- FTSE 100 closes 0.9% ahead
- Chancellor axes plans to cut basic rate of tax and makes changes to energy support package
- Sterling extends gains and bond yields drop further after Hunt's statement
4.43pm: FTSE closes up
FTSE 100 closed higher on the first day of the new trading week as the UK's latest chancellor Jeremy Hunt appeared to settle investor nerves - at least for now.
The UK index of leading shares finished up around 61 points, or 0.90%, at 6,920.
"Stock markets, the euro and sterling are on the up, as the mood in markets turns more optimistic for the time being," noted Chris Beauchamp, chief market analyst at trading platform IG.
"The dollar’s weakening today provides another sign that risk assets are finding some short-term support, and even embattled UK assets have been lifted," he added.
"Jeremy Hunt, arguably de facto PM of the UK, has steadied the fiscal ship of state, and perhaps sets the stage for more GBPUSD gains above $1.13 for a while. But like the broader rally in stocks, this bounce in cable probably has a relatively short shelf-life."
3.45pm: Markets in buoyant mood as chancellor prepares to address Parliament
Heading to the close and markets remain in a more upbeat mood, for now.
The FTSE 100 is close to its best levels for the day, as US markets move higher, and as the market reacted positively to news that more measures from the mini-budget have been scrapped.
At 3.45pm the lead index was up 92 points at 6,951, while the broader FTSE 250 soared 475 points to 17,509.
The pound was also higher against the US dollar, up 1.94% to $1.141.
Sir Keir Starmer has tabled an urgent question to the House of Commons and said that the Tories have crashed the economy at "100 miles an hour."
Government borrowing costs have soared, mortgage rates have ballooned, markets need reassuring, and there is long-term damage that can’t be undone, he said.
Starmer also asked why the PM wsn't there to answer the question. He said “The lady’s not for turning – up.”
3.20pm: Government in bail-out talks with owner of British Steel - Sky
Britain's second largest steel producer is reportedly in talks with business secretary Jacob Rees-Mogg over a taxpayer bailout.
According to Sky News, the cabinet minister has written to Jingye Group, which owns British Steel, after the company warned that its furnaces in Scunthorpe risked becoming unviable.
The news site said Mr Rees-Mogg said he was willing to negotiate over Jingye's request for financial support.
2.44pm: FTSE at best levels for the day
FTSE 100 is at its best levels for the day as a positive start on Wall Street gives a further boost to sentiment following news that the government has scrapped more measures from its mini-budget in September.
At 2.40pm the lead index was trading 66 points higher at 6,924 while the broader FTSE 250 surged 388 points to 17,421.
Housebuilders led the way with Persimmon PLC (LSE:PSN), up 5.16%, Barratt Developments PLC (LSE:BDEV) (up 4.84%) and Taylor Wimpey PLC (LSE:TW.) (up 4.73%) all higher on expectations that interest rates would not have to rise as much as feared.
Financial stocks were also higher as the new chancellor’s measures brought some calm to the markets: Legal & General Group PLC (LSE:LGEN) gained 4.53% and Schroders PLC (LSE:SDR) advanced 4.03%.
But BAE Systems slipped 1.54% as the chancellor signalled tough decisions on government spending lay ahead putting in question the 3% increase to defence spending.
In the US, stocks started the week on a positive note as the earnings season ramps up, with major corporations including Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) set to report their latest quarterly figures over the next few days.
Just after the opening bell, the Dow Jones Industrial Average had added 528 points or 1.8% at 30,162 points, the S&P 500 was up 77 points or 2.1% at 3,660 points, and the Nasdaq Composite was up 279 points or 2.7% at 10,600 points.
2.30pm: Taxes set to reach highest level since 1950 - Resolution Foundation
Taxes are set to rise to their highest level since 1950, experts have said, after the new chancellor, Jeremy Hunt, scrapped planned cuts in one of the biggest fiscal U-turns in British history.
The Resolution Foundation said the government had "promised to reduce taxes, [but] is now setting taxes on course to rise as a share of GDP to around 36% by the end of the parliament – up from 33% at the start.”
"This would bring the UK’s tax take up to its highest sustained level since 1950-51"it said.
The analysis came after Hunt said he would be reversing almost all the tax measures" announced in the mini-budget, just days after replacing Kwasi Kwarteng as chancellor.
He also said he would be cutting energy bill support from next April.
The Resolution Foundation's chief executive Torsten Bell said: "This is now very clearly a tax-raising parliament, with the tax take set to reach highs not sustained since 1950.”
