FTSE 100 closes 64 points lower
Dow Jones down 320 points
Tech stocks hit as Amazon, Alphabet earnings disappoint
RBS weak after provision-hit Q3 results
5.00pm: Bad day ends
The FTSE 100 ended lower on Friday but was well off earlier hefty falls although US stocks took another tumble after disappointing earnings from tech giants Amazon and Alphabet added to concerns over global growth prospects.
At the close, the UK blue-chip index was down 64.54 points, or 0.9% at 6,939.56, albeit bouncing off the hefty session low of 6,851.59 having spent all day heavily in the red.
The mood was more depressing on Wall Street, with the Dow Jones Industrials dropping 320 points, or 1.3% to 24,664, while the broader S&P 500 index tumbled 2.2% and the the-laden Nasdaq Composite shed 1.7%.
Joshua Mahony, market analyst at IG, said: “Global markets are closing out a memorable week, with sharp losses across the board taking the S&P 500 into negative territory for the year.
“US markets already had a pessimistic tone coming into today’s session, given the disappointing Amazon and Alphabet figures released yesterday.”
He added: “Safe havens have been in vogue amid this flight to safety, and the role of the dollar as a haven is doing little to help boost US stocks.
“Interestingly, we have seen the internationally focused FTSE 100 significantly underperform it’s domestic FTSE 250 counterpart, despite the decline in the pound.”
Mahoney continued: “Today’s US GDP data may have shown a slowdown in Q3 compared with the second quarter, yet many are seeing this as a win given that the figure topped estimate across the board.
“Fears that the continued trade war and rising gasoline prices would dent consumer confidence has failed to be borne out in the data. However, with the dollar rising once again in recent weeks, today’s earnings data from Colgate highlighted the detrimental effect a rising greenback has upon business.”
Among the movers in London, blue chips tech stocks suffered in the wake of the Amazon, Alphabet numbers, with software firms Micro Focus International PLC (LON:MCRO) and Sage Group PLC (LON:SGE) down 4.2% to 1,193p and 1.4% to 525p respectively.
Rolls-Royce Holdings PLC (LON:RR.) was one of the biggest FTSE 100 fallers, shedding 3.5% to 841.40p after it confirmed it has experienced “early-stage production ramp-up challenges” with its Trent 7000 engines, although it has repeated its full-year guidance.
The aerospace engineer had expected to deliver 550 Trent 7000 engines to Airbus this quarter but said that figure would now be closer to 500.
RBS posted a profit of £448mln for the quarter to September 30, up from £392mln a year ago but below the £502mln City analysts had expected.
And shares in British Airways’ parent International Consolidated Airlines Group PLC (LON:IAG) lost 1% at 581.40p despite flying higher earlier after saying it expects full-year profits to rise by some €200mln this year.
The airlines group, which also owns Iberia and Aer Lingus, reported a robust third
3.50pm: Barclays won’t face any criminal charges over 2008 fundraising
Barclays PLC (LON:BARC) will not face any criminal charges over its £11.8bn emergency fundraising during the financial crisis after the UK High Court on Friday denied the Serious Fraud Office’s (SFO) application to reinstate them.
Earlier this week it was reported that the SFO were pushing to reinstate the 2017 charges against Barclays that alleged the bank and four of its former executives conspired to commit fraud and the provision of unlawful financial assistance, connected to a deal with Qatar Holding and Challenger Universal in June and October 2008.
The case against the bank was thrown out by the Crown Court in May this year, however, the SFO had asked the High Court to reinstate all dismissed charges.
This application has been denied by the High Court, Barclays said in a statement today, and, as a result, all of the charges remain dismissed.
3.40pm: Few blue-chip winners today…
With only half-an-hour or so left in the trading day, nay week, WPP PLC (LON:WPP) is the top blue-chip loser.
The ad giant has shed just over 5% of its value to 865p after a host of analysts cut their targets in the wake of Thursday’s guidance revisions.
Among the other losers is Rolls-Royce Holdings PLC (LON:RR.), which is down almost 5% to 830p after it confirmed it was having production issued with yet another line of its engines – Trent 7000.
All of that means the FTSE 100 is down 140.4 points, or 2%, to 6,863.7.
