- FTSE 100 closes in red
- Chancellor commited to Bank of England's independence
- Putin threatens to cut energy supplies if price cap imposed
4.41pm: FTSE closes in red
FTSE 100 closed lower mid-week as commodity stocks weighed on the heavyweight index.
Footsie finished around 62 points, or 0.86% lower, at 7,237.
"It hasn’t been the most active day in markets, and it looks like the selling that has driven indices over recent weeks has lost much of its power," said Chris Beauchamp, chief market analyst at online trading platform IG.
"But the FTSE 100 has not been able to recover this afternoon, as mining and oil stocks act as a drag. OPEC+’s decision to send a message earlier in the week has clearly not been heeded, and oil prices have fallen yet further, with recession fears the main driver at present," he added.
"While European and US markets have stabilised, the FTSE 100’s commodity contingent is once again turning from a help to a hindrance."
3.15pm: FTSE lower
The FTSE 100 was little changed in afternoon trading down around 56 points despite a bright start in the US this afternoon.
By 3.45pm the lead index was trading 56.14 points lower at 7,244.30 with the broader FTSE 250 down 37.54 points at 18,783.30.
With the UK Government set to unveil its response to the energy crisis and the ECB meeting tomorrow investors were understandably nervous about taking positions.
Sterling remained under pressure with the pound at its lowest level since 1985 against the dollar hit by a double whammy of dollar strength and a worsening UK economic outlook.
3.15pm: Chancellor commits to Bank's independence
The chancellor Kwasi Kwarteng has affirmed the UK government’s long-standing commitment to the Bank of England’s independence and its monetary policy remit following a meeting today with the governor of the Bank of England Andrew Bailey..
In a press release from the Treasury the chancellor and governor agreed that getting inflation under control quickly is central to tackling cost of living challenges.
The chancellor updated the governor on his growth and fiscal strategies, noting that reforms which create the conditions for a high-growth economy can help to alleviate inflationary pressures.
He outlined the government’s plans to act this week in response to high energy prices, and reiterated that such action requires fiscal loosening in the short-term.
The chancellor confirmed that over the medium-term, the government is committed to seeing debt falling.
The chancellor and the governor agreed to re-instate weekly meetings – starting with bi-weekly meetings in the first instance - and coordinate closely to support the economy over the coming months.
2.40pm: London stays lower after mixed US open
Shares in London remained lower mid afternoon as a lacklustre restart in the US failed to provide the hoped for stimulus to spark an upward move.
At 2.40pm the FTSE 100 was down 66.93 points at 7,233.51.
US stocks opened mixed on Wednesday following a Wall Street Journal report that a 75 basis point rate hike by the Federal Reserve later this month is likely.
Just after the open, the Dow Jones Industrial Average had dipped 13 points at 31,132 points.
The S&P 500 was up 3 points at 3,911 points and the Nasdaq Composite had gained 34 points at 11,579 points.
CityIndex and FOREX.com market analyst Fawad Razaqzada said sentiment towards equities, bonds, cryptos, metals, and foreign currencies remained negative.
“Investors appear reluctant to buy anything in this macro environment, where inflation is soaring, global growth is weakening, and central banks are tightening,” he said.
“Also not helping is the fact we are in a bear market, where traders are happy to sell into the rallies than buy the dips. At this stage, there are not many technical or indeed fundamental signs to appease the bulls. So, expect more losses for equity markets.”
2.25pm: Punters and investors eye St Leger for different reasons
Will the old adage “Sell in May, go away and come back again on St. Leger day” ring true in 2002?
So asks AJ Bell investment director, Russ Mould ahead of the 245th running of the St Leger this weekend, the final classic race of the flat racing season.
“This saying is based upon how, on average, the UK’s FTSE All-Share index has historically performed best between January and April and then again after mid-September, with summer being a bit quiet by comparison” he noted.
“The UK’s FTSE All-Share has not quite stayed true to type in 2022 because it fell marginally from 1 January to 30 April, but the rule proved its worth as the summer rally has fizzled out.“ Mould said.
