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ADVFN Morning London Market Report: Thursday 29 September 2022

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London open: FTSE slumps and pound slides; Next cuts guidance

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London stocks slumped and sterling was under pressure again on Thursday as investors continued to fret about the implications of last week’s so-called mini-budget, with a guidance downgrade from retailer Next adding to the downbeat mood.

At 0835 BST, the FTSE 100 was 1.3% lower at 6,913.08, while sterling was down 0.9% against the dollar at 1.0788.

On Wednesday, markets ended a little firmer as the Bank of England stepped in to stabilise the gilt market after the recent selloff. The BoE expects to spend £65bn on bond-buying overall in a bid to avoid a meltdown in the pensions sector, with £5bn of buying a day until 14 October.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said intervention by the BoE “hasn’t moved the dial that much in terms of the UK’s economic outlook”.

“It did help calm Wall Street and traders in Asia, with worries about contagion easing. However, the FTSE 100 has opened lower, with investors still highly concerned about the knock-on effects of the government’s deep tax cutting policy,” she said.

“Government borrowing costs are still more than double what they were two months ago and the pound is languishing at 37-year lows, keeping the inflationary pressure up as more expensive imports will be passed onto consumers. The markets are pricing in that interest rates could hit 5.75% by next year, a hugely painful shift for homeowners.”

Streeter said “the clock is ticking” for the Truss administration to come up with full costings of its plan, which has caused such uproar in the financial markets.

Investors were also mulling the latest research from Zoopla, which showed that home buyers could see their buying power slashed by more than a quarter as the cost of borrowing continues to mount.

According to the latest Zoopla house price index, house price growth remained stable at 8.2% year-on-year in September, despite the rising cost of living.

But the property portal warned that higher mortgage rates were likely to reduce buying power going forward. Its analysis showed that if mortgage rates rise as expected from 2% to 5%, household buying power will be slashed by up to 28%, assuming they want to keep monthly repayments unchanged.

Zoopla said: “This will impact housing demand into 2023 unless buyers put down larger deposits, allocate more income to mortgage costs or adjust their budgets, buying smaller property or looking to cheaper areas.

“We anticipate that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the south ease, as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic.”

In equity markets, Next slid after the retailer cut its sales and profits forecast on the back of the weakening economic outlook, including the recent turmoil in currency markets.

Next now expects full-price second-half sales to be down 1.5% on the previous year, compared to earlier guidance for growth of 1%, while full-year profits forecasts have been trimmed to £840m from £860m.

Synthomer tanked as it warned on profits, highlighting deteriorating macroeconomic conditions since August and reduced demand due to de-stocking.

The group, which supplies aqueous polymers, now expects full-year earnings before interest, taxes, depreciation and amortisation to be 10% to 15% below its previous expectations.

Elsewhere, Barratt DevelopmentsBritish American TobaccoHaysRightmoveGames Workshop and Computacenter all fell as they traded without entitlement to the dividend.

 

Top 10 FTSE 100 Risers

# Name Change Pct Change Cur Price
1 Bae Systems Plc +1.41% +11.40 820.20
2 Direct Line Insurance Group Plc +1.29% +2.30 180.00
3 Admiral Group Plc +1.27% +24.50 1,951.00
4 Unilever Plc +0.76% +31.00 4,096.00
5 Glencore Plc +0.59% +2.85 483.60
6 Rolls-royce Holdings Plc +0.22% +0.15 66.85
7 Shell Plc +0.13% +3.00 2,264.00
8 Morrison (wm) Supermarkets Plc +0.00% +0.00 286.40
9 Evraz Plc +0.00% +0.00 82.68
10 Rsa Insurance Group Ld +0.00% +0.00 684.20

 

Top 10 FTSE 100 Fallers

# Name Change Pct Change Cur Price
1 Barratt Developments Plc -11.95% -44.30 326.40
2 Next Plc -8.90% -474.00 4,850.00
3 Ocado Group Plc -7.16% -37.40 485.00
4 Taylor Wimpey Plc -5.83% -5.30 85.66
5 Rightmove Plc -5.06% -25.60 480.00
6 Sainsbury (j) Plc -4.96% -9.05 173.30
7 Tesco Plc -4.59% -9.70 201.80
8 Persimmon Plc -4.48% -56.00 1,194.00
9 Tui Ag -4.34% -5.60 123.50
10 Smurfit Kappa Group Plc -4.32% -116.00 2,571.00

 

US close: Dow adds more than 500 points in solid session

Wall Street stocks managed to close higher on Wednesday, as major indices searched for direction following fresh bear market lows.