3.15pm: Want to know more about public sector debt?
The folks on the social media team at the Treasury heard you...Here's everything you need to know about UK public sector ahead of Monday's Budget:
2.55pm: Not as bad as feared in New York
US markets have opened lower, although not quite as much lower as had been signalled before the GDP data.
The Dow Jones opened 242.7 points in the red at 24,741.9, although analysts had thought it could be down more than 300 points an hour or so ago.
2.35pm: Asda could cut 2,500 jobs
It says it is thinking about cutting jobs and/ or hours to ensure it can it remain competitive in a tough trading environment.
“In a competitive retail market, where customers rightly expect great value and ease of service, we must always look at how we can work more quickly and efficiently for them – and inevitably, that means we need to consider changing the roles we need our colleagues to do or the hours needed in particular parts of our stores,” read a company statement.
“We believe the proposed changes we are consulting on would allow us to do a better job for our customers.
“We also recognise that discussions about potential change aren’t easy. If the decision is taken to implement the proposed changes we would work with our colleagues to look at the potential impact of these proposals on them.”
2.20pm: US economy growth slows
The US economy grew at an annualised rate of 3.5% in the third quarter, down from 4.2% in the second quarter.
Still, the growth was better than analysts had expected, driven largely by a rise in consumer spending.
The quarter-on-quarter was due to a decline in exports, hardly surprising given the trade war between the US and China, one of the world’s biggest exporters of American goods.
Notably, inflation cooled to 1.6%, down from 2% earlier in the year.
Breakdown of US GDP growth in Q3: +3.5 GDP = +2.7 consumption + 0.1 business investment +2.1 inventories -0.2 housing +0.6 government spending -1.8 net exports.— Patrick Chovanec (@prchovanec) October 26, 2018
2pm: Suspended Patisserie Valerie finance chief resigns
Chris Marsh was arrested on suspicion of fraud shortly after a £40mln black hole was discovered in the crisis-hit cake chain’s accounts. He is currently under investigation by the Serious Fraud Office.
Patisserie, which has also had to fight off a winding-up petition over a £1mln unpaid tax bill, said it would be “reserving it petition in respect of any potential claims it may have against him”.
not a great surprise to see Patisserie's Chris Marsh resign now is it— Neil Wilson (@marketsneil) October 26, 2018
1.35pm: Rolls-Royce confirms engine issues
Rolls-Royce Holdings PLC (LON:RR.) has confirmed it has experienced “early-stage production ramp-up challenges” with its Trent 7000 engines, although it has repeated its full-year guidance.
The aerospace engineer had expected to deliver 550 Trent 7000 engines to Airbus this quarter but said that figure would now be closer to 500.
Despite the shortfall, the FTSE 100 company reiterated its full-year profit and free cash flow guidance.
“While the production ramp up issues in Q4 are regrettable, such issues in the early stages of a new engine program are not uncommon in our industry,” read a statement in response to an earlier Bloomberg article.
“As we move into 2019 we are confident that Trent 7000 production and delivery volumes will increase significantly to meet our customer commitments.”
Shares, having been down as much as 14% earlier this afternoon, are currently down 4.5% to 833.7p.
1.15pm: TUI, RR and techs weighing on FTSE
The index of blue-chip shares is down 76.4 points, or 1.1%, to 6,925.6, with tech stocks unsurprisingly among the worst hit.
Among the other losers is Rolls-Royce Holdings PLC (LON:RR.), which is down almost 5% to 828.6p on reports that another line of its engines – Trent 7000 – is experiencing production issues.
British Airways owner International Consolidated Airlines Group PLC (LON:IAG) is another notable gainer, climbing 1.8% to 597.8p thanks to a robust third-quarter update, in which it revealed annual profits will be €200mln higher than last year.
1pm: TUI hit by UBS downgrade
The Swiss bank has downgraded TUI to ‘sell’ from ‘neutral’ and slashed the price target to 1,200p from 1,600p. TUI shares were down 3.3% at 1,264p in mid-morning trading.
The group’s RIU hotels arm is expected by UBS to see downward pressure on revenue per available room – RevPAR – in 2019, especially in Spain.
