China has reported an unexpected contraction in manufacturing activity as major cities continue to be impacted by Covid restrictions. This morning’s PMI reading of 49.2 compares with the previous month’s 50.1 and with expectations for 50, which is the barrier between growth and contraction.
The market cost for a unit of energy, called a therm, was down by over 7% for the day on Halloween at around £3.14. At the end of September, it was at almost £5, leaving it down over 36% for October, a time when gas prices often rise as the autumn nights draw in.
Elon Musk is set to fire around 25% of the Twitter workforce as the billionaire tightens his grip on the finances of his newly-owned company. The Tesla boss worked through the weekend with his lawyer Alex Spiro on plans to sack 7,000 staff at the social media giant, according to reports by the Washington Post.
FTSE 100 Live Monday
Elon Musk to fire 7,000 Twitter staff - reports
China’s economy continues to slow
Windfall tax speculation impacts banking and oil stocks
City Comment: Don’t believe everything the big banks tell you about themselves
Monday 31 October 2022 19:08 , Simon Hunt
The big banks have been displaying their financial muscle. They are making profits and, more to the point in these febrile days, are “beating analysts’ expectations” for the key numbers. On Tuesday HSBC led the way, posting pre-tax three-monthly profits of £5.8 billion against analysts’ guesses of £5.3 billion, and up from £4.8 billion this time last year.
Nevertheless, the shares took a dive. The immediate cause was the worsening prospects in China, now that all pretence of a market-driven economy has gone, following Xi Jinping’s elevation to absolute power for as long as he likes. This was sheer bad luck for the bank’s spinners, but in truth, getting a grip on what’s inside the bank is as hard as trying to analyse the six-man Politburo Standing Committee under Xi.
HSBC investors were offered a 46-page announcement, 33 pages of analysts’ presentations and a bumper 107-page PDF data pack. Surely, everything you could ever wish to know is in there somewhere?
Well, maybe. Or maybe not.
Bankers are (well) paid to dream up clever ways to make money, and occasionally one of their schemes breaks cover, as we saw earlier this month with the derivatives bought by pension funds. It is still far from clear where the risk lies here, and there are hundreds of schemes, often tailor-made for a specific problem, which work fine as long as they do. In essence, the weird and wonderful instruments the bankers dream up are ways of turning a (possible) small gain into a bigger one. It works through the magic of gearing, familiar to any home-owner with a mortgage.
FTSE 100 stays positive as takeover speculation helps make up for declining house builders
Monday 31 October 2022 16:44 , Michael Hunter
A rally for travel stocks sparked by bid speculation helped keep the FTSE 100 positive on Monday, making up for declines among housebuilders ahead of the Bank of England’s rate call on Thursday,, the first since the market turmoil of the now-demolished “mini-Budget”.
Overall, London’s main stock index was up 56 points in late trade, a rise of 0.8%. EasyJet was the biggest single gainer on speculation that it could become the centre of bid activity in the sector, linked with potential interest from International Consolidated Airlines, or IAG, the parent of British Airways and Iberia of Spain according to press reports.
EasyJet was up 26p to 355p, a rise of 8%, with IAG up 6% to 212p, a gain of 6%.
With the BoE widely expected to lift base rates by at least 0.75% and possibly by a full 1%, housebuilders moved to the bottom of the market. Taylor Wimpey fell by over 1% to 94p. a drop of 1%. London-focused developer Berkeley also lost 1%, or 39p to 3482p.
The pound stays on course for an October rally of 3% trading around $1.15
Monday 31 October 2022 15:15 , Michael Hunter
Sterling has had a busy month, tracking the twists and turns of the UK’s fraught national politics, and heading for an overall rally in October of around 3% against the dollar.
The month played host to much of the market turmoil which followed the so-called “mini-Budget” delivered in the last week of September by short-lived Chancellor Kwasi Kwarteng. His package of unfunded tax cuts, the biggest in a generation, collapsed after they undermined market faith in the government and up-ended the international investment case for UK assets. Weeks later, Liz Truss followed him out of Downing Street and became the shortest-serving British prime minister in history.
Rishi Sunak’s arrival in Number 10 helped steady sentiment toward the currency, which is on course to finish October around the $1.15 mark, off its lows under $1.10 which came significantly before the new chancellor, Jeremy Hunt, demolished almost all of the measures in the mini-Budget.
