The global energy crisis continues to be the main focus for markets after a fresh surge in UK natural gas futures deepened inflation fears and sent the FTSE 100 index down more than 1%.
Natural gas is now at the oil equivalent price of over $200 a barrel, having risen further today amid a global supply shortage.
Supermarket giant Tesco offered some cheer for investors, however, reporting a big jump in half-year profits alongside forecasts for a better-than-expected financial year overall.
FTSE 100 Live Wednesday
FTSE 100 index falls 1%
TUI launches City fundraising
Bond yields spike in response to energy prices
14:50 , Oscar Williams-Grut
Bond yields are rising in response to soaring energy costs as investors bet the sky-high gas prices will ultimately force the Bank of England to raise rates sooner than it would like. The benchmark 10 year gilt yield has now surged past 1.1%, the highest level since the spring of 2019.
Laith Khalaf, head of investment analysis at AJ Bell, says: “Energy price rises are giving markets the jitters, inflation is on the rise and central banks are talking about tightening monetary policy, all of which has led to a sell-off in UK gilts. The yield on the benchmark 10 year gilt has risen from just over 0.5% two months ago, to around 1.1% today. The rise has been pretty sudden, but 1.1% is still historically an incredibly low rate, below the target rate of inflation, which means that investors remain willing to accept a negative real return for the sanctuary of government bonds.
“This may prove to be a false sense of security for gilt investors however, if we really are entering a new era where interest rates are on the up, and QE starts to be unwound. Although the gilt yield has only backed up a bit, some UK bond funds have sustained double digit falls so far this year. While that’s probably not enough to make most equity investors blush, investors choose bonds because they’re seen as safe havens. But twelve years of ultra-loose monetary policy has driven gilt prices so high, they now carry an awful lot of valuation risk, and offer a desultory yield in return.”
What the Federation of Small Businesses has to say on Boris Johnson’s speech
13:37 , Joanna Bourke
The prime minister has delivered his speech at the Conservative party conference.
Chief executives from various trade bodies have shared their initial reactions.
— FSB (@fsb_policy) October 6, 2021
The Federation of Small Businesses’ national chair Mike Cherry has just said: “The vision championed by the Prime Minister today does not match the current lived realities of small businesses and sole traders. For it to be realised, we need ambitious policies aimed at driving growth and reducing tax at the coming Budget. After a conference that’s been light on pro-business policy, it’s time for the party of enterprise to get back on the pitch.”
Lunch time update: FTSE 100 drops 1.5% and bosses react to Boris Johnson’s speech
13:06 , Joanna Bourke
The FTSE 100 was 108.61 points lower, or 1.53% at 6968.49 points at 1pm.
The Evening Standard’s market report said inflation is looming large over European markets today as record-breaking natural gas prices continue their relentless charge higher.
UK day ahead gas futures jumped by another third to reach 355p a therm, adding to the prospect of even higher energy bills and supply chain costs.
Markets are fearful that these inflationary pressures could force central banks into earlier-than-expected hikes in interest rates, including at the Bank of England where the odds of a November rate hike are narrowing.
Elsewhere a number of bosses are reacting to the speech Boris Johnson made at the Conservative party conference.
Richard Burge, chief executive of London Chamber of Commerce and Industry, said: “The Prime Minister is right to say that people shouldn’t feel they have to move or commute to the south east in order to progress a career, but it shouldn’t mean levelling or talking London down, or failing to recognise the role of global mobility.”
Other headlines from this morning include:
-Shares in Tesco have leapt after profits doubled and the nation’s biggest food seller offered reassurance that shelves would remain stocked over Christmas despite the supply chain crisis.
-Amazon has opened a non-food physical store in the UK, selling goods such as pet toys and books.
-Car dealerships Marshall Motor and Lookers have increased profits guidance on the back of an ongoing second-hand vehicle sales boom.
- Topps Tiles gets sales lift from the pandemic DIY boom.
Christmas back on as Tesco promises no turkey shortage
13:02 , Simon English
Is Tesco immune to the supply chain crisis?
If not immune, well vaccinated. In the six months to August, sales rose 3% to £27.3 billion while profits soared by more than 100% to £1.1 billion
Conservative conference: Business leaders react to Boris Johnson’s speech
12:26 , Joanna Bourke
The prime minister has delivered his speech at the Conservative party conference.