At the close, the Dow Jones Industrial Average was up 1.88% at 29,683.74, as the S&P 500 added 1.97% to 3,719.04 and the Nasdaq Composite was ahead 2.05% at 11,051.64.

The Dow closed 548.75 points higher on Wednesday, going against the losses it recorded in Tuesday’s session.

“The Bank of England’s u-turn – at least for now – on quantitative easing has given embattled buyers a reason to step back into the market,” said IG chief market analyst Chris Beauchamp.

“While it might not be the big QE programmes of old, it seems the bank’s willingness to intervene is being taken as a good sign, especially compared to its inaction earlier in the week.

“After days of selling we are seeing another attempt to move higher, though Apple’s 3% drop following news of its decision to hold rather than expand iPhone production has limited gains for now.”

In focus before markets opened stateside was news that the Bank of England was buying long-dated UK government bonds as part of an effort to stabilise the pound after the currency dropped to a record low against the dollar of $1.03.

Sterling was changing hands at $1.0885 after the closing bell on Wednesday.

On the macro front, US mortgage applications fell 3.7% week-on-week in the seven days ended 23 September after rising 3.8% in the previous week as interest rates continued to increase.

According to the Mortgage Bankers Association, applications to refinance a home loan dropped 10.9% and applications to purchase a home dipped 0.4%.

Elsewhere, an advance reading of August’s goods trade balance showed the goods gap drop for a fifth consecutive month to $87.3bn – the lowest reading seen since October 2021.

According to the Census Bureau, imports fell 1.7% to $267.1bn and exports declined 0.9% to $179.8bn.

Finally, US pending homes fell 24.2% year-on-year in August, the biggest annual decrease since April 2020.

The National Association of Realtors said all four regions had posted double-digit declines.

In the corporate space, shares in consumer tech behemoth Apple fell 1.27% after Bloomberg revealed the company was abandoning plans to hike new iPhone production, as demand for the flagship handset failed to meet expectations.

On the upside, pharmaceuticals firm Biogen rocketed 39.85% after it said its experimental Alzheimer’s drug “significantly slowed” both functional and cognitive and functional decline in the disease’s early stages.

 

Thursday newspaper round-up: Betfred, rail strikes, EDF

The bookmaker Betfred has been fined nearly £2.9m for failings in its social responsibility and money-laundering controls, after accepting tens of thousands of pounds from gamblers without performing adequate safety checks. One customer was allowed to lose £70,000 over a 10-hour period just a day after opening their account, the Gambling Commission said. – Guardian

No trains will run between London and Britain’s biggest cities this Saturday as multiple unions combine strikes, the rail industry has confirmed. Timetables for 1 October have been published, with the overall service cut to just 11% of the normal schedule, when Aslef, RMT and some TSSA and Unite members are walking out for 24 hours in the long-running dispute over pay and conditions. – Guardian

EDF is exploring keeping two of its UK nuclear power stations open for longer than planned amid growing concern over energy shortages. The French state-owned company said it will review its current plans to close Hartlepool and Heysham 1 in March 2024 “with an ambition to generate longer if possible”. – Telegraph

Britain will suffer a “rapid and significant detrimental impact on trade and travel” with Europe if Brussels refuses to soften new border checks due to come in next year, the boss of the Port of Dover has warned. Biometric controls are due to be introduced next May, replacing the “wet stamping” of passports, which was brought in after Britain left the EU. – Telegraph

Britain’s biggest carmaker has revealed the scale of efforts to retrain its workforce to cope with the shift to zero-emission vehicles. Jaguar Land Rover said 10,000 workers in the UK alone, both in its facilities and those employed by dealers selling Jaguars, Range Rovers and Land Rovers, would have to go through retraining programmes. – The Times

 

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