"The price of shielding the public finances from wholesale gas markets next year is more pressure on households, with the energy price cap now on course to hit £4,000 next April - almost double its effective level today."
"These are tough choices being made by the new Chancellor that will reduce the scale of public spending cuts set to be announced on October 31 - even more so if they lead markets to reduce the interest rates they charge government for borrowing.
"But, with tens of billions of spending cuts still to come and a new energy support package needing to be devised, many of Jeremy Hunt's tough choices still lie ahead."
2.10pm: IFS weclomes "mini-budget2"
The Institute for Fiscal Studies, the economic thinktank, has described mini-budget 2, this morning’s statement from Jeremy Hunt reversing most of the tax cuts in the original mini-budget as a big, welcome step “in the right direction”.
But it also says the £32bn in extra taxation will not by itself “plug the gap” in the government’s balance sheet.
In a press release setting out the IFS analysis, Paul Johnson, its director, said: "Fiscal credibility is hard won but easily lost. Today’s announcements won’t be enough, by themselves, to plug the gap in the government’s fiscal plans."
"Nor will they be enough to undo the damage caused by the debacle of the last few weeks."
"But they are big, welcome, clear steps in the right direction. It is also encouraging that, with most of the tax cuts abandoned, perhaps the most growth friendly of them, the stamp duty cut and the increased annual investment allowance for corporation tax, remain."
"Backing this up with a coherent set of well-designed fiscal targets and a credible plan for meeting them is now the priority for the Chancellor’s statement on 31 October."
"eremy Hunt will still have to make some scary decisions on tax and spend this Halloween. And it remains hard to see where significant spending cuts could come from. With today’s policy reversals the tax burden is again set to rise and stabilise at an historically high level."
The IFS also says the fiscal plan being published on 31 December is likely to involve “some cuts to planned investment and day-to-day spending”.
1.25pm: US seen higher
FTSE 100 should take further heart from the US this afternoon with US stocks expected to open higher after last week’s volatile trading as attention shifts to the quarterly earnings season with more big banks due to report this week.
Prevailing concerns about the path for more interest rate hikes and continuing inflationary pressures, however, are expected to keep trading cautious.
Futures for the Dow Jones Industrial Average were up 1.2% in pre-market trading, while those for the S&P 500 were 1.4% higher, and contracts for the Nasdaq-100 added 1.5%.
After a mixed bunch of bank earnings last week, with optimism from strong results at JPMorgan Chase and Wells Fargo partly offset by disappointing figures from Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)), attention this week turns to earnings from Bank of America and Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)).
James Hughes chief market analyst at scopemarkets.com noted that the earnings are "expected to continue to paint an upbeat picture with Q3’s from Bank of America tipped to show modest year-on-year revenue improvement".
Bank of America is due to publish earnings today while Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) is scheduled to release its results on Tuesday. Netflix and Tesla are also due to release their earnings this week.
Meanwhile, Hughes added: “Economic data out of the US is looking quiet today, although a sharp decline in the NY Empire State manufacturing Index due shortly before the opening bell could raise questions over the Federal Reserve’s unwavering stance on rate hikes."
Data out last week showed that US CPI inflation remains stubbornly high at levels around 40-year highs while core inflation, which strips out more volatile elements, picked up.
Taken together the data is expected to keep the pressure on US rate-setters to continue hiking interest rates even if that means that economic activity may falter.
“That hotter-than-expected September inflation print is certainly taking a toll, but as monetary policy starts to take a toll on the secondary data points, challenges will mount,” noted Hughes.
The Federal Reserve has hiked interest rates by 75 basis points three times this year. Investors expect another such hike at the Fed’s next meeting at the start of November as rate-setters attempt to cool inflation. These expectations have been pushing up US Treasury yields and that pressure is likely to continue.
“There are also some short-dated T-bill auctions due today and again yields here will be impacted by expectations of where the market goes next, in turn bumping up borrowing costs for the wider US economy,” Hughes concluded.
1.05pm: Farewell, Trussonomics
More reaction to the chancellor’s statement:
Neil Wilson at Markets.com said “So farewell, Trussonomics.”
He added “Hunt has gone further than expected to shore up market confidence, but it’s still a mess – economic policy cannot be made up on the hoof like this and retain any kind of credibility.”
“The weaknesses in the underlying economy remain. And the damage done by the mini-Budget has not been undone – even undoing all the changes has left gilt yields materially higher than they were before the Budget – the damage is not just unpicked lightly by reversing most the changes.”