Chief executives from various trade bodies will be sharing their initial reactions.
Here is what Tony Danker, CBI director-general, has to say: “The prime minister has set out a compelling vision for our economy. High wages, high skills, high investment and high growth.
“But the PM has only stated his ambition on wages. This needs to be backed up by action on skills, on investment and on productivity.”
Danker added: “Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices.”
‘Astonishing’ rise in natural gas prices continues
12:09 , Oscar Williams-Grut
Day ahead natural gas prices jumped another 78p today to 355p per therm, a rise of almost a third in just a few hours. Jim Reid, a strategist at Deutsche Bank analyst, called the price moves “astonishing”.
UK natural gas prices have been soaring since summer, repeatedly reaching new all-time highs. Gas is already well above the previous record of 120p per therm reached in 2018 when the “Beast from the East” cold front battered the British Isles. Prices have surged nearly 500% so far this year.
Sky-high energy prices are stoking fears about the effect on the economy. Factories have already been forced to shutdown due to costs and consumers are likely to face soaring bills next year when the energy price cap is next reviewed.
“This is a big deal,” said George Saravelos at Deutsche Bank. “The importance of these moves on inflation, growth and external accounts are not to be underestimated.”
Blue Prism hits back at activist
11:32 , Oscar Williams-Grut
Tech firm Blue Prism today hit back at the activist investor making loud noises about its looming private equity takeover.
The company, which makes tech to automate repetitive business tasks, denied claims made by Coast Capital that Blue Prism’s board was biased and was selling the company on the cheap.
Blue Prism last week agreed a £1.1 billion takeover by Texas-based investment firm Vista Equity Partners.
Coast Capital, which owns 2.8% of Blue Prism, subsequently said it would vote against the deal. Coast said the bid “materially” undervalues Blue Prism, quoting comments CEO Jason Kingdon made to the Standard earlier this year claiming the UK market undervalued his business. Coast also accused the board of conflicts of interest, suggesting management could gain from the sale.
Blue Prism said this claim was “unfounded” and argued that the £1.1 billion bid was the best they could muster after “extensive” conversations in the market.
The sale “provides greater value and less risk than Blue Prism’s current standalone prospects and potential stand-alone alternatives,” the company said.
Tesco votes for turkeys at Christmas
10:36 , Simon English
TESCO shares jumped after profits doubled and the nation’s biggest food seller offered reassurance that shelves would remain stocked over Christmas despite the supply and lorry driver crisis that is blighting businesses and consumers alike.
In the six months to August, sales rose 3% to £27.3 billion while profits soared by more than 100% to £1.1 billion, partly thanks to the efforts of Harry Kane, Gareth Southgate and co who gripped the nation over the summer with a run to the final of the delayed Euro 2020 tournament.
Families staycationing in the UK also helped the supermarket giant, now being talked of as a possible takeover candidate in the wake of a private equity deal for Morrisons and rumours Sainsbury could go the same way.
Inflation fears mount
10:25 , Graeme Evans
Inflation loomed large over jittery European markets today as record-breaking natural gas prices continued their relentless charge on fears of a winter energy crisis.
UK gas futures for November delivery jumped by another third at one point to over 400p a therm, adding to the prospect of even higher energy bills and supply chain costs.
Markets are fearful that these inflationary pressures could force central banks into earlier-than-expected hikes in interest rates, including at the Bank of England where the odds of a November hike in borrowing costs appear to be narrowing.
The FTSE 100 index slumped more than 1% or 81.10 points to 6,996, while rising energy costs forced the UK-focused FTSE 250 index down 1.3% or 301.03 points to 22,429.62.
AJ Bell investment director Russ Mould said the surge in gas prices amid a potential winter supply shortage added to what's already been a bruising autumn for markets.
He warned: “The next big announcement on the radar is the US jobs report on Friday – a weak number could prompt concern that we are heading for the dreaded stagflation scenario.”
Brent crude remains at a three-year peak of $83 a barrel but the 50% rise this year is nothing compared with natural gas at an oil equivalent price well over $200 a barrel.
China's energy shortage also means coal futures are at record levels this week, having risen for seven sessions in a row and by more than 200% so far this year.
