- FTSE 100 closes down 36 points
- Mining shares support the market
- United Utilities warns on profits
4:45pm: FTSE slips at the close
By the time the closing bell rang, the FTSE 100 had fallen below 7,000 points in a reversal of fortune.
At the close, the index was nearly 0.5% lower, finishing at 6,985 points.
While the UK mini-budget raises risks of higher-for-longer rates, traders are holding off until we see whether the BoE opt to move, Joshua Mahony, senior market analyst at online trading platform IG wrote in a note.
"With Truss and Kwarteng under pressure less than a month into their appointment, traders will hope that this provides a stark warning over the need to be fiscally responsible despite the desire spend their way out of this crisis.”
3.55pm: Footsie and sterling higher, but bond yields rise as prices fall
After two days of turmoil following the badly received mini-budget, things are mostly calmer (with the exception perhaps of the gilt market.)
Leading shares are in positive territory as we head into the close, with the FTSE 100 up 26.28 points or 0.37% despite the threat of significant rate rises from the Bank of England economist Huw Pill and comments from the Chancellor that he is pressing on with his controversial plans.
Mining shares are among the main rises, on hopes that a relaxation of China's COVID-19 restrictions could provide a lift to the global economy.
Glencore PLC (LSE:GLEN) is up 4.29%, Antofagasta PLC (LSE:ANTO) has added 3.38%, Anglo American PLC (LSE:AAL) is 3.19% better and Rio Tinto PLC (LSE:RIO) has risen 2.55%.
But property firms are in the doldrums as investors worry about the effect that even higher interest rates will have on the sector.
Rightmove PLC (LSE:RMV) is down 8.67%, British Land Company PLC (LSE:BLND) has fallen 4.83% and Barratt Developments PLC (LSE:BDEV) is off 4.83%.
United Utilities Group PLC (LSE:UU.) is down 3.99% after warning on profits.
Meanwhile the pound is up 0.0957% at US£1.0777 after hitting an all time low on Monday.
But UK gilt yields continue to rise, with the 10 year up 15 basis points at 4.433% and the 30 year jumping 34 basis points to 4.887%.
3.14pm: US confidence and housing figures beat forecasts
More from the US, with better than expected consumer confidence and home sales figures.
US CB Consumer Confidence Aug: 108.0 (est 104.5; prev R 103.6)
- Present Situation: 149.6 (prev R 145.3)
- Expectations: 80.3 (prev R 75.8)
— LiveSquawk (@LiveSquawk) September 27, 2022
US New Home Sales Change Aug: 685K (est 500K; prev R 532K)
- New Home Sales (M/M): 28.8% (est -2.2%; prev R -8.6%)
- Median Sale Price (Y/Y) (USD): 436.8K or +8.0% (prev 439.4K or +8.2%)
— LiveSquawk (@LiveSquawk) September 27, 2022
2.58pm: Wall Street heads higher
US stocks have made a bright start as bargain hunters swooped in after days of selloffs, which included the Dow Jones Industrial Average joining the S&P 500 and Nasdaq Composite in officially entering a bear market yesterday.
Shortly after the market opened, the Dow Jones Industrial Average had gained 207 points or 0.7% at 29,468 points, the S&P 500 was up 40 points or 1.1% at 3,695 points, and the Nasdaq Composite had added 173 points or 1.6% at 10,975 points.
Meme stock AMC Entertainment Holdings (NYSE:AMC) (AMC Entertainment Holdings (NYSE:AMC)) Inc jumped 6% on the back of news that it had closed a distribution agreement to sell up to 425 million shares of AMC Preferred Units, known as “APEs.” APE also soared 10%.
After rising about 3% in pre-market trading, shares of Twitter Inc (NYSE:TWTR) (Twitter Inc (NYSE:TWTR)) were steady at the open as the legal battle between the social media company and eccentric billionaire Elon Musk heats up with lawyers for both parties set to debate several unresolved pre-trial information requests.
Forex.com market analyst Fiona Cincotta noted that while stocks were edging higher, this was more a pause in the market selloff rather than the start of anything more positive.
“The fundamentals remain the same, and a recession is looking increasingly more likely,” she said. “When the likes of Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) downgrade global shares to underweight for over three months, we can expect the final quarter of the year to be a shocker."
2.49pm: Bank economist hints at hefty rate rises
Bank of England chief economist Huw Pill has been speaking about the current situation, and hinted at further hefty rate rises.
He said it was "hard not to draw the conclusion that this will require significant monetary policy response."
With the Bank issuing a holding statement yesterday in the wake of the turmoil following the badly received mini-budget, many believed that its officials would use engagements this week to talk tough about rate rises.