Industry market data for August and September 2018 shows lower occupancy and pricing year-on-year in Spanish Sun & Beach hotels and UBS expects this to continue in 2019.
TUI shares are down 3.5% to 1,260.5p.
12.45pm: US stocks set to slump
Wall Street stocks are set to tumble when trading begins in New York in just under two hours’ time, having soared in Thursday’s session.
The Dow Jones Industrial Average, which added more than 400 points yesterday, is set to open 300 points lower at 24,688.
Meanwhile, the S&P 500 and Nasdaq 100 futures are also pointing to steep losses.
The tech-heavy Nasdaq is seen 247.7 points down at 6,768.1. The S&P 500 is expected to lose 50.0 points, taking it to 2,656.0, more than 9% below its 52-week high. A 10% decline would mean it is officially in correction territory.
12.25pm: RBS shares fall as profits miss expectations
Royal Bank of Scotland Group PLC (LON:RBS) has received approval from Dutch regulators to use Amsterdam as its post-Brexit hub in the European Union as it reported a 14% rise in third-quarter profits that missed expectations.
The 62.4% state-owned bank plans to repurpose its NatWest Markets arm in Amsterdam and turn the office into its EU base after the UK leaves the bloc.
RBS already holds a licence banking licence in the Netherlands following its ill-fated takeover of Dutch bank ABN Amro in 2007 but will expand its presence there to ensure it can continue business across the EU in case of a no-deal Brexit scenario.
The lender made the announcement as it posted a profit of £448mln for the third quarter to September 30, up from £392mln a year ago but below the £502mln City analysts had expected.
The net interest margin – a key measure of banks’ profitability – fell to 1.93% from 2.12% a year ago amid tough competition in mortgage lending.
Total income beat forecasts though, rising to £3.6bn from £3.2bn last year as growth in non-interest income offset a decline in net interest income. That wasn’t enough to satisfy the markets though, with shares down 4.1% to 224.8p.
RBS warned the “uncertain economic outlook” was likely to cause an increase in bad loans and that it had taken out an additional £100m impairment provision (or “Brexit buffer” as I’m going to call it #timestamp) https://t.co/neiXR3MOZ5— Ben Wright (@_BenWright_) October 26, 2018
12pm: Rolls Royce tanks on reports of more engine troubles
Rolls-Royce Holdings PLC (LON:RR.) on reports that it is having troubles with another line of engines.
Bloomberg reporter Benjamin Katz is claiming that “production hurdles” are forcing Rolls to hold back output of its Trent 7000 engines which are used in Airbus’ new A330neo jet.
The aerospace engineer’s problems with its Trent 900 and 1000 lines of engines have been well documented, with repair work on those expected to dent this year’s profits by £450 million.
That isn’t all; last month, an Airbus A350 using one of its latest XWB engines was forced into an emergency landing in Boston only 90 minutes into the flight.
Shares are down 7.0% to 811.4p, although they had been down more than 14% a little earlier on.
11.20am: What happened with Amazon and Alphabet?
US investors have been showing no mercy to Amazon Inc (NASDAQ:AMZN) and Google owner Alphabet Inc (NASDAQ:GOOG) after the two tech giants narrowly missed expectations with their third-quarter earnings last night.
Amazon beat The Street after posting earnings of US$5.75 a share, comfortably ahead of estimates of US$3.14.
But that was offset by slower revenue growth, which came in at US$56.6bn versus the US$57.1bn analysts had expected.
A weak outlook for the key holiday period and a slowdown in its Amazon Web Services division also spooked investors, sending shares down 10.2% in pre-market trading to US$1,600.
As for Alphabet, it too beat estimates with its earnings of US$13.06 per share, but quarterly revenue US$33.7bn fell short of consensus forecasts of just over US$34bn.
An internal memo from chief executive Sundar Pichai that Google has sacked 48 people, including 13 senior managers, over sexual harassment claims since 2016 has added to its woes.
Alphabet shares are down 5.9% to US$1,039 ahead of the start of regular trading in New York later on.
11am: UK tech stocks hammered
London doesn’t exactly have an abundance of tech stocks, but those that are listed over here are getting hammered this morning.