“Market reaction has been initially positive with sterling higher and calm in the gilt market but the political ramifications are huge and might induce further instability – Truss cannot survive this. Hunt is now in charge of the ship. “
Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown said: “The Prime Minister’s authority is now so diminished that even her centrepiece strategy to alleviate the cost-of-living crisis is being sharply curtailed with the freezing of household energy bills coming to an end in April.”
“A bonfire of her tax plans is ablaze with only the reversal of the National Insurance rise and the stamp duty cut surviving the flames.”
“These measures will help make up a £32 billion pound black hole in the government’s finances.”
“A new fiscal broom is sweeping away the mess of the old mini budget into but it’s also looks increasingly likely that it will also eventually wipe out the brief Prime Ministerial career of Liz Truss” she said.
12.25pm: Markets take Hunt's statement well
The financial markets have taken the chancellor's statement well with the pound extending its gains and bond yields dropping further.
Equities also moved higher as investors took encouragement from the statement with the FTSE 100 up 57 points and the broader 250 surging 270 points to 17,314.
The pound is trading 1% higher at $1.133..
11.57am: Markets react to another u-turn
“The markets are responding positively to the new Chancellor’s plans to reverse almost all of the tax cuts announced by his predecessor Kwasi Kwarteng in the mini budget on 23rd September," said Victoria Scholar, head of investment at interactive investor.
"Jeremy Hunt’s focus on reassuring the markets and reinstating confidence appears to have worked so far with gilt yields trading lower and sterling pushing higher. The FTSE 100 is staging gains with utilities and housebuilders, the most budget-sensitive sectors outperforming as Trussonomics is unwound with the reversal of the biggest tax cuts in 50 years."
"Although we heard about Hunt’s tax plans, spending question marks remain until the medium-term fiscal plan is announced on 31st October when the Chancellor will outline how he plans to cut government spending in order to plug the multi-billion pound budget shortfall, raising concerns about the prospect of a new era of austerity."
"The retreat in gilt yields and sterling’s appreciation should help to settle the mortgage market and offset some of the UK’s imported inflationary pressures, possibly requiring less aggressive interest rate increases from the Bank of England at its next monetary policy committee meeting at the start of November.”
11.52am: Credit Suisse settles legal case
Credit Suisse must have very deep pockets with the number of legal cases and fines they have been paying.
The investment bank has just shelled out US$495mln to settle a case related to mortgage-linked investments in the US.
The Swiss lender has been paying billions since the 2008 financial crash to resolve legal cases linked to its residential mortgage-backed securities (RMBS) business.
It is an issue which has followed the bank for nearly 15 years as it attempts to recover from a series of blunders that have damaged its reputation, including losing US$5bn from the collapse of investment firm Archegos last year.
11.16am: Mini-budget u-turn
New Chancellor Jeremy Hunt said he is reversing "almost all" of the tax cuts and measures announced in his predecessor's mini-budget announced last month.
The 1p cut to income tax will be delayed until the UK's financials improve, and the energy price guarantee will be universal until April, not for two years as originally planned, although he added the scheme will be more targetted from that point.
11.02am: Vacant jobs in the City
The number of vacant financial jobs in the City fell by 31% last month, that’s at least according to specialist financial services hiring firm Morgan McKinley.
Figures show the number of vacant jobs fell to 7,907.
The fall in vacancies comes at a time when unemployed people looking for a job in finance jumped to 27,097, the highest level in five years.
Hakan Enver, a managing director at Morgan McKinley, said: “It’s been over a year since the economy fully reopened. We saw a sustained period of recruitment activity for most of that time, but now it seems hiring in the city's financial services sector has slowed down a little.”
Firms are looking to cut back and trim some excess fat after what has been a tough year, according to analysts with familiarity on the matter.
A report from the Financial Times last month states this process has already started, with Goldman Sachs (NYSE:GS) looking to cut up to 5% of its global workforce after revenues fell 38% year-on-year.
9.50am: Government buys itself time as bond yields fall
The positve reaction in the bond market so far today has bought the Government some time according to Russ Mould, investment director, at AJ Bell.
“The sigh of relief in Downing Street this morning would likely have been audible halfway down Horse Guards Parade as investors reacted positively to new chancellor Jeremy Hunt’s rescue mission” he said.
“Gilt yields have fallen sharply, the pound is higher and unless Hunt stuffs up his early trailer of new fiscal measures, it seems the government has bought itself some breathing room with the financial markets. This is particularly reassuring given the Bank of England has, officially at least, concluded its intervention in the gilt market" he added.