Pill seems to be following that line.
He said there was clearly a UK-specific element to the repricing of assets - ie the falls in bond and sterling.
"We are certainly not indifferent to the repricing of financial assets that we've seen," he added.
The pound continues to slip off its best levels of the day after its fall to an historic low against the dollar on Monday.
It is now up just 0.0144% at US$1.0768.
The FTSE 100 meanwhile has edged into the green, up 10.67 points at 7031.62, helped by an opening rise on Wall Street.
2.06pm: Kwarteng set to push ahead with plans despite turmoil
Chancellor Kwasi Kwarteng seems determined to push ahead with the government's tax cuts funded by hefty borrowing, despite the market turmoil his mini-budget on Friday has caused.
Speaking after a meeting with bank and insurance chiefs, he said: "“We are confident in our long-term strategy to drive economic growth through tax cuts and supply-side reform.
“I’m confident that with our growth plan and the upcoming medium-term fiscal plan – with close co-operation with the Bank – our approach will work.
“We have a medium-term fiscal plan coming on 23 November, alongside an OBR forecast. That will be a credible plan to get debt to GDP falling.”
Chancellor @KwasiKwarteng met asset management & insurance firms where he reiterated the Government's commitment to fiscal sustainability.
Next month, he will set out a package of regulatory reforms for the UK’s financial services sector to drive growth & incentivise investment. pic.twitter.com/GvKZcC1g49
— HM Treasury (@hmtreasury) September 27, 2022
Meanwhile leading shares are virtually flat, with the FTSE 100 down 1.01 points at 7019.94.
So far today the leading index has been as high as 7073 and as low as 6985.
The pound is still ahead against the dollar but not as much as previously.
It is up 0.1454% at US$1.0782 having earlier touched US$1.0838.
But 10 year gilt yields, having fallen this morning, are now up 4 basis points to 4.329%.
The 30 year gilt yield is up to 4.838%, the highest since 2007.
1.55pm: US durable goods orders slip again
Over in the US, durable goods orders have dipped for the second month.
Orders for longer lasting items such as cars and aeroplances fell 0.2% in August after a 0.1% decline in July, but this was better than the 0.3% drop expected.
US Durable Goods Orders Aug P: -0.2% (est -0.3%; prev -0.1%)
- US Durable Ex Transportation Aug P: 0.2% (est 0.2%; prev 0.2%)
- US Cap Goods Orders Nondef Ex Air Aug P: 1.3% (est 0.2%; prevR 0.7%)
- US Durable Goods Ship Nondef Ex Air Aug P: 0.3% (est 0.3%; prevR 0.6%)
— LiveSquawk (@LiveSquawk) September 27, 2022
#ManufacturedDurableGoods new orders, down two consecutive months, -0.2% to $272.7B (seasonally adjusted) from July to August 2022. https://t.co/dA6zwDdI1E #CensusEconData #Manufacturing #DurableGoods pic.twitter.com/t98b37KWyu
— U.S. Census Bureau (@uscensusbureau) September 27, 2022
12.45pm: Mid cap index underperforms
The FTSE 100 has edged back into the green, up 7.55 points at 7028.5.
However the mid cap FTSE 250 - more domestically focused than the blue chip index - is not so fortunate, down 0.48% at 17,640.61.
Aston Martin Lagonda Global Holdings PLC (LSE:AML) is the biggest faller, down 7.88%.
And the decline in the index would have been worse if not for a 28.38% leap in Biffa PLC (LSE:BIFF) shares after the waste management group recommended a £1.3bn offer from private equity firm Energy Capital Partners.
12.14pm: Sterling still in crisis mode
Here's an update on the forex market.
Sterling managed to regain some ground against the US dollar after falling to record lows on Monday, but we’re still in crisis mode following what many are calling an ill-conceived mini-budget whipped up by chancellor Kwasi Kwarteng last Friday.
Speculation that the Bank of England (BoE) was preparing an emergency rate rise failed to lead to anything, and the Bank's reassurance that it “will not hesitate” to change rates as needed did not manage to shore up much confidence.
The GBP/USD pair was trading at US$1.08 as of 11:00 BST.
As a side note, the Bank of Japan (BoJ) showed took more decisive action when faced with the same crisis, having announced a 250bln yen (£1.6bn) bond buy-buying programme overnight.
The EUR/USD pair remains at yearly lows, still trading under parity at US$0.96.
“Further decisive action is required to bring the inflation rate down to 2% in the medium term,” said Bundesbank president Joachim Nagel, suggesting more hawkish action from Germany’s federal bank.