Sterling is down by about 1% for Monday, as traders across global markets look ahead to the start of a two-day monetary meeting at the Federal Reserve on Tuesday, at which an interest rate hike of 0.75% is expected. The dollar has risen sharply this year, with the US central bank seen as having more leeway for rate rises amid a stronger showing the country’s economy. The dollar index, which tracks the greenback against a series of other currencies, is up almost 18% for the year. The pound is down 15% for the same period against the dollar, while the euro has fallen 13% agains the US currency in the same period.
New York stocks slip at the end of a strong month with Fed back in focus
Monday 31 October 2022 14:07 , Michael Hunter
Wall Street’s S&P 500 slipped back in opening trade, cooling from a strong run over October, when third-quarter earnings news set th much of the pace for trade.
The broad New York stock index, which is up by about 8% for the month, slipped 0.8% to 3869.23, with caution kicking in ahead of the Federal Reserve’s next two-day rate-setting meeting, which is expected to end with a 0.75% hike on Wednesday.
Closely watched jobs data for October, due on Friday, added to the conservative feel to trade after the wider run higher, which left the market on course to end its streak of monthly declines.
Wholesale gas prices add to falls on Halloween, easing cost of living scare
Monday 31 October 2022 13:57 , Simon Hunt
There were hopes that the scare over high gas prices could be easing with households about to flip their calendars over after an unseasonably warm October.
Wholesale natural gas prices were on course for a fall of over a third for the month, helping ease fears about the impact of energy prices on the cost-of-living crisis. The market cost for a unit of energy, called a therm, was down by over 7% for the day on Halloween at around £3.14.
At the end of September, it was at almost £5, leaving it down over 36% for October, a time when gas prices often rise as the autumn nights draw in. Prices peaked at over £8.75 in August, on concern about the impact of Russian supply cuts to European gas supplies.
Sir James Dyson’s libel claim against Channel 4 dismissed by judge
Monday 31 October 2022 13:23 , Simon Hunt
Sir James Dyson’s libel claim against Channel 4 has been dismissed, after a High Court judge ruled a broadcast that alleged the exploitation of workers at a factory which used to supply goods to his firm did not defame him.
The billionaire sued the broadcaster and Independent Television News (ITN) over a broadcast of Channel 4’s news programme on February 10.
At a hearing earlier this month, the court was told the programme reported on legal action brought against the vacuum cleaning giant by several workers at a Malaysian factory which previously supplied products to Dyson.
Northumberland battery firm Britishvolt considers administration
Monday 31 October 2022 12:28 , Simon Hunt
Troubled UK battery start-up Britishvolt is preparing to potentially fall into administration with almost 300 jobs at risk.
The company has been developing a £3.8 billion gigafactory in Blyth, Northumberland, which it had hoped would employ up to 3,000 workers.
However, the group has been in emergency fundraising talks in recent weeks.
Revolut customers given cashback in Dogecoin with launch of new crypto card
Monday 31 October 2022 12:08 , Simon Hunt
Revolut’s Pay with Crypto feature offers customers a 1% cashback in crypto for purchases paid with any of the close to 100 supported tokens, including Dogecoin, Bitcoin and Ethereum. The cashback is paid out in the same currency that the spend is in – so if the spend is in Dogecoin the 1% cashback is also paid out in Dogecoin.
The new feature can be activated on any existing card, allowing customers to switch between the currencies they spend from, including digital currencies.
Royal Mail tops FTSE 250 as major shareholder cleared to build stake and November strikes are cancelled
Monday 31 October 2022 11:47 , Michael Hunter
The parent company of Royal Mail made the biggest single gain on the FTSE 250 today after the government cleared the way for its biggest single shareholder to buy more of the company and strikes due in November were called off.
Shares in International Distributions Services rose 14p or over 7% to 208p. The gain came after The Department for Business, Energy and Industrial Strategy said Vesa Equity, which already owns 22% of the company, could build its stake. It announced a review of Vesa’s owndership national security grounds due to its links with Russia via the Czech billionaire who controls in. Daniel KÅetínský, who is also an investor in West Ham, and has a range of investments in media and retail.
One KÅetínský business, EP Infrastructure, owns almost half of Eustream, which is one of the biggest importers of Russian gas into Europe via a pipeline into Slovakia. Vesa is also owned by Patrik TkáÄ, a Slovakian billionaire with a background in banking. It is also a shareholder in Holland’s Dutch PostNL.