Among the blue-chips, Ocado Group PLC (LON:OCDO) is down 7.5% to 765.2p, Micro Focus International PLC (LON:MCRO) is 4.4% in the red at 1,190p and Sage Group PLC (LON:SGE) has lost 1.5% to sit at 524.2p.
The reason for the collective slump of UK tech stocks is because of US giants Amazon Inc (NASDAQ:AMZN) and Alphabet Inc (BNASDAQ:GOOG) which both disappointed overnight with their third-quarter earnings.
They’ve put the market as a whole into a funk it seems, with the FTSE 100 down 116.4 points, or 1.7%, to 6,887.7.
The airlines group reported a robust third-quarter performance despite higher fuel costs and currency headwinds, and said full-year profits will be €200mln higher than last year.
10.30am: TSB took €88mln hit from IT meltdown last quarter
As many as 1.9mln TSB customers were left unable to access their own money in April, after the bank tried to introduce a new computer system, resulting in an enquiry from the City regulator and the resignation of the bank's chief executive Paul Pester last month.
TSB’s owner, Banco Sabadell, said third quarter profits fell 37.4% to €127.2mln.
These costs followed an extraordinary charge of €203mln for the outage in the second quarter when TSB experienced a net loss of 16,641 current account customers.
The good old British consumer. A total of 5,000 people actually JOINED the bank TSB just after a botched IT upgrade left thousands unable to access their accounts and thousands more becoming victims of fraud. Sitting ducks? https://t.co/hu1QfsMkSu pic.twitter.com/E8DimDIaVJ— David Byers (@davidbyers26) October 25, 2018
10am: Pendragon blames falling profits on new car emissions tests
UK car dealer Pendragon PLC (LON:PDG) has reported a slump in third-quarter profits and warned that it expects full year earnings to fall, reflecting the impact of new emissions standards.
A new “worldwide light vehicles procedure” was introduced in September, requiring carmakers to provide a more accurate interpretation on the impact a vehicle has on the environment when testing fuel economy and emissions.
The new standards have caused disruption in supplies from manufacturers such as Volkswagen, which have struggled to get certifications completed in time and deliveries out to dealers.
In its third quarter trading update, Pendragon said the new legislation has had a “short term dilutive effect on profitability”.
Underlying profit before tax for the quarter fell to £1.1mln in the three months to September 30 from £3.0mln a year ago. It now expects pre-tax profit for the year of £50mln, down from £60mln last year.
9.45am: US tech stocks to blame for today’s decline
US tech giants are being blamed for the Footsie’s near-100-point fall this morning, with Amazon and Alphabet both disappointing with their third-quarter earnings overnight.
“Any suggestion UK stocks might end the week on a more positive note has been swatted aside after the third quarter sales performance of Amazon and Google’s parent company Alphabet disappointed after the market close in the US,” says AJ Bell investment director Russ Mould.
“Given the technology sector helped lead US indices to fresh highs in 2018 and is so dominant, its performance in the current earnings season was always likely to be pivotal to investor sentiment.”
9.30am: BA parent IAG flies higher
The airlines group, which also owns Iberia and Aer Lingus, reported a robust third-quarter performance despite significant fuel costs and foreign exchange headwinds.
Operating profit rose 0.7% to €1.46bn in the three months to the end of September on revenues of €7.14bn, as stronger ticket prices helped offset a 15% rise in fuel costs during the period.
Shares rose 2.3% to 600.8p, despite IAG also saying that another 185,000 customers may have had their credit card details stolen as part of the recent data breach. That’s on top of the 244,000 customers originally identified.
IAG Q3 revenues +8.5% YoY (passenger unit revs +1.3%, or 2.4% excl. FX headwind), Operating profit +0.7%, pre-tax profit -0.4%; Costs +10.7% (Fuel +21.8% [fuel per unit cost +14.3%), Handling/Catering +13.7%, Engineering +5%, Wages +2%)— Mike van Dulken (@Accendo_Mike) October 26, 2018
9am: News of the day...
8.35am: Big early fall
The FTSE 100 opened sharply lower, with traders choosing to focus on Asia and the rather shaky performances of tech giants Amazon and Alphabet than the strong end to the session on Wall Street.
The UK index of blue-chip stocks opened the session down 79 points at 6,925.28.