All in all, the US dollar continues to lead the G10 currencies, though some commentators are concerned about a sharp pullback should its (relative) safety status begin to unwind.
"Positioning is crowded," Calvin Tse, head of global macro strategy at BNP Paribas, told Reuters, adding: "If we get a catalyst, the dollar can turn, and turn very aggressively," he said.
11.55am: US market set for better start
US stocks are expected to open higher after five successive days of steep falls amid growing concerns about a faltering global economy driven by high inflation, rising interest rates and currency market gyrations.
Futures for the Dow Jones Industrial Average were up 0.5% in pre-market trading, while those for the S&P 500 added 0.7%, and contracts for the Nasdaq-100 were 0.9% higher.
The gains on stock futures come after the Dow entered the so-called bear market, roughly defined as levels around 20% lower than recent highs, and the S&P 500 index crashed to its lowest levels in about two years.
Last week’s trigger for the market rout was the Federal Reserve’s third 75-basis-point interest rate hike and expectations of more hikes in the future but turmoil in the currency market, with the pound seen heading for parity to the dollar, has added to equity market woes.
“We had a bearish start to the week on Monday and the price action across several asset classes remains volatile and chaotic - and that’s especially true for the forex markets shaken by the freefall in sterling,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The pound has been under tremendous selling pressure since the UK’s ‘mini budget’ announcement last week which fueled debt worries rather than spur growth expectations as had been hoped.
Ozkardeskaya noted that investors are sitting on cash after selling assets, citing reports that $4.6 trillion is now sitting in US money-market mutual funds paying 2% or more.
“But of course, the rising sovereign yields are also becoming attractive. The US 2-year paper now yields around 4.30%, whereas the S&P500’s dividend yield is just around 1.7%,” she added.
It remains to be seen where the flows will go but stock futures contracts this morning suggest that recent price falls may bring in bargain hunters.
On the data front, US durable goods orders and home sales prices are due out today and personal consumption expenditures numbers are due on Friday. Each of these figures will shed light on how the world’s biggest economy is faring amid prevailing concerns.
The projected positive start for Wall Street has helped the UK blue chip index off its worst levels, now down just 7.51 points or 0.11% at 7013.44 after falling as low as 6985.
11.09am: UK raises £1.2bn with gilt sale
Amidst the turmoil. the UK Treasury has raised £1.2bn of debt.
But it has come at a price - the highest yield in ten years.
UK sells £1.2 billion of an index-linked gilt due 2031 with bids worth 2.3 times the amount on offer...
BUT sold with the highest real yield in almost 10 years
— Andy Bruce (@BruceReuters) September 27, 2022
NEW:
UK govt just raised £1.2bn of index-linked (inflation-adjusted) debt.
Covered 2.3 times, so no shortage of appetite. Will come as a reassurance to HMT given recent events.
Suddenly these things matter!
But it came at a cost: highest real yield in over a decade… pic.twitter.com/OHs4GQIuSb
— Ed Conway (@EdConwaySky) September 27, 2022
10.52am: Former US Treasury secretary warns pound could also see parity with euro
Larry Summers, the former US Treasury secretary, has been negative about Friday's UK mini-budget since it was announced, and he is not letting up.
Among other things he warns that the pound could go below parity not just with the dollar, but the euro as well.
He also sees UK short rates hitting 7%.
And he warns on the global fallout from a crisis in a reserve currency, ie sterling.
I was very pessimistic about the consequences of utterly irresponsible UK policy on Friday. But, I did not expect markets to get so bad so fast.
A strong tendency for long rates to go up as the currency goes down is a hallmark of situations where credibility has been lost.
— Lawrence H. Summers (@LHSummers) September 27, 2022
The first step in regaining credibility is not saying incredible things. I was surprised when the new chancellor spoke over the weekend of the need for even more tax cuts. I cannot see how the BOE, knowing the government’s plans, decided to move so timidly.
— Lawrence H. Summers (@LHSummers) September 27, 2022
The magnitude of Britain’s trade current account deficit underscores the seriousness of its challenges. My guess is that pound will find its way below parity with both the dollar and euro.
— Lawrence H. Summers (@LHSummers) September 27, 2022
I would not be amazed if British short rates more than triple in the next two years and reach levels above 7 percent.
— Lawrence H. Summers (@LHSummers) September 27, 2022
A currency crisis in a reserve currency could well have global consequences. I am surprised that we have heard nothing from the IMF.
— Lawrence H. Summers (@LHSummers) September 27, 2022
10.38am: Footsie falls into the red
The early calm has evaporated and the FTSE 100 has fallen below 7000 again, for the third day in a row.
The leading index is currently down 23.36 points or 0.33% at 6997.59, with housing market shares under pressure.