The All-Share is down 4.3% since May 1st.
Mould noted “Despite the overall averages, this pattern is not visible every year” adding “the FTSE All-Share has risen through to the end of April, dropped through to mid-September and then gained until the end of a year on just 15 occasions since 1965.”
“The UK market hasn’t conformed this year either, which begs the question of what the UK stock market will do for the rest of the year after its weak performance in the first eight-and-a-bit months of 2022.” Mould added.
“Before 2022, the All-Share index had dipped in both January-April and May to the St Leger on just nine previous occasions since its inception in the early 1960s.”
“In those instances, the benchmark index eked out a gain three times and on the other six it just kept on going down after the St Leger through to the end of the year” Mould pointed out noting some uncanny similarities to this year.
Mould said: "It is possible to see parallels with some, if not all, of these prior instances” with oil price shocks, inflation, rising interest rates and recessions a common feature.
“The past is no guarantee for the future, however, and investors may also try to draw some encouragement from how the All-Share has gained in the following year on six of the nine occasions when it fell between both January and April and then again from May to the St Leger horse race.”
Whatever the outcome on Saturday punters and investors will be hoping the St Leger brings good fortune in more ways than one.
2.00pm: Putin threatens to cut energy supplies to the West
Vladimir Putin has threatened to cut off energy supplies to the west if price caps are imposed on Russian oil and gas exports, saying that the west would be “frozen” like a wolf’s tail in a famous Russian fairy tale, according to a report on Reuters.
Speaking at an economics forum in the Pacific city of Vladivostok the Russian president said European calls for a price cap on Russian gas were “stupid” and would lead to higher global prices and economic problems in Europe.
Last week, the G-7 group of advanced economic nations announced plans to impose a price cap on Russian oil exports, and to restrict Russia’s ability to secure tankers and insurance from countries outside the G-7.
Putin said if this were to happen, Russia would walk away from its supply contracts.
12.50pm: Truss rules out windfall tax
Prime Minister Liz Truss has once again ruled out introducing a windfall tax to deal with the energy price crisis.
She said it would deter companies from making further investment in the UK.
The comments came at her first Prime Minister's Questions in the House of Commons and helped send shares in Centrica PLC (LSE:CNA) up 3.1% and SSE PLC (LSE:SSE) up 6.1%.
Opposition leader Keir Starmer said the new PM was protecting energy companies and their “vast profits”.
12.15pm: US markets set to open higher
The FTSE 100 reached midday in negative territory but well off session lows with hopes that a positive open on Wednesday in the US would provide support.
At 12.05pm the lead index was down 50.58 points at 7,249.86.
US stocks were expected to open slightly higher on Wednesday following sharp recent falls as investors ponder the prospect for more interest rate hikes, elevated levels of inflation, and a stronger dollar.
Futures for the Dow Jones Industrial Average were trading flat pre-market, while those for the broader S&P 500 index were up 0.1%, and futures for the tech-laden Nasdaq-100 were 0.2% higher.
The three major US indices fell on Tuesday, US bond yields spiked and the dollar extended its rally, as Americans returned from their Labor Day break, noted Ipek Ozkardeskaya senior analyst at Swissquote Bank.
“The S&P500 closed a couple of points above the closely watched 3900 mark, the major Fibonacci 61.8% retracement on the summer rally, which, if cleared should point at a deeper bearish trend in the medium run,” she added.
Ozkardeskaya pointed out that the equity sell-off has deepened as US companies rush to sell bonds before it gets more expensive.
She noted: “Yesterday alone, 19 US companies including big names like Nestle, Walmart, Target and McDonalds issued a large amount of bonds – about $30 to $40 billion - following an almost 60bp point jump in high-grade yields since the beginning of August. That’s the largest amount sold since September last year.”
The demand for bonds pushed the US 2-year Treasuries yield above 3.50%, and the 10-year yield above 3.35% for the first time since mind-June, she added.
11.55am: Credit default swaps surge
The price of insuring exposure to Britain's sovereign debt rose by 2 basis points on Wednesday, the highest level since June 2020 when markets were recovering from the COVID-19 rout.