The depth of issues in the bond market was highlighted by Sky's Ed Conway this morning who said "I’m told UK regulators have identified one LDI fund at an asset manager which would face a series of “knockouts” and potential collapse if gilt yields had risen markedly this morning."
"They believe the rest of the system is safe" he added noting this could further explain the statement from the Treasury this morning.
BREAKING
I’m told UK regulators have identified one LDI fund at an asset manager which would face a series of “knockouts” & potential collapse if gilt yields had risen markedly this morning.
They believe the rest of the system is safe.
Important background to HMT statement today.
— Ed Conway (@EdConwaySky) October 17, 2022
9.25am: Bank of England confirms end to emergency bond market programme
The Bank of England (BoE) has confirmed that it ended its temporary and targeted purchases of long-dated UK government bonds on Friday afternoon.
In a statement the BoE said that the programme helped pension funds which had used liability-driven investment (LDI) strategies (who came under stress when UK bond prices tumbled last month).
The BoE said: “At the outset of the intervention, the Bank said that it would carry out temporary purchases on whatever scale was necessary to restore orderly market conditions.”
“The purpose of the operations was to provide time for LDI funds to address risks to their resilience from volatility in the gilt market, not to provide a permanent backstop.”
“As previously announced, the Bank terminated these operations and ceased all bond purchases on Friday 14 October. As intended, these operations have enabled a significant increase in the resilience of the sector.”
The BoE also confirmed that liquidity is still available to banks through its new “Temporary Expanded Collateral Repo Facility.”
TECRF was created last week to help banks ease liquidity pressures facing their client funds caught up in the recent market turmoil which threatened pension funds.
9.00am: Bond markets reacts positively
So far so good as the markets react to news that the new chancellor, Jeremy Hunt, is to announce further changes to last month’s mini- budget which is expected to be all but scrapped.
Equity markets were slightly higher with the FTSE 100 up 13 points at 6,872 and the FTSE 250 up 49 points at 17,082.
Reaction in the bond market was more positive with gilt yields falling –2-year bonds yielding 3.68%, down 3.9%, with falls in longer-dated bond yields as well.
????PHEW????
30 year gilt yields drop sharply this morning.
Will be an enormous relief in Downing st. More on @skynews soon pic.twitter.com/5Wvzvrw1u4
— Ed Conway (@EdConwaySky) October 17, 2022
Victoria Scholar, head of investment at interactive investor, said: “UK gilt yields are trading mostly lower as bond prices push higher, suggesting that the sacking of Kwasi Kwarteng and the appointment of Jeremy Hunt have helped to stabilise the market to some extent, reinstating some confidence in the UK government borrowing market.”
Sterling also rose against the US dollar, up 0.75%, to $1.1262.
Housebuilders were broadly higher on hopes that interest rates would not rise as high as feared, Taylor Wimpey PLC (LSE:TW.) rose 1.3% and Persimmon PLC (LSE:PSN) by 1.1%.
BAE Systems PLC (LSE:BA.) fell back, down 1.34%, on concerns that the proposed increase in defence spending could be one of the casualties of the chancellor’s spending review.
ASOS PLC (LSE:ASC) slumped 7.75% following reports that Allianz Trade had reduced its insurance cover for the group’s suppliers by more than half which could force Asos to pay for products up-front, tightening the squeeze on the company's cashflow.
The company responded today by confirming that it was in the final stages of agreeing an amendment to its revolving credit facility.
“This action will give ASOS significantly increased financial flexibility, against the uncertain economic backdrop. ASOS retains a strong liquidity position and this is a prudent step in the current environment,” the company said.
8.15am: FTSE 100 higher, pound rises and gilt yields fall
FTSE 100 opened higher on Monday, sterling rose and gilt yields fell as markets gave a positive initial reaction to moves by the UK government to reassure investors that its revised fiscal plans add up.
By 8.10 the lead index was trading 17 points higher, at 6,876, while the broader FTSE 250 was up 53 points at 17,086.Sterling was 0.85% against the US dollar at $1.127, while yields on 10-year gilts fell 15 basis points as trading started.
30 year borrowing yields tumbling… pic.twitter.com/m86TNhMnaC
— Faisal Islam (@faisalislam) October 17, 2022
The new chancellor, Jeremy Hunt, is set to announce further changes to the mini-budget today including a deferral to the 1p cut in the basic rate of income tax.
A statement is expected this morning followed by an update to the House of Commons this afternoon.
This follows a three-hour meeting between the prime minister, Liz Truss, and Hunt yesterday according to the BBC.
In corporate news shares in Vodafone PLC edged 0.65% higher to 100.25p as it announced it will team up with French telecommunications company - and BT shareholder - Altice for a fibre-to-the-home venture in Germany.
