- FTSE 100 down 61 points at 7,438
- Retail sales hit by the warm weather
- Consumer confidence drops in October
13.07pm: Market Movers
A summary of some of today's biggest movers:
Risers
Shares in Harland & Wolff Group Holdings PLC (AIM:HARL) were winched up 10% to 12.4p after the Belfast shipbuilder said it has won a £61 million contract to upgrade the SeaRose floating production storage and offloading (FPSO) vessel.
Fallers
SolarEdgeTechnologies, the renewable energy company, plummeted over 28% in US pre-market trading after it revealed profits and gross margins would be lower than previously expected in the third quarter.
ProCook Group PLC (LSE:PROC) shares tumbled 11% after the company posted a “cautious” outlook for fiscal 2024 due to persistent market challenges.
12:34pm: Middle East conflict adds to challenges faced by Wizz Air
The Israel-Palestine conflict adds a new challenge for Wizz Air Holdings, on top of its uncertainties from the GTF engine problems.
Barclays highlighted data whch showed 11.3% of Wizz Air’s available seat kilometres were deployed on routes to and from Israel, Egypt and Jordan, ahead of easyJet's 10.1% and Ryanair's 3.0%.
The bank expects trading in Wizz's other Middle East markets to face some incremental weakness as a result of the geopolitical instability.
However, recalling how relatively sanguine Western European travellers were in the face of the outbreak of the Ukraine conflict, it thinks it is likely any softening of demand elsewhere in the Middle East would be transitory, provided the conflict does not spread.
Nonetheless, the broker has lowered financial 2024 net profit estimates by 7% anticipating weakness on mid-east flying.
It stays ‘underweight,” with a reduced price target of 1,500p, down from 1,800p.
12:09pm: Wall Street set for further falls
The FTSE 100 remains near its lows for the day and it looks like the US will join them in the red this afternoon as bond yields continue to climb and after Federal Reserve chair Jerome Powell kept his options open regard to future interest rate increases.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.3% lower, while those for the S&P 500 were down 0.3%, and contracts for the Nasdaq 100 futures fell 0.3%.
On Thursday, Powell said inflation remains too high and lower economic growth will likely be needed to bring it down.
He said additional evidence of "persistently above-trend growth," or a reversal of the recent decline in job openings and softening of wage growth could cause the Fed to reconsider its current rate pause.
If the US economy develops in this way, it "could put further progress on inflation at risk and could warrant further tightening of monetary policy," he added.
Nonetheless, the CME Fed Watch tool puts the chances of rates remaining unchanged at the November Fed meeting at 92%.
There had been some hope that Powell would echo the words of other Fed officials who said that the rise in bond yields means further interest rate rises were likely unnecessary but he chose to follow a more cautious path.
The 10-year Treasury briefly popped above 5% on Thursday before settling at 4.94%, keeping pressure on equities.
Elsewhere, results from Amex will grab investor’s attention while SLB, the oilfield services provider, formerly known as Schlumberger is also set to unveil figures.
11:42am: Shell axes contractors amid efficiency drive - reports
Shell is cutting hundreds of contractors from its workforce amid a major efficiency drive by the oil giant's new CEO as he targets bigger shareholder returns, according to reports
Scores of contracts have either been cut short or are not being renewed, the Evening Standard said.
The bulk of the contractors who face the axe sit in the firm's IT wing, the report noted.
Shell's boss Wael Sawan has vowed to aggressively target profitability and bigger dividends for shareholders since stepping into the role at the start of the year.
11:29am: Bank of America raises IHG price target
Despite the share price fall, Bank of America was pleased with IHG’s trading update.
The investment bank pointed out IHG benefited from resilient travel demand in the quarter with group revenue per available room (RevPAR) 10.5% year-on-year, ahead of its 9% estimate.
Net system size growth was 4.7% in line with expectations.
BofA has increased its 2023 RevPAR estimate to 16% driving its Ebit estimate 1% higher to $1.02 billion which puts it 3% above consensus.
It expects $500m share buyback per annum resulting in higher EPS 2023-27 compound annual revenue growth of 15%.