“Whether or not Royal Bank of Scotland made more money than many expected in the third quarter depends on which line on the income statement you look at, but whichever it is, weary investors have lost faith with RBS after these results,” said Lee Wild, stocks guru at Interactive Investor.
“Despite improvements across the business, RBS is easily the worst performing retail bank since the Credit Crunch and for much of the entire nine-year equities bull run,” he added.
“RBS shares have sunk to an 18-month low having lost a quarter of their value since January.
“Returning to the dividend list over the summer was hugely significant for RBS, but a modest yield cannot support a struggling share price. A lurch lower Friday morning spells further trouble for RBS.”
British Airways owner IAG (LON:IAG) was one of London’s few Footsie risers as it taxied 1.8% higher after quarterly figures after a minor earnings beat.
Proactive news headlines:
Bacanora Lithium PLC (LON:BCN) said initial lithium fluoride (LiF) samples have been produced at the Zinnwald lithium project as part of the ongoing feasibility study.
Richard Armer, chief scientific officer of Redx Pharma Plc (LON:REDX), believes the company’s new ROCK2 inhibitor drug has the potential to be a “best-in-class agent” for the treatment of fibrotic diseases of the kidney and liver.
Sareum Holdings Plc (LON:SAR) said it had completed a share placing that has raised £850,000. The proceeds will be used for working capital purposes and to fund the development of its TYK2/JAK1 targets, which are being developed to treat autoimmune disease and cancer.
Eco (Atlantic) Oil & Gas Ltd (LON:ECO CVE:EOG) has started to look for a new partner for the Cooper Block in Namibia after Tullow Oil pulled out. Tullow will now transfer its 25% working interest in Cooper to Eco, which own 57.5% stake as a result.
Eland Oil and Gas PLC (LON:ELA) says a new in-fill well at its OML 40 licence in Nigeria will lift output from the Opuama field to a new record. Production during the Opuama-11 well test stabilised at 4,000 - 6,000 barrels per day or 1,800 - 2,700 bopd net to Elcrest, Eland’s joint venture at OML. That was in line with expectations, said Eland.
Next Fifteen Communications Group Plc (LON:NFC), the digital communications group, announced that it has appointed Numis Securities Limited as its nominated adviser and broker.
6.45am: Drop predicted
The FTSE 100 index is seen dropping back on Friday, reversing Thursday’s late rally that took it back above 7,000 amid ongoing growth uncertainties as Asian markets fell again, in spite of a bounce back on Wall Street, with after-hours US tech earnings from the likes of Amazon and Google owner Alphabet disappointing investors.
Spread betting firm IG expects the blue-chip index to open around 75 points lower at 6,930 having gained 41.10 points in the previous session when an opening plunge was recouped in tandem with New York’s rally.
Overnight on Wall Street, the Dow Jones Industrial Average closed 401 points higher at 24,984, recovering a big chunk of the previous session’s sharp falls, but earnings after-hours from the high-flying US tech sector dealt that recovery a blow.
Shares in both Amazon Inc (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) fell sharply in after-hours trading after their third-quarter numbers missed forecasts knocking Asian markets back once again, with Japan’s Nikkei 225 dropping 1.1% and Hong Kong’s Hang Seng down 1.4% amid increasing growth and earnings fears.
Investors will get a chance to check the US economy’s pulse later today with the release of third-quarter GDP data.
RBS steps up
On the corporate front, the last of the trio of higher street lenders to report this week will be the main focus on Friday, although a number of other big blue-chip companies will also issue updates.
The state-owned bank recently put the last of its major litigation issues behind it by paying a smaller-than-expected US$4.9bn fine to settle a US investigation into the sale of mortgage-backed securities between 2005 and 2007.
This paved the way for RBS to restart dividend payments in August’s interim results and prompted the government to resume winding down its stake following a £45.5bn bailout of the bank at the height of the financial crisis 10 years ago.
UBS predicts RBS will post third-quarter adjusted pre-tax profit of £1.29bn, up from £1.25bn a year ago, and adjusted income to edge up to £3.18bn from £3.16bn.
While RBS has turned around its financial performance, UBS believes the bank’s strategy of seeking improved market share in residential mortgages and opting out of the UK’s 0% balance transfer credit card sector leaves it more exposed to competitive pressures.
