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London open: FTSE gains as sterling slides to all-time low vs dollar
London stocks rose in early trade on Monday, while sterling fell to an all-time low against the greenback amid concerns the swathe of tax cuts announced by chancellor Kwasi Kwarteng last week will do little to boost growth and will instead add to inflation.
At 0830 BST, the FTSE 100 was up 0.5% at 7,056.18, while the pound was down 1.4% against the dollar at 1.0705, having plunged to as low as 1.0327 in Asian trading – levels not since Britain went decimal in 1971.
A weaker pound tends to benefit the top-flight index as around 70% of its constituents derive their earnings from overseas.
Sterling was being battered by concerns that the so-called mini-budget announced on Friday will pile further pressure on an already-heavily indebted economy.
Richard Hunter, head of markets at Interactive Investor, said this “has led to accusations of fiscal indiscipline, and has also resulted in speculation that the Bank of England may have to make an emergency announcement in response”.
“Sterling weakness has provided something of a floor for the FTSE 100, where the majority of earnings come from overseas and are therefore more valuable in repatriation,” he noted.
Investors were also mulling over the latest survey from Rightmove, which showed that house prices continued to push higher in September, despite the cost-of-living crisis and interest rates at 14-year highs.
According to the latest Rightmove House Price Index, the average asking price of a property coming to market was £367,760 in September, up 0.7% on August and 8.7% year-on-year.
The increase was largely in line with the average September rise of 0.6% seen over the last 10 years.
The Bank of England last week upped interest rates for the seventh consecutive time, leaving the cost of borrowing at its highest since 2008. According to Rightmove, the average monthly mortgage payment for first-time buyers putting down a 10% deposit has now reached £1,057 per month, or 40% of an average gross salary, for the first time since November 2012.
Inflation also remains at near-40 year highs at 9.9%.
But Tim Bannister, director of property science at Rightmove, said: “The end of the summer break and the start of the new school term is usually a time when we see renewed focus from buyers, as those with plans to move see an autumn window of opportunity ahead.
“Price growth this month in the middle and high-end sectors highlights that even when finances are more stretched, many of the reason for looking to move up the ladder remain.”
In equity markets, Unilever rallied as the consumer goods giant said chief executive Alan Jope will retire from the company at the end of 2023, after five years in the role.
GSK was also in the black as it named Burberry’s Julie Brown as its new chief financial officer. Brown, who is currently chief operating and financial officer of the luxury fashion brand, will join GSK in April 2023.
On the downside, retailers and housebuilders slumped, with Next, B&M, Marks and Spencer, Persimmon, Berkeley, Taylor Wimpey and Barratt among the worst performers. Housebuilders were likely dented by concerns the Bank of England will have to ramp up interest rates further, increasing the cost of borrowing.
Outside the FTSE 350, Pendragon shares surged 20% after the car dealership got a £400m takeover offer from its largest shareholder, Hedin Group.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Rolls-royce Holdings Plc | +3.34% | +2.40 | 74.28 |
| 2 |  |
Melrose Industries Plc | +3.34% | +3.33 | 103.15 |
| 3 |  |
Ocado Group Plc | +2.82% | +15.60 | 569.00 |
| 4 |  |
Smiths Group Plc | +2.65% | +39.50 | 1,529.50 |
| 5 |  |
Bae Systems Plc | +2.64% | +21.00 | 816.80 |
| 6 |  |
3i Group Plc | +2.34% | +25.50 | 1,113.00 |
| 7 |  |
Ashtead Group Plc | +2.14% | +82.00 | 3,911.00 |
| 8 |  |
Bunzl Plc | +2.06% | +55.00 | 2,729.00 |
| 9 |  |
Spirax-sarco Engineering Plc | +2.03% | +199.00 | 10,005.00 |
| 10 |  |
Fresnillo Plc | +2.00% | +13.80 | 704.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Taylor Wimpey Plc | -4.84% | -4.99 | 98.16 |
| 2 |  |
Persimmon Plc | -4.78% | -64.50 | 1,285.50 |
| 3 |  |
Berkeley Group Holdings (the) Plc | -4.74% | -165.00 | 3,319.00 |
| 4 |  |
Rentokil Initial Plc | -3.68% | -18.40 | 481.40 |
| 5 |  |
Barratt Developments Plc | -3.52% | -14.30 | 391.70 |
| 6 |  |
Next Plc | -2.92% | -160.00 | 5,326.00 |
| 7 |  |
Marks And Spencer Group Plc | -2.67% | -2.85 | 103.70 |
| 8 |  |
Rightmove Plc | -2.62% | -15.00 | 557.00 |
| 9 |  |
Severn Trent Plc | -2.56% | -65.00 | 2,478.00 |
| 10 |  |
Lloyds Banking Group Plc | -2.48% | -1.15 | 45.08 |
US close: Stocks end session sharply lower
Wall Street stocks were firmly in the red at the close on Friday amid concerns that the central bank’s aggressive monetary policy may send the US economy into a recession.