The bank has also lifted its price target to 7,500p from 7,200p driven by higher estimates and FX.
BofA rates IHG at ‘buy,’ noting shares trade on 12x EV/Ebitda, which is a 16% discount to its US peers which it thinks is unjustified, given IHG’s high returns, earnings growth and cash return potential.
10:57am: Could soaring IHT returns prompt Tory rethink
HMRC remains on course for another record year for IHT, as receipts continue to soar which could give the Conservative a further headache.
The Tories, already reeling from the loss of two true blue seats, in Tamworth and Mid-Bedfordshire, were reportedly hoping to reform the tax in a bid to shore up flagging voter interest.
But with government finances under pressure, this may no longer be an option for chancellor, Jeremy Hunt.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown noted inheritance tax receipts for April 2023 to September 2023 are £3.9 billion, which is £0.4 billion higher than the same period last year.
She pointed out receipts have been boosted by “a heady mixture of tax thresholds that have been frozen for years which drag an ever-increasing number of families into paying it,” together with a recent increase in interest rates on late payments.
“It’s a complex area that really contributes to IHT’s reputation as the nation’s most hated tax,” she added.
She said cooling house prices might take some families out of the inheritance tax trap, noting soaring house prices in recent years have contributed to many people, often unexpectedly, incurring an IHT bill.
“There’s a chance that as prices come off the boil, properties that pushed estates just over the threshold may now come under it,” she explained.
10:15am: Pound falls after weak retail sales
Sterling is another casualty of the weak retail sales figures out this morning as traders think it reduces the chances of a further interest rate increase.
Resilient consumer spending has to an extent kept the economy in growth territory and a slowdown into the key Christmas period could hit the economic growth.
The pound is down 0.2% at $1.2124.
Nick Rees, FX Market Analyst at Monex Europe said it seems "all but impossible for policymakers to consider raising Bank Rate next month when they meet for the November monetary policy meeting."
"Instead, we continue to expect that the Bank of England will keep rates of hold well into 2024."
"Whilst we don’t think today’s data is indicative of a sharp economic contraction, downside risks to our call for stagnant growth are beginning to mount," Rees added.
9:41am: Better borrowing still leaves little wriggle room for Chancellor
The EY ITEM Club notes while borrowing came in below expectations it does little to improve the fiscal stranglehold facing chancellor Jeremy Hunt.
The economic thinktank said “a better-than-expected fiscal performance in the recent past does little for the Chancellor's room for manoeuvre in next month's Autumn Statement.”
It thinks the Office for Budget Responsibility is likely to downgrade its GDP forecast for the next few years, while government borrowing costs are much higher than the official forecaster had assumed.
“Granted, high inflation is aiding the fiscal position in some respects,” it said, “but the Chancellor may well have to pencil in more medium-term fiscal tightening, however unrealistic, if the Government is to meet its self-imposed rules.”
Martin Beck, chief economic advisor to the EY ITEM Club said “strength in tax receipts continued to be the main driver, but a fall in debt interest payments also helped.”
9:12am: Consumer confidence plunges in October - GfK
UK consumer confidence has plunged in the run-up to the festive season as uncertainties posed by conflict in the Middle East add to accelerating energy, fuel and mortgage costs.
GfK's long-running consumer confidence index fell nine points to minus 30 in October, taking it back to a level last seen in July last year.
Joe Staton, client strategy director at GfK, said: "This sharp fall underlines that the cost-of-living crisis, and simply not having enough money to make ends meet, are still exerting acute pressure for many consumers.
Sharp (9 point) fall in GfK measure of UK #consumer confidence in October hopefully not enough to break the upward trend but is clearly worrying.
Survey was taken in first two weeks of the month, so Middle East fears could be a big part... (1/2)
source: https://t.co/z8DOzBvSIe pic.twitter.com/d534xpwVFi
— Julian Jessop ???????? ???????? (@julianHjessop) October 20, 2023
"The fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market, and now the uncertainties posed by conflict in the Middle East, are all contributing to this growing unease.”
