economic environment with some people are trading down to cheaper products or are drinking less often, which means perceived ‘luxury’ companies like Diageo are finding life harder.
“The idea that luxury goods companies are immune to an economic downturn isn’t stacking up,” he pointed out.
“LVMH, Estee Lauder, Ralph Lauren and Watches of Switzerland have all talked about a slowdown in growth at various points this year, so perhaps Diageo falling into the same pit shouldn’t have been a surprise,” he felt.
9:51am: NatWest's former CEO to forgo nearly £7.6 million
NatWest Group PLC (LSE:NWG) has confirmed former chief executive, Alison Rose, will miss out on a hefty chunk of share awards and bonuses following her exit after the Nigel Farage debacle.
The lender said the value of lapsed unvested share awards and the bonus that Rose will forego totals just under £7.6 million.
The bank said she would be paid elements under her contract worth just over £1.7 million plus contributions to legal and outplacement support.
NatWest said the contractual elements comprise salary, fixed share allowance, a pension allowance and contractually agreed benefits.
Lapsed share awards totalled around £4.7 million while Rose’s bonus would have been around £2.9 million.
NatWest stressed no finding of misconduct has been made against Rose by the bank.
Rose resigned in July, admitting to a “serious error of judgment” in briefing a BBC journalist about the closure of Farage’s bank account at NatWest subsidiary Coutts.
9:32am: GDP not weak enough to bring forward rate cuts
The FTSE 100 has accelerated its decline, now down 69 points, at 7,387, more than wiping out yesterday's gains.
Diageo is now down 13.6%, with other leading fallers Ocado, down 6.9%, Fresnillo, down 3.0% and WPP, down 2.7%.
Back to the GDP figures and Paul Dales chief UK economist at Capital Economics thinks while the GDP figures will spark a big debate about whether or not the economy is in recession, the key point is that the economy is not weak enough to reduce core inflation and wage growth quickly.
As such, he doesn’t expect the Bank of England will be able to cut interest rates until late in 2024 rather than in mid-2024 as widely expected.
He said the breakdown of the figures suggests that the drag from higher interest rates is growing.
Residential investment is one of the most sensitive to interest rates and the 1.7% q/q fall was the fourth decline in a row, he pointed out.
While the 0.4% q/q decline in consumer spending was the first since the fourth quarter of 2022 and suggests higher loan rates are biting harder.
Over at Goldman Sachs (NYSE:GS), economist James Moberly has lifted his forecast for 2023 GDP growth to 0.6% from 0.5%, above consensus expectations (+0.4%yoy) and the BoE's latest forecast (+0.5%yoy).
9:08am: UK avoids recession but trapped in a low growth dynamic
Some more reaction to today’s GDP figures.
The EY ITEM Club said the small rise in September reduces the risk of a technical recession this year.
Some momentum coming into the fourth quarter and a likely smaller drag from industrial action mean the economic forecaster thinks GDP should grow modestly in the current quarter.
“But the bigger - and long-running - picture of near-stagnation is likely to persist,” it said.
Consumer spending is under pressure from higher mortgage payments, fiscal drag and depressed sentiment, while higher interest rates are likely to inhibit investment.
However, a better outlook for real wages, with inflation falling but pay growth sticky, should prevent a serious downturn, the EY Item Club said.
Simon French at Panmure Gordon said while the figures weaken the argument that the UK is already in recession, it is still difficult to draw any other conclusion than the UK is trapped in a low growth dynamic.
In the pack. Not leading - US outsized fiscal response has seen to that - but not a laggard. https://t.co/rVFBd5CWM9 pic.twitter.com/zYJglLMOBR
— Simon French (@shjfrench) November 10, 2023
But taking a more positive slant, he noted the other way to look at this data is that the U.K. economy has (so far) shown remarkable resilience to a huge rise in the cost of credit, cost of staples & geopolitical cross-currents.
8:51am: Mid-caps suffer on risk-off morning
The FTSE 100 remains in the doldrums while the broader FTSE 250 is languishing, down 2.5%.
Diageo is the big faller in the FTSE 100, down 7.8%, after its warning,
Sophie Lund-Yates at Hargreaves Lansdown said that “very tough economic conditions in Latin America means consumers are cutting back and trading down to less premium options.“
She explained Diageo has long been a favoured steady-Eddie thanks to its seemingly impenetrable brand power and dividend paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets.
Redrow is the other big story this morning, down 5.5%, after predicting low-end profits and revenue.
Analysts at Liberum noted although Redrow's customers are generally financially resilient, they tend to be nearer the top of chains, and more chains are breaking down amid mortgage difficulties further down.
The biggest riser in the FTSE 100 is Smith & Nephew as Goldman Sachs (NYSE:GS) starts coverage with a buy rating and 1,400p price target, while Relx is up 0.7% after it hosted an investor seminar on its Risk division on Thursday.
Risk is Relx’s largest division, accounting for 35% of the company’s revenue and 40% of its operating profit
Berenberg called the presentation “very impressive and reassuring.”
8:18am: FTSE 100 slips, economy flatlines, Diageo sales lack punch
The FTSE 100 opened lower as the UK economy flatlined and Johnnie walker owner, Diageo, tumbled after warning of slower growth.
At 8:15am, London’s lead index fell 40.34 points, 0.5%, at 7,415.33 while the FTSE 250 slumped 414.56 points, 2.3%, at 17,623.29.
Hawkish words from the chair of the Federal Reserve Jerome Powell put the market on the back foot, and slightly better than expected UK GDP numbers in September couldn’t mask the underlying picture of a stagnating economy.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: “The FTSE 100 has rocks in its shoes after markets around the world digest Jerome Powell’s speech yesterday, which suggested the US would hike interest rates again if needed.”