International Distributions Services’ stock is down over 50% this year. The company previously reported an operating loss of £219 million for the first half of the year, with an expected full-year loss of £350 million.
City Comment: Key rate rise coming on Thursday
Monday 31 October 2022 10:09 , Simon English
Are political considerations leaking into Bank of England interest rate calls?
Well, we might have a clearer idea of that on Thursday, when the Bank makes one of the most closely watched monetary policy decisions in ages.
There’s no question rates will go up from 2.25%, but by how much?
City folk are asking each other this: are you a half, three-quarter, or full pointer?
If the Bank limits itself to a half-point raise, that seems to indicate confidence in the (latest) new government.
It suggests the members of the Monetary Policy Committee think inflation is being tamed, that Rishi Sunak and Jeremy Hunt are steady hands on the till after the chaos of Truss and Kwarteng.
If they go for a full point raise, as it might have had to do under the previous management, that suggests they are no more confident about the new brooms than they were about the last lot.
The Bank is, of course, fiercely independent of all political considerations. Of course.
Except Governor Andrew Bailey can be fired on the PM’s whim and there’s a wider context just now.
The FT reports that Sunak is “on a collision course” with City regulators over his desire for a new “intervention power” that would enable ministers to overrule the watchdogs.
The Bank thinks this is a dangerous plan that will weaken confidence in the City. The Treasury says “matters of significant public interest” could supersede that issue.
What this would mean in practice is not really clear, beyond the notion that Sunak, like Truss, wants growth and doesn’t think his desire for it should be blocked by the pencil sharpeners.
Bailey wouldn’t be human if he didn’t ponder, at least in passing, what sort of rate rise the new PM wants on Thursday.
Banks gain ground but oil stocks under pressure
Monday 31 October 2022 09:52 , Graeme Evans
Windfall tax speculation as the government mulls how to fill a £40 billion hole in the public finances pushed banks and energy stocks in different directions today.
NatWest and Lloyds rose on reports that they won’t be targeted for additional taxes, whereas North Sea explorer Harbour Energy fell on fears that a levy on energy sector profits could be extended to 2028.
More signs of slowing momentum in China’s economy added to pressure as Shell lost 44p to 2374.5p and BP dropped 2.95p to 470p ahead of its third quarter results tomorrow.
The weaker-than-expected readings from the manufacturing and service sectors reflected the continued impact of China’s ongoing zero-Covid policy.
The FTSE 100 index slipped 10.33 points to 7037.34, with Harbour Energy off 3.2p at 370.8p and housebuilders including Barratt Developments 1% lower as attention turns to the demand impact of Thursday’s expected 0.75% rise in interest rates.
Glencore shares were a penny cheaper at 495.3p after the Financial Times reported that Tesla held discussions earlier this year about taking a stake of up to 20% in the FTSE 100-listed supplier of cobalt and other key raw materials for batteries.
On the risers board, British Gas owner Centrica improved 2.7p to 75.9p after US bank Jefferies raised its recommendation to “buy” with a 90p target. The rise, which came despite speculation of a windfall tax on generators, was accompanied by rises of 0.6p to 41.9p for Lloyds and 6.9p to 231.8p for NatWest after Friday’s big post-results fall.
The FTSE 250 index dropped 73.89 points to 17,842.78, but heightened speculation that British Airways owner IAG could lead consolidation of the European airline industry sent easyJet shares up 20p to 348.5p and Wizz Air by 63p to 1674p.
Musk to fire 7,000 Twitter employees: reports
Monday 31 October 2022 09:31 , Simon Hunt
Elon Musk is set to fire around 25% of the Twitter workforce as the billionaire tightens his grip on the finances of his newly-owned company.
The Tesla boss worked through the weekend with his lawyer Alex Spiro on plans to sack 7,000 staff at the social media giant, according to reports by the Washington Post.
It comes after Musk denied reports he plans to fire Twitter workers to avoid having to make hefty payouts to them.
The reports, which first appeared in the New York Times, suggested the billionaire wanted to fire Twitter employees before the beginning of November, when grants of share options were set to be awarded to them.
Musk commented “this is false” in response to a journalist who had discussed the report.