The index's major purchase measure, an indicator of confidence in buying big ticket items, saw the sharpest drop of 14 points, in a significant turnaround from last month's four-point increase which will concern retailers in the run-up to Christmas.
Confidence in personal finances over the next 12 months fell six points to minus eight, although it remains 26 points higher than this time last year, while expectations for the general economic situation over the coming year has fallen by eight points to minus 32 – 29 points higher than last October.
8:44am: FTSE 100 remains under pressure
Stocks continue to underwhelm with the FTSE 100 now down 33 points at 7,467.
Rightmove, up 1.3%, and Rentokil Initial, up 1.1%, rallied slightly after their sharp falls on Thursday while the rising oil price supports BP, up 0.3%, and Shell, up 0.4%.
Brent crude rose above $93/barrel once more and West Texas Intermediate rose 0.7% to $88.98 as concerns that the Middle East conflict could spread to Iran heighten concerns over supply.
IHG is down 2.9% after its solid looking trading update although there may be some disappointment at the lack of a new share buy-back while there was also a slowdown in the number of new rooms added to its portfolio in the quarter.
Airlines continue to be hit by events in the Middle East with British Airways owner, IAG down a further 1.5%, and Wizz Air down 1%.
Barclays has cut its price target for Wizz to 1,500p from 1,800p.
“The Israel-Palestine conflict adds a new challenge for Wizz, on top of its uncertainties from the GTF engine problems,” it said.
8:15am: Retailers drop after weak retail sales, fall in consumer confidence
The FTSE 100 nursed further losses on Friday as weak retail sales and a drop in consumer confidence added to the anxiety caused by the ongoing conflict in the Middle East.
At 8:15am, London's blue-chip index was down 47.47 points, 0.6%, at 7,452.06 while the FTSE 250 fell 127.85 points, 0.7%, at 17,085.29.
Retail sales slumped in September as the warm weather hit clothing sales and the cost of living crisis continued to bite.
Figures from the Office for National Statistics showed retail sales fell by 0.9% in September, following a rise of 0.4% in August, well below City forecasts for a fall of 0.4%.
Adding to the downbeat mood, the closely watched GfK survey showed consumer confidence has plunged in the run-up to the festive season as uncertainties posed by conflict in the Middle East add to accelerating energy, fuel and mortgage costs.
GfK's consumer confidence index fell nine points to minus 30 in October, taking it back to a level last seen in July last year.
Alex Kerr at Capital Economics suggested the retail sector “may already be back in recession.”
“The broad based nature of these falls suggests that the lingering cost of living issues and the intensifying drag on activity from higher interest rates are at play,” Kerr added.
Looking ahead, the Middle East conflict may explain part of the slump in the GfK measure of consumer confidence from -21 in September to -30 in October as inflation fears rise.
“But as this is the largest monthly fall since December 1994 excluding the pandemic, we suspect the lagged effect of the Bank of England’s interest rate hikes may be weighing more heavily on sentiment. This doesn’t bode well for retail sales growth in the run up to Christmas,” Kerr said.
Shares in retailers retreated, Next fell 1.3%, Marks & Spencer fell 1.0% and JD Sports Fashion fell 0.9%.
Intercontinental Hotel Group fell 2.5% despite a upbeat sounding trading update.
Peel Hunt described it as “solid” with a “positive tone on current trading”
“If we were to be buyers, it would be because of the potential for continued cash return.”
7:48am: UK public sector borrowing less than expected
UK public sector borrowing hit £14.3 billion in September, better than the £18.3 billion expected, as the Chancellor prepares for his Autumn Statement next month.
The figure was £1.6 billion less than in September 2022 and still the sixth highest September borrowing since monthly records began in 1993.
The interest payable on central government debt in September was £0.7 billion, £7.2 billion less than in September and the third lowest in any month since monthly records began in 1997, largely reflecting the fall in the Retail Prices Index between June and July 2023 reducing the inflationary impact on index-linked gilts.
Public sector net borrowing, excluding public sector banks, in September 2023 was £14.3 billion - £1.6 billion down on September 2022.