Five year credit default swaps (CDS) climbed to 27 bps after closing at 25 bps on Tuesday, data from S&P Global Market Intelligence showed.
The hefty increase followed the appointment of Liz Truss as Prime Minister with markets concerned that her plans to deal with the energy crisis, and her general economic ambitions, would stretch the UK’s finances to breaking point.
Her arrival coincided with the sharpest sell-off of long-dated UK government debt since the COVID-19 pandemic, with 10-year yields hitting their highest since 2011 at around 3.15%
A CDS is similar to an insurance contract, providing the buyer with protection against specific risks.
CDS contracts can mitigate risks in bond investing by transferring a given risk from one party to another without transferring the underlying bond or other credit asset.
11.10am: Bailey says recession the most likely outcome for the UK
Andrew Bailey, the governor of the Bank of England, says a recession is the “most likely outcome” for the UK economy.
Speaking to the Treasury Select Committee, Bailey said: “The recession, I hope it doesn’t happen, but obviously we have forecast it because we think it is sadly the most likely outcome.”
“Of course it is overwhelmingly caused by the actions of Russia and the impact on energy prices.”
Defending the rate hiking actions of the Bank's Monetary Policy Committee, he said: "The person who's going to put this economy into recession is Vladimir Putin and not the MPC."
Bailey was restrained as he commented about the expected government’s energy support package.
“It’s not for us to comment on what fiscal policy will be and we will wait and see what it is… but I do very much welcome the fact that there will be, as I understand it, announcements this week because I think that will help to in, in a sense, frame policy and that’s important,” he said.
“It’s important that there is a clear way forward on policy… That will be important for markets to understand what is going to happen” Bailey said.
10.40am: Autocentres helps boost trading at Halfords
Shares in Halfords Group PLC (LSE:HFD) bucked the weaker market soaring 15.5% today after an upbeat trading statement covering the 20 weeks to August 19th.
The company fared well during the pandemic due to the boom in cycling but in June shares crashed after it warned that inflation was denting earnings and demand.
But today the group reported a 9.2% increase in total revenue for the 20 week period and continues to target full-year underlying pre-tax profits of £65mln to £75mln with second-half profits set to exceed those of the first half.
Peel Hunt described the statement as “highly positive given the external conditions” with an eye-catching performance from the Autocentres division which saw 19% like-for-like growth boosted by better productivity.
Reiterating its buy rating the broker said this was a “good effort” with no change to forecasts.
10.10am: BCC calls for urgent support for business
Shevaun Haviland, director general of the British Chambers of Commerce, has called on the government to give the energy regulator Ofgem more powers, cut VAT on energy bills and introduce emergency business grants.
Speaking on Radio Four’s Today programme she said “We’d like to see Ofgem given more powers to drive more competition in the market.”
“We’re seeing nearly 50% of our members being moved off fixed-rate contracts onto variable rate contracts. Quickly, we want to see a reduction in VAT on energy bills for businesses. They currently pay 20%, we want that brought down to 5%.”
“One of our manufacturers said because of their energy bills, cash flow is really difficult. That means they can’t use cash to buy raw materials to make products even though they have a really strong order book. So they [businesses] need emergency grants quite quickly to help them keep the doors open," she said.
But she said there needs to be a longer-term energy plan as well.
9.45am: GB Group (LSE:GBG) soars on possible bid
Shares in GB Group (LSE:GBG) PLC soared 21.74% today after US private equity firm GTCR said it is currently considering a possible cash offer for the cyber security company.
In a statement released after the UK market close on Tuesday the Chicago-based firm said that there can be no certainty any firm offer will be made, nor as to the terms on which any firm offer might be made.
GB Group (LSE:GBG) advised shareholders to take no action at this stage.
AJ Bell investment director Russ Mould mourned another loss to the “already shrinking UK tech sector” with “cybersecurity GB Group (LSE:GBG) the latest on the block as it is targeted by a US private equity firm.”