Fuel costs headwind for IAG
British Airways owner IAG (LON:IAG) will issue its third-quarter results on Friday, a week after another airline – Cyprus-based Cobalt Aero – ran into trouble.
According to Liberum, IAG is set to be “one of the few airlines continuing to post profit growth this year”.
On the other hand, the City broker was not overly impressed with the airline group’s September traffic stats, which saw the load factor – a measurement of how full its planes were – fall a percentage point to 84.6%.
“Not terribly encouraging to see load factors fall, although we cannot see what is happening on the unit revenue side of the equation,” Liberum said.
Second-quarter results were in line with expectations, with profit growth driven by growth and a slight margin improvement. Fuel costs are likely to remain a significant headwind for the company.
Buy-backs key for Glencore
Glencore has certainly not been without its troubles in recent times, nonetheless, City sentiments have been turning, at least partially thanks to the buy-backs.
Morgan Stanley recently upgraded its stance for Glencore to ‘overweight’ from ‘equal-weight’. The upgrade came after Glencore announced that its ongoing US$1bn share buyback programme was being extended by US$1bn and will now complete on 20 February 2019, the day before the company's 2018 full year results announcement.
"The company is reacting to the improved valuation of its own equity by switching from opportunistic M&A to share buybacks," Morgan Stanley said.
"The group's 2019 FCF on spot of US$9bn (ex-working capital) and end of 2018 net debt of US$11.2bn versus the Glencore self-imposed cap of US$16bn suggest ample room to add to the programme."
Significant announcements expected on Friday October 26:
Trading update: Royal Bank of Scotland Group PLC (Q3) (LON:RBS), International Consolidated Airlines Group PLC (Q3) (LON:IAG), Glencore PLC (LON:GLEN), Pendragon PLC (Q3) (LON:PDG), AIB Group PLC (LON:AIBG)
Economic data: US Q3 preliminary GDP; University of Michigan final consumer sentiment survey
Around the markets:
- Sterling: US$1.2812, down 0.02%
- Gold: US$1,229.10, an ounce, unchanged
- Brent crude: US$76.33 a barrel, down 0.6%
- British Airways has admitted that a further set of 185,000 of personal data may have been stolen during a cyber-attack last month; the latest breach relates to bookings made between April 21 and July 28 - Daily Telegraph
- Moody's could downgrade discount chain B&M European Retail following its acquisition by French retailer Babou, which the rating agency calls a major risk because it was heavily funded by debt – Daily Mail
- Shares in Amazon plunged 10% on Thursday night after the technology giant unveiled financial results below Wall Street expectations – Daily Telegraph
- Shares in Google's parent Alphabet fell 8% in after-hours trading after the company missed analysts estimates – Daily Telegraph
- Snapchat has lost five million users over the last six months as it battles aggressive competition from Facebook and Instagram – Daily Telegraph
- Altria, maker of Marlboro cigarettes, has bowed to a regulatory crackdown and stopped selling most flavoured vaping products US – Financial Times
- Twitter’s shares closed more than 15% higher after the social networking service recorded its largest quarterly profit on the back of higher spending by advertisers and despite losing nine million monthly active users – The Times
- Deutsche Bank has sacked Nicolas Moreau, the boss of its asset management sUBSidiary DWS, after investors unexpectedly withdrew billions of euros from its funds in the third quarter – Financial Times
- C&C Group, owner of Magners and Bulmers cider and Tennent’s lager, booked a €52.8mln pre-tax profit for the six months to the end of August, compared with €46mln – The Times
- Chinese smartphone and telecoms company ZTE expects to post a US$1bn loss after a damaging year – Daily Telegraph
- Nokia has revealed yet another drop in quarterly profits and said it will cut an unspecified number of jobs as part of a new cost-saving programme – Daily Telegraph
- Janet Yellen, the former head of the US Federal Reserve, has warned of a “huge deterioration” in corporate lending standards that is creating “systemic risks” to the economy – The Times
- OPEC has hinted they will tighten their grip on the oil market as global stock market jitters threatened to drag crude prices back below US$75 a barrel – Daily Telegraph