It was the sixth-highest August borrowing since monthly records began in 1993.
➡️ https://t.co/mYLAU1sWxO pic.twitter.com/ZtJBK92iaR
— Office for National Statistics (ONS) (@ONS) October 20, 2023
In the financial year to September the UK government borrowed £81.7 billion, less than the £101.5 billion forecast for the period by the Office for Budget Responsibility, the UK’s fiscal watchdog.
Public sector net debt was estimated at around 97.8% of UK gross domestic product, leaving it hovering near levels last seen in the early 1960s.
7:32am: Retail sales slide hit by warm weather
Retail sales slumped in September as the warm weather hit clothing sales and the cost of living crisis continued to bite.
Figures from the Office for National Statistics showed retail sales fell by 0.9% in September, following a rise of 0.4% in August, well below City forecasts for a fall of 0.4%.
Retail sales fell 0.9% in September 2023, following a rise of 0.4% in August 2023.
When we look more broadly, sales fell 0.8% in the 3 months to September when compared with the previous 3 months.
➡️ https://t.co/35ZUMnaG5Y pic.twitter.com/e62Gy6LXha
— Office for National Statistics (ONS) (@ONS) October 20, 2023
Non-food stores sales volumes fell by 1.9% in September with retailers highlighting continuing cost of living pressures, and the warm weather which hit sales of autumn-wear clothing.
Non-store retailing (predominantly online) sales volumes fell by 2.2% in September, following a fall of 0.9% in August.
Food stores sales volumes rose by 0.2% in September, following a rise of 1.4% in August.
Automotive fuel sales volumes rose by 0.8% in September, rebounding from a fall of 1.0% in August.
For the three months to September, sales volumes fell by 0.8% when compared with the previous three months.
7:24am: IHG reports occupancy nearly back to pre-Covid levels
InterContinental Hotels Group PLC reported travel demand remained strong in the third quarter and said occupancy levels were almost back to pre-Covid levels.
Elie Maalouf, chief executive officer said: “Group-wide occupancy was 72%, just one percentage point behind 2019 which further confirms the near-complete return to pre‑Covid levels of demand.”
“Travel demand remained very healthy during the quarter,” he added, with pricing remaining “very robust”.
The hotel operator said quarter three revenue per available room (RevPAR) rose 10.5% from the year before with Americas up 4.1%, EMEAA up 15.9% and Greater China up 43.2%.
Maalouf said: “Greater China continued its excellent rebound with RevPAR now above 2019, which the Americas achieved in the second quarter of last year and EMEAA in the fourth quarter.”
The firm said average daily rate were 4.1% higher than last year, and 14.8% above 2019 levels with occupancy 4.1% percentage points compared to last year, and 1.3 percentage points lower than 2019.
IHG said the next update on share buybacks would be given alongside full-year results in February.
7:00am: Weak start expected after US falls, Middle East anxiety
The FTSE 100 is expected to open lower amid interest rate concerns and worries over the ongoing conflict in the Middle East.
Spread betting companies are calling London’s lead index down by around 30 points after closing down 88.47 points at 7,499.53 on Thursday.
"Sentiment continues to remain fragile and while the geopolitical noise from the Middle East wasn't as apparent yesterday, it's still very much there and remains a clear and present danger for nervous investors, as concerns rise over third party involvement," said CMC Markets' Michael Hewson.
US markets closed down sharply after Federal Reserve chair Jerome Powell left the door ajar for a further interest rate increase.
Fed Chair Jerome Powell said US inflation is "still too high" despite a recent slowdown.
Additional evidence of "persistently above-trend growth," or a reversal of the recent decline in job openings and softening of wage growth could cause the Fed to reconsider its current rate pause, he told a conference in New York.
Back in London, and the early focus will be retail sales figures, and updates from InterContinental Hotels, Foxtons (LSE:FOXT) and Record.
While the defeat of the Conservatives in two by-elections by Labour will also attract the headlines with a General Election likely next year.
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2023-10-20 09:57:00Z
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