Banking stocks rally but FTSE 100 flat, easyJet up 4%
Monday 31 October 2022 08:39 , Graeme Evans
A flat performance by the FTSE 100 index today masked some big moves in the energy and banking sectors as windfall tax speculation continues to swirl.
NatWest put back some of Friday’s post-results losses by rising 7.8p to 232.7p and Lloyds Banking Group lifted 0.9p to 42.1p on reports that the government is not planning to target the sector for extra taxes.
However, North Sea explorer Harbour Energy fell 5.7p to 368.3p on fears that a levy on energy profits could be extended to 2028. China’s latest disappointing economic figures added to pressure as Shell lost 44p to 2374.5p and BP dropped 2.95p to 470p ahead of its third quarter results tomorrow.
Electricity generators are also thought to be in the government’s windfall tax sights, but a “buy” recommendation from US bank Jefferies meant shares in British Gas owner Centrica still lifted 3.5p to 76.7p.
The FTSE 100 index slipped 5.20 points to 7042.47 and the FTSE 250 index edged up 19.50 points to 17,936.17, with easyJet and Wizz Air up 4% on speculation that IAG could lead consolidation of the European airline industry.
Blockchain firm Valereum buys Gibraltar Stock Exchange
Monday 31 October 2022 08:06 , Simon Hunt
Blockchain firm Valereum has acquired the Gibraltar Stock Exchange for an undisclosed fee in a bid to turn the exchange into a hub to finance smaller businesses in Africa and the Middle East.
In August the business said it was selling off parts of its bitcoin mining business to cover the costs of acquisition. It also has plans to link securities with NFTs.
Valereum said in a statement: “The future focus of the GSX will be to expand the access to European capital for early stage and small-cap companies in the Middle East, India and Africa where there is a huge opportunity to empower entrepreneurs across the region.”
UK interest rates set for 33-year high
Monday 31 October 2022 08:03 , Graeme Evans
Interest rates are set to hit a 33-year high this week, with the Bank of England seen hiking its base rate on Thursday by 0.75% to 3% in the ongoing battle to control inflation.
Financial markets expect that interest rates will reach around 5% next year before falling back due to factors such as the impact of the recession, lower commodity prices and the easing of supply chain pressures.
Hargreaves Lansdown analyst Susannah Streeter said: “The Bank wants to wave red flags now to throw cold water on expectations that there will be hotter prices to come and drown out demands for higher wages, which could lead to a more embedded price spiral.
“Dampening down demand now by raising rates and making borrowing more expensive is set to cause further financial pain for companies and consumers, but central banks clearly think it is the price to pay to reduce the risk of a prolonged period of stagflation.’’
China’s Covid impact shown in manufacturing downturn
Monday 31 October 2022 07:54 , Graeme Evans
China’s economy has reported a further loss of momentum after the country’s manufacturing PMI reading fell to a weaker-than-expected 49.2 from the previous month’s 50.1. A figure above 50 represents growth.
The index for the services sector fell from 48.9 to 47, reflecting the impact of ongoing Covid restrictions on in-person activity.
Capital Economics thinks China’s economy will continue to struggle heading into 2023.
The consultancy said: “We don’t expect the zero-Covid policy to be abandoned until 2024, which means virus disruptions will keep in-person services activity subdued.
“In addition, the deepening global downturn will continue to weigh on exporters. And officials are still struggling to put a floor underneath the property market.”
Rates hopes lift Dow Jones, FTSE 100 seen higher
Monday 31 October 2022 07:27 , Graeme Evans
A fourth successive 0.75% interest rate rise by the US Federal Reserve is seen as a near certainty on Wednesday, with clues on the subsequent path of hikes the key focus.
Deutsche Bank’s economists believe that 0.75% is also likely in December, but note that two payroll reports and two sets of inflation figures are due before the meeting.
They believe January could mark the start of a downshift, whilst still seeing upside risks to their terminal rate expectation of 5% given the recent inflation data.
Hopes of a slowing in the pace of rises have helped to lift Wall Street markets, with the Dow Jones Industrial Average the biggest beneficiary.
It has risen 14.4% so far during its best monthly performance since 1976, aided by the resilience of earnings updates outside the technology sector. The S&P 500 is up 9% and the Nasdaq Composite ahead by 5%.
The FTSE 100 index has experienced a mixed month but is expected to open eight points higher at 7055, according to CMC Markets.