With the prospect of a bigger than expected rise in interest rates - bigger than expected before Friday's calamitous mini-budget that is - and mortgage lenders pulling deals, Rightmove PLC (LSE:RMV) is leading the fallers, down 4.88%.
Barratt Developments PLC (LSE:BDEV) is down 3.06%, Taylor Wimpey PLC (LSE:TW.) has lost 2.8% and Persimmon PLC (LSE:PSN) is off 2.6%.
10.02am: Could pound really hit parity with dollar?
Markets spend much of yesterday speculating that the Bank of England would make a statement or even sanction an emergency rate rise to stop the slump in the pound.
In the end the Bank did make a statement which basically said....it planned to do nothing, at least not until its next scheduled meeting in early November although it would continue to monitor events.
But former Bank of England deputy governor Charlie Bean reckoned the Bank should have called an emergency meeting following the market turmoil.
He told BBC radio: "On this occasion if I had still been at the bank in my role as deputy governor I certainly would have been counselling the governor that I think this is one of those occasions where it might have made sense (to call a meeting).
"The key thing is, if you call it, you have to take significant action."
Meanwhile economists are continuing to speculate on the chances of sterling reaching parity with the dollar.
Jane Foley, senior FX strategist at Rabobank said: "There has been a loose discussion in the market about the prospect of GBP/USD hitting parity for some months. This risk has firmed up in the wake of Friday’s tax giveaways from UK Chancellor Kwarteng, with both market pricing and some forecasters’ predictions now suggesting a tangible risk of GBP falling below 1.00.
"Of course, broad-based USD strength is an important element behind the softness of cable. In our view there will be no let-up in USD dominance for some months to come...
"GBP/USD has edged higher in early European hours this morning, suggesting the extreme cheapening of UK assets over the past couple of sessions is attracting some interest. That said, the causes of the selloff in both gilts and in GBP have not been addressed and this suggests that the pound remains an extremely vulnerable currency."
But she said an emergency rate rise would have been unwise: "If the Bank had played its trump card on rates and GBP had continued to fall, the MPC could have found itself in a cat and mouse game with the markets that could have weighed heavily on its credibility."
9.38am: Commodity companies climb on hopes China will ease restrictions
Mining shares are giving some support to the market, but the rise in the UK blue chip index is not exactly decisive.
The FTSE 100 is currently up just 7.38 points or 0.11% at 7028.33 having earlier hit 7073.
Rio Tinto PLC (LSE:RIO) has risen 1.78%, Antofagasta PLC (LSE:ANTO) has added 1.52% and Anglo American PLC (LSE:AAL) is uup 1.31% on hopes that China - a major consumer of commodities - could ease its latest round of restrictions.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Hopes that tough COVID-19 restrictions could soon be in China’s rear view mirror have helped lift sentiment that one of the key roadblocks to a global recovery could be removed. Strict curbs have lifted in Hong Kong and there is growing expectation that Beijing will change direction on its zero-COVID-19 strategy and open up the country by Spring next year to boost employment and incomes, which have been suffering due to rolling lockdowns. These glimpses of light at the end of what’s been a gloomy tunnel in China have helped lift commodity giants in early trade in London."
Burberry Group PLC (LSE:BRBY), the luxury goods group which does a lot of its business in the region, is up 2.26% for a similar reason.
But JD Sports Fashion PLC (LSE:JD.) is down 2.29% after the company and Rangers FC were fined by the Competitions and Markets Authority for fixing the price of football kits.
JD said it had co-operated fully with the CMA throughout this investigation "including taking swift steps to apply for leniency and agreeing to settle the investigation. As a consequence, the CMA has applied a substantial discount in determining its final penalty of £1.485mln."
It added it had made an estimated provision of £2mln in its accounts, and stressed no directors or senior management of JD were involved in the offending conduct, which took place in 2018-2019.
Elsewhere United Utilities Group PLC (LSE:UU.) has fallen 2.1% as it warned profits and revenues would be lower than expected.
And Barratt Developments PLC (LSE:BDEV) has lost 1.43% on concerns that higher interest rates will hit the housing market,
9.07am: UK gilt yields dip
UK ten year gilt yields have slipped back after their recent surges in the wake of the chaotic mini-budget.
The yield - which rises as bond prices fall - is down around 19 basis points at 4.083%.
For context, in August they were about 1.7% and before Friday's debacle, just over 3%.
8.31am: Mortgage deals hit by market chaos
Lenders are pulling mortgage deals for new customers in the wake of the chaos in the currency and gilt markets.