“The battle to vanquish inflation could still need an extra pair of hands, and that’s upset an investor base that had grown increasingly optimistic that policymakers would stick to the hands-off approach.”
In London, UK GDP grew 0.2% in September, better than forecast, but was flat in the third quarter, although again slightly above hopes.
ING’s James Smith said the figure “was a little better than expected, but in reality, the economy has largely stagnated this year.”
“We expect that trend to continue over coming quarters as the impact of higher rates continue to bite, though a recession can't be ruled out.”
Elsewhere, Diageo slumped 8% after warning of slower growth due to weaker Latin America and Caribbean sales, while Redrow slumped 5.1% after forecasting low-end profit and revenue in a subdued housing market.
7:47am: Diageo hit by weak Latin America and Caribbean sales
An unscheduled trading update from Diageo and it's not good news.
The owner of Johnnie Walker has warned of slower growth in the second of the year after a “materially” weaker performance in Latin America and Caribbean sales.
The spirits manufacturer said organic sales in Latin America and Caribbean (LAC), which is nearly 11% of Diageo's net sales value are now expected to decline by more than 20%, year-on-year, in the first half of financial 2024.
“We have momentum continuing in four of our five regions, however at the group level, in the first half of fiscal 24, we now expect to see slower growth than the second half of fiscal 23,” Diageo said in a statement.
Diageo now expects organic operating profit growth for the first half of financial 2024 to decline compared to the first half of financial 2023, primarily due to LAC's declining net sales, increased trade investment, lower operating leverage and adverse mix resulting from downtrading.
Across other regions, it expects to continue to invest additional advertising and sales spend ahead of net sales.
It expects that there will be continued, albeit moderating, cost inflation, which will be partially offset by pricing actions.
Looking ahead to the second half of financial 2024, Diageo expects to see a gradual improvement in organic net sales and organic operating profit growth from the first half and will continue to invest in marketing, and in the business, to drive long-term sustainable growth.
Diageo said it continues to believe in the fundamental strength of the business and expects to deliver organic net sales growth between 5 and 7% over the medium term.
7:28am: Redrow predicts low-end revenue and profit
Redrow PLC (LSE:RDW) has warned revenue and profit are likely to be at towards the lower end of guidance after a spike in cancellations in a subdued housing market.
The housebuilder said the value of net private reservations in the period was 25% below the prior year at £384 million while gross private reservations per outlet per week for the period were 0.49 compared to 0.63 last year.
But it said mortgage difficulties lower down the housing chains had caused its cancellation rate for the year to date to rise to 25% compared to 23% a year ago resulting in a net weekly reservation rate of 0.36.
The average selling price of private reservations in the period was 2.5% lower at £471,000, compared to £483,000 in the prior year.
The housebuilder said it continue to expect results to be in the guidance range given in September of revenue between £1.65 billion and £1.7 billion and pre-tax profit of between £180 million and £200 million but they are more likely to be towards the lower end of the range.
Redrow said it operated from an average of 125 outlets in the period but due to the slower sales market, expect this number to for the full financial year will be around 113 rather than the 117 guidance issued in September.
Whilst build cost inflation continues to abate, Redrow still expects overall build cost inflation will be c7% for the current financial year given the inflation inherent in the opening work in progress.
Homes turnover for the period was 30% below last year at £456 million while the total order book at 3 November was £864 million, compared to £1.36 billion at the same time last year.
Due to improved timing of affordable legal completions, the firm now expects the revenue profile for the current financial year to be more evenly split than originally anticipated, with 45% in the first half and 55% in the second half.
7:12am: UK economy grows faster than expected in September
The UK economy grew modestly in September and better than economists had expected, figures from the Office for National Statistics showed.
The ONS said monthly real gross domestic product grew 0.2% in September, following growth of 0.1% in August, which was revised down from growth of 0.2% before.
Economists had projected zero growth in the period.
But looking at the broader picture, GDP showed no growth in the three months to September.
GDP is estimated to have shown no growth in July to September (Quarter 3):
▪️ services fell (-0.1%)
▪️ construction grew (+0.1%)
▪️ production was flat (0.0%)
— Office for National Statistics (ONS) (@ONS) November 10, 2023
Services output rose by 0.2% in September, driven by growth in professional, scientific and technical activities, and human health and social work activities, and was the main contributor to the growth in GDP; this follows growth of 0.3% in services output in August, revised down from growth of 0.4%.
Output in consumer facing services fell by 0.2% in September after a fall of 0.7% in August, revised down from a fall of 0.6%.
Production output showed no growth in September 2023 after falling by 0.5% in August 2023, revised up from a fall of 0.7%.
The construction sector grew by 0.4% in September after a fall of 0.8% in August, revised down from a fall of 0.5%.
7:00am: FTSE 100 called lower after Powell's hawkish words
The FTSE 100 is expected to open lower after hawkish comments from the Federal Reserve chair Jerome Powell sent US markets lower.
Spread betting companies are calling London’s lead index down by around 45 points after closing up 53.95 points at 7,455.67 on Thursday.
The US Federal Reserve is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term two percent target, Fed Chair Jerome Powell said.
"We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes," Powell told a conference in Washington. "If it becomes appropriate to tighten policy further, we will not hesitate to do so," he added.
US markets fell after the remarks with the Dow Jones Industrial Average down 0.7%, the S&P 500 down 0.8% and the Nasdaq Composite down 0.9%.
Back in London, and the early focus will be a GDP reading and trade data.