The six-year pact will deploy the broadband to 7mln homes.
The venture - dubbed FibreCo - will be jointly owned by the duo and its creation will be completed in the first half of 2023.
7.53am: Sterling gains on US dollar while Japanese yen approaches intervention zone
“As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August,” Bank of England governor Andrew Bailey said over the weekend, referring to the next interest rate decision due November 3.
Combine Bailey’s comments with confidence among traders in Asia trading hours, and we’ve seen a nearly 1% gain on the GBP/USD pair to US$1.13.
Sterling is up 0.92% against the Japanese yen, 0.74% against the euro, 0.6% against the Canadian dollar, and 0.67% against the Swiss franc.
Sterling’s ongoing strength will no doubt rest on Wednesday’s UK inflaton data, and concrete proof that chancellor Jeremy Hunt intends to fully reverse former chancellor Kwasi Kwarteng’s maligned mini-budget.
GBP/USD makes a move on BoE’s hawkish comments – Source: capital.com
The EUR/USD pair is struggling to capitalise on broader US weakness; while up 0.2%, the pair faces a challenge in moving above the resistance formed at US$0.98.
Things continue to look grim for the yen, which is trading hands at 148.71 as onlookers weigh up the possibility of another Bank of Japan intervention to resuscitated the G10’s sets problem child.
Surpassing the 149 barrier could be the last straw for the BoJ, making an intervention more than likely.
7.45am: Goldman Sachs (NYSE:GS) lowers UK growth outlook
The UK is likely to enter a deeper recession than previously expected next year, while interest rates and inflation will be lower than forecast, according to revised analysis from Goldman Sachs (NYSE:GS).
The US investment bank downgraded its outlook for Britain, in analysis released on Sunday, forecasting the UK economy would shrink by 1% next year, down from its previous estimate for a 0.4% contraction.
Its report said: “Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession.”
Analysts said that Truss backtracking on her corporation tax plans could help to ease pressure on the Bank of England for a tougher rise in interest rates. Goldman Sachs (NYSE:GS),
Goldman analysts believe UK interest rates will now peak at 4.75%, slighter lower than the 5% previously factored in.
7.30am: New chancellor, Jeremy Hunt moves to reassure markets
The new chancellor, Jeremy Hunt, will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability, a statement from the Treasury said.
He will also make a statement in the House of Commons this afternoon, and the Treasury said this follows.further conversations between the prime minister and the chancellor over the weekend, to ensure sustainable public finances underpin economic growth.
The statement also said the chancellor met with the governor of the Bank of England and the head of the Debt Management Office last night to brief them on these plans.
Reports suggest the 1p cut to the basic rate will be deferred until 2024
Mel Stride, the conservative MP who chairs parliament’s Treasury Committee tweeted this is a “strong start by Jeremy Hunt as chancellor.” “Gets what needs to be done and is acting fast."
"Surprising markets positively on the upside with an early statement to House of Commons today is a wise move. Message is ‘we get what needs to be done and it’s being sorted’.”
Michael Hewson, chief market analyst at CMC Markets, said: “Not only will any new budget need to pass the smell test for everyone, global institutions as well as financial markets, but the wider question is whether the current government can even survive the next few days.”
“A lot of that will depend on the internal wranglings within the Conservative party, which is a luxury the country can ill-afford.”
Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown said: “Jeremy Hunt has the air of a troubleshooting teacher brought in to turn around a failing school and faces his first big presentation test today with an emergency budget plan wheeled out to try and calm financial markets.”
7.00am: FTSE seen lower, Hunt to address House of Commons
FTSE 100 expected to open slightly lower today with attention likely to focus on further changes to the mini-budget with the new chancellor, Jeremy Hunt, expected to address the House of Commons later today.
A statement is expected later today in another move aimed at reassuring markets with further U-turns expected.
The Chancellor @Jeremy_Hunt will make a statement this morning, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.
A statement to @HouseofCommons will follow this afternoon.
Read more: https://t.co/iA4DkquxaP pic.twitter.com/d29N5vaxrC
— HM Treasury (@hmtreasury) October 17, 2022
Spread betting companies are calling the lead index down by around 5 points.
The pound was slightly higher in Asian trading and all eyes will be on the gilts market when it reopens this morning.
A delay to the reduction in cutting the basic rate of income tax to 19p is expected to be one of the measures to be announced by the chancellor..
The news came as prime minister, Liz Truss, faces calls for her to step down. Three MPs have publicly called for Truss to go.