Virgin Money and Skipton Building Society temporarily withdrew offers and hope to reprice them soon. Halifax, the UK's largest mortgage lender withdrew products offering lower interest rates in return for arrangement fees.
And the repricing could be brutal, according to Bank of America and others, perhaps at 6.-7%.
Here is Samuel Tombs, chief UK economist at Pantheon Macroeconomics:
If mortgage rates rise to 6%—as implied by markets’ current expectations for Bank Rate—the average household refinancing a 2yr fixed rate mortgage in the first half of 2023 will see *monthly* repayments jump to £1,490, from £863. Many simply won’t be able to afford this (1/2) pic.twitter.com/hkoZCcSfjJ
— Samuel Tombs (@samueltombs) September 26, 2022
8.25am: Sterling did well last week (against the St Helena pound)
The pound has been through the shredder compared to most other currencies in the last week.
Look away now if you don't want to see the damage (courtesy a chart from Bloomberg).
Of the 150 or so currencies Bloomberg tracks, the British Pound is down against every single one from last week apart from the Chilean Peso, Gibraltar Pound, Falkland Islands Pound, St. Helena Pound. pic.twitter.com/Ervic7Fpz6
— David Ingles (@DavidInglesTV) September 27, 2022
8.18am: Tentative gains for Footsie
Leading shares have opened in the green as expected.
The FTSE 100 is up 15.77 points or 0.22% at 7036.72, while the pound is off its best but is still up 0.1226% at US$1.078.
Richard Hunter, head of markets at interactive investor, said: "The FTSE100 opened in positive territory, underpinned by tentative relief gains in stocks which have recently come under fire.
"Nonetheless, the weakness as evidenced by further declines in the likes of the housebuilders and the retailers given a parlous economic backdrop which could yet come under additional pressure, has weighed heavily.
"Banks have also seen some selling activity despite a rising interest rate environment, with concerns inevitably arising that a recessionary environment could lead to higher levels of debt default. The premier index is now down by 4.6% in the year to date, which remains a relatively robust performance in comparison to its global peers and indeed its more domestically-focused sibling, the FTSE250, which has now declined by over 24% this year.”
Given the statement from the Bank of England on Monday, which said it intended to do nothing until its next meeting despite the plunge in sterling, a speech from its chief economist Huw Pill today has more at stake than perhaps earlier expected. Some economists believe that, despite the Bank declining an emergency rate rise, this week will see a number of members of its monetary policy committee attempting to support sterling by making tough comments about the need for increases.
Meanwhile chancellor Kwasi Kwarteng is meeting City bankers and insurers today, in the wake of his badly received tax-cutting mini-budget.
The get together was originally about plans to re-energise the City but the plunge in the pound is likely to be an unavoidable topic.
7.52am: UK market set for early move higher
As yesterday, all the action is likely to be in the currency and gilt markets, at least initially.
The FTSE 100 closed virtually flat, up just 2.35 points, and spread betters IG Index expect a riser of 10 points or so when trading begins today.
European Opening Calls:#FTSE 7030 +0.13%#DAX 12284 +0.46%#CAC 5792 +0.40%#AEX 643 +0.45%#MIB 21345 +0.65%#IBEX 7550 +0.55%#OMX 1818 +0.35%#SMI 10106 +0.33%#STOXX 3357 +0.44%#IGOpeningCall
— IGSquawk (@IGSquawk) September 27, 2022
Meanwhile the pound, which at one point hit an all time low of US$1.0348 yesterday in the wake of the badly received mini-budget on Friday, has edged up 0.3636% to US$1.0806 this morning.
A statement from the Treasury late yesterday that there would be a spending statement on 23 November and an expected but do-nothing comment from the Bank of England has hardly helped sentiment.
But many in the City believe the Bank will have to act before its next scheduled meeting at the start of November if events get out of hand.
Jim Reid of Deutshe Bank said: "Markets are still expecting an incredibly fast pace rate hikes ahead, with around 150bps priced in by the time of the next policy meeting on November 3, albeit that was down from 200bps at one point in the day."
UK gilts also had another traumatic day.
Reid said: "The country’s government bonds were completely routed for a second day, with yields on 5yr gilts up by +47.8bps to a post-2008 high of 4.52%. Bear in mind that follows on from the +51.0bps move on Friday, which itself was the largest daily rise since January 1985 when there was a 200bps rate hike, so these are not the sort of moves we’re used to seeing every day."
In the US the S&P 500 fell 1.03%, down for a 5th consecutive session to close at its lowest level so far this year while the Dow Jones Industrial Average was down 1.11%.
In Asia, trading is mixed, with the Nikkei and Shanghai Composite moving ahead but the Hang Seng lower.