He pointed out that the weak pound left UK companies vulnerable to such approaches.
9.25am: Housing market to remain under pressure in coming months
Despite a “robust” rise in house price values in August reported by The Halifax analysts expect the UK housing market to come under pressure in the coming months.
The EY ITEM Club said a “slowdown in price rises seems very likely.”
But it said support to households from a likely cap on energy bills left it more confident that a substantial correction in prices will be avoided.
Martin Beck, chief economic advisor to the EY ITEM Club, said: “House prices are unlikely to defy the economy’s wider problems indefinitely.”
“Mortgages are getting increasingly expensive” and “with household incomes experiencing the biggest real-terms squeeze in decades, those with mortgages face challenges from higher outgoings and reduced spending power.”
“However, the prospect of a cap on household energy bills should improve the outlook on both counts” he commented with inflation set to peak at lower than expected levels should speculation about the scope of the cap prove true.
“By reducing the prospective peak in inflation and dampening inflation expectations among the public, a cap might encourage the Bank of England to take a less hawkish approach to raising rates” he said.
However, the EY ITEM Club still expects the Bank of England to increase Bank Rate by 50bps in September's meeting although the odds of a larger 75 bps rise have fallen.
9.00am: Falls in commodity prices send FTSE lower
Yesterday’s rally in the FTSE 100 proved short lived as disappointing trade figures from China heightened fears surrounding global growth sending commodity prices lower.
Mining and oil stocks led the fallers in the lead index which at 8.55am was trading 90.14 points lower at 7,210.30..
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said: ‘’As politicians scramble to put sticking plasters on what looks set to be a longer term energy crisis, the outlook for the global economy has darkened again, sending fresh jitters through financial markets.”
“Indices in Asia fell, after China posted worse than expected trade figures for August, adding to worries about the ailing economy.”
“With China’s recovery slowing markedly, there is even less power to re-charge growth in the world economy and that’s led to a fresh sell off in metals like iron ore and copper.”
“The oil price has also sprinted lower with a barrel of Brent crude dipping to around $92 amid expectations of lower demand.”
She said despite Government support consumers will still face “scorching energy bills” which will dent discretionary spending.
Bucking the negative trend was Halfords Group PLC (LSE:HFD) which pleased the market with a positive trading update.
Shares jumped 10% as the group reported total revenue growth of +9.2% against last year although like for like sales fell 1.9% against strong prior year comparatives.
All areas showed good growth with Autocentres +28.2%, Retail Motoring +8.5% and Cycling +9.5% all advancing.
“Performance in the period has been in-line with our expectations, and we therefore continue to target full year underlying profit before tax of £65mln to £75mln” the company said.
8.35am: UK house prices rose in August - Halifax
UK house prices rose in August, reversing July’s fall, according to the latest Halifax House Price Index..
According to the report house prices increased by 0.4% last month, compared to fall of 0.1% in July although the annual pace of growth slowed to 11.5% from 11.8%.
A typical house now costs an average of £294,260, a fresh record.
Kim Kinnaird, director at Halifax Mortgages, called August’s increase "relatively modest", noting that monthly house price inflation has averaged at around 0.9% over the last year.
She continued: "While house prices have so far proved resilient in the face of growing economic uncertainty, industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity."
8.10am: FTSE 100 heads south at the open
The FTSE 100 opened sharply lower on Wednesday reflecting falls in US and Asian equity markets and disappointing Chinese trade data.
At 8.10am the lead index was down 58.08 points at 7,242.36 with the broader FTSE 250 down 70.62 points to 18,750.22.
Shares in Barratt Developments PLC (LSE:BDEV) fell 1% after the housebuilder reported annual profits tumbled by 21% as the rising cost of remedial cladding repairs bit into margins at the UK housebuilder.
Revenues rose by almost 10% to £5.2bn in the year to end June 2022, as the number of housing completions rose by almost 4% to 17,908.
Profits, however, dropped by 21% to £642mln as Barratt took a £396.4mln charge to meet its commitment to the government’s building safety repairs pledge.