At the close, the Dow Jones Industrial Average was down 1.62% at 29,590.41, while the S&P 500 was 1.72% weaker at 3,693.23 and the Nasdaq Composite saw out the session 1.80% softer at 10,867.93.
The Dow closed 486.21 points lower on Friday, extending losses recorded on Thursday as market participants continued to come to terms with the Federal Reserve’s decision to hike interest rates yet again.
Major indices wrapped up trading on Friday much the same as they ended the previous session, with investors growing fearful of the Fed’s 75 basis points interest rate hike and its prediction that short-term rates will go as high as 4.4% by the end of 2022. Multiple central banks across the globe also followed suit, implementing marked hikes despite potential repercussions for their economies.
On the macro front, a flash reading of S&P Global‘s US manufacturing PMI edged higher to 51.8 in September, up from 51.5 in August to beat market forecasts for a reading of 51.1, but was still the second-lowest reading since July 2020. Elsewhere, the services PMI rose to 49.2 in September from 43.7 a month earlier, easily beating market expectations for a print of 45.0.
Elsewhere, Federal Reserve chairman Jerome Powell warned that the central bank’s attempts to engineer a “soft landing”, in which it will slow growth enough to curb inflation but not so much as to cause a recession, now looks increasingly unlikely.
“The chances of a soft landing,” Powell said, “are likely to diminish” as the Federal Reserve steadily raises borrowing costs to slow the hottest run of inflation in forty years. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.”
No major corporate earnings were released on Friday.
Monday newspaper round-up: Drax, gas prices, NatWest, Ovo
The number of people visiting UK shops this Christmas could remain almost a fifth below pre-pandemic levels as shoppers struggle with the cost of living crisis, according to forecasts. Retail footfall in December is expected to be 18% lower than the same month in 2019, said Springboard, a retail data company. – Guardian
The UK government has been accused of funding environmental racism by giving £2m a day in subsidies to an energy company that has paid out millions over claims it breached pollution limits in the US south. An investigation by Unearthed, Greenpeace’s investigative unit, found Drax Biomass paid millions of dollars to US regulators over claims it exceeded limits on chemicals emissions at wood chip plants close to black and low-income communities. – Guardian
Britain’s energy bills freeze could prove much less costly than feared by early next year, as City forecasters predict that gas prices will plunge this winter following a successful scramble across Europe to fill reserves. A halving in gas prices in the coming months would push average household bills below the £2,500 limit set by the Government’s Energy Price Guarantee, slashing the cost of the intervention, according to estimates by Deutsche Bank. – Telegraph
NatWest has told its male bankers that they can take a full year off when they become a father, as it races to reinvent itself as more family friendly. The bank will next year introduce a policy that allows all new parents to take up to a year off regardless of their gender, of which half will be fully paid. Equal paid parental leave is increasingly common, but NatWest is unusual in offering fathers a full year off. – Telegraph
Ovo has been forced to give assurances that recent government interventions have shored up its finances after newly published accounts included a warning that its future could be in doubt. The owner of Britain’s third biggest household energy supplier, which has 4.5 million customers, said in accounts for 2021 published at the weekend that there was “a material uncertainty that may cast significant doubt on the group’s and company’s ability to continue as a going concern”. – The Times