That was brought in on properties over 11 metres in the wake of the Grenfell Tower disaster.
Without the cladding charge, adjusted profits rose by 15% to £1.06bn and the company raised its annual dividend by 26% to 36.9p and also announced a £200mln share buyback.
WH Smith also slipped back in early trading with shares down 2% despite saying it expects full year results to be in line with expectations.
The group said it had continued to see a "strong performance" from its travel unit in the second half, with group revenue coming in "comfortably in excess" of pre-Covid levels.
7.50am: Insolvencies to soar without government support
Tens of thousands of businesses are at risk of going under without government support because of soaring energy bills, according to insolvency experts.
Red Flag Alert told the BBC previously profitable companies are experiencing significant losses.
Among those that survive, many will be forced to make workers redundant, the consultancy said.
Businesses are not covered by the cap, however, and Red Flag is warning that more than 75,000 larger firms that are high energy users are at risk of insolvency or are likely to lay off staff without government support.
According to Red Flag Alert, there are 355,000 companies with a turnover higher than £1mln that are designated as high energy users and of those, the company estimates 75,972 are at risk of insolvency, and they estimate 26,720 of them could fail because of energy costs.
"That is a colossal number of people whose businesses will fail, without a large scale support package from the government", said chief economist Nicola Headlam "That's more than during the pandemic, and more than in any other recession," she said.
7.25am: Chancellor summons bank leaders for talks
The bosses of Britain's biggest banks will hold talks with the new chancellor on Wednesday as he tries to exert a grip on the stalling UK economy, according to Sky News.
According to Sky, Kwasi Kwarteng convened a meeting with the chief executives of lenders including Barclays, Lloyds Banking Group and NatWest Group just hours after being appointed to the post.
City sources said the meeting was to set out the government's approach to the economy as Liz Truss's administration attempts to respond to the crisis triggered by soaring global inflation.
Britain's biggest banks have been told by the City regulator to outline how they plan to support their customers through the cost of living crisis, and the new chancellor is likely to impress upon them the importance of doing so, according to one insider.
READ MORE: Aviva, Lloyds, Goldman and other City bosses meet new chancellor to hear plans
7.15am: Chinese trade figures disappoint
London markets look set to follow the US and Asia lower this morning with disappointing Chinese trade figures weighing on the market.
Michael Hewson chief market analyst at CMC Markets UK said “Last night’s weak US close looks set to translate into a lower European open, although today’s weak Asia session has also played a part after some disappointing China trade data.”
“It’s becoming increasingly difficult to feel optimistic about the outlook for the Chinese economy as we head into the winter months.”
“With 21.5m people already locked down in Chengdu, and new restrictions being imposed in places like Guiyang, in Guizhou province, as well as Shenzhen, it’s hard to see a scenario for a significant economic pickup much before next year.”
“This morning’s latest trade numbers for August merely serve to underscore how weak domestic demand still is, and how far away that end of year GDP target of 5.5% is.”
“Today’s August numbers suggest a continued lack of confidence in the part of the Chinese consumer as well as a lack of demand, slowing to a weaker 0.3%, well below expectations of 1.1%,” Hewson said with exports “slightly more resilient recovering to 18% in July, and beating expectations after a weak quarter two.”
6.55am: FTSE 100 set for heavy falls at the open
The FTSE 100 is expected to open sharply lower today following falls in the US on Tuesday and in Asia overnight.
Spread betting companies are calling the lead index down by around 60 points.
In the US the Dow closed Tuesday down 174 points, 0.5%, at 31,148, the Nasdaq Composite slipped 86 points, 0.7%, to 11,545 and the S&P 500 shed 16 points, 0.4%, to close at 3,909. The indices swung positive around midday, but the rally was short lived.
The strong ISM services survey for August served to heighten the prospect that the Federal Reserve could go for another 75bps rate hike when it meets in two weeks.
In Asia, markets slipped back after disappointing Chinese trade data.
In London, results are due from WH Smith and Barratt Developments while Halfords is set to provide a trading update.