The outlook for rising interest rates should be beneficial for the margins of banking stocks, as long as there's no accompanying shock to consumption. Even if there's no rates rise, analysts at UBS reckon that shares in HSBC are attractive after they upgraded their price target on the Asia-facing bank to 485p and switched to a “buy” recommendation.
HSBC surged 4% or 13.9p to 406.9p, just behind Tesco at the top of the risers board following the grocer's better-than-expected interim results and £500 million share buyback.
Big fallers in London included Premier Inn chain Whitbread, which fell 127p to 3,233p, while Imperial Brands fell 28p to 1,525p despite meeting expectations with 1% revenues growth for the financial year just ended.
In the FTSE 250 index, Ferrexpo was 9.2p lower at 301.6p after the Ukraine-based provider of iron ore pellets for the steel industry reported a 2% production rise in the third quarter to 2.6 million tonnes.
Used car boom accelerates dealers’ shares and profits
10:16 , Naomi Ackerman
Despite global chip shortages hitting new car sales, Marshall said it expects full-year profits to now exceed £50 million, up from expectations of at least £40 million announced in August.
The firm, led by CEO Daksh Gupta, said its used vehicle values have seen an “unprecedented” 26.3% rise over the past seven months.
Read more here
French Connection auditors probed
09:57 , Oscar Williams-Grut
French Connection’s auditors have been hit with a surprise investigation led by the accounting watchdog, days after the loss-making fashion brand was sold.
The Financial Reporting Council said today it had opened a probe into Mazars’ work on French Connections 2020 accounts. The FRC’s Conduct Committee has approved an investigation by the FRC’s Enforcement Division. No more details were immediately available.
Mazars said in a statement it was “cooperating fully” with the investigation and said: “Respecting client confidentiality and due process, [we] will provide no further comment during the course of the investigation.”
News of the probe comes days after French Connection announced a £29 million sale of the business to fashion industry entrepreneurs Apinder Singh Ghura and Amarjit Singh Grewal.
Amazon brings its ‘4-star’ shop concept to the UK
09:15 , Joanna Bourke
Amazon is bringing its ‘4-star’ physical store concept to the UK for the first time, with the tech giant selling everything from books to pet toys under one roof at a new shop in the Bluewater centre.
The online marketplace will open the doors to its first ‘4-star’ branch outside of the US in Kent at 10am on October 6.
In the latest push into UK bricks and mortar stores by Amazon, following the opening of a hair salon and till-free grocery shops in 2021, the firm has taken around 3,500 square feet at the Bluewater shopping centre. It will stock around 2,000 different products there.
Read the full story HERE.
FTSE 100 lower
08:44 , Graeme Evans
The FTSE 100 index is 1% lower, down 68 points to 7009.04 as the uncertain week for global markets continues.
Big fallers include Next, which has given up recent gains to fall back 2.5%, and drinks giant Diageo with a drop of 2%.
Tesco shares surged 5%, up 12.15p to 265.15p as chief executive Ken Murphy announced a £500 million share buyback programme alongside better-than-expected interim results.
The strong performance pushed shares in rival Sainsbury's over the 300p threshold, having already risen sharply this week on the back of speculation over more consolidation in the supermarket sector. Shares were 3.7p higher at 303.1p.
The UK-focused FTSE 250 index is 216.06 points lower at 22,514.59, a drop of 1%. Recruitment firm Page Group rose 6% after upgrading its profit forecasts for the financial year to around £155 million.
Tesco shares jump on profit leap and promise of a good Christmas
08:31 , Simon English
TESCO upped profit forecasts and launched a £500 million share buyback today, pleasing the City and easing the pressure on chief executive Ken Murphy.
Until today, at least, the City was unsure that Murphy had a big picture plan for the UK’s biggest grocer. The share buyback plan should at least reassure investors that he plans to return excess capital to them.
The retail sector is going through unprecedented change due to Covid and the rise of internet shopping, Murphy said.
Murphy today says Tesco has been repurposed – it wants to serve customers, shareholders and indeed the planet “a little better every day”.
08:30 , Graeme Evans
The pound has steadied at 1.36 after last week's wobble against the US dollar.
However, analysts at Deutsche Bank are warning today about the impact that supply chain shortages in sectors like manufacturing will have on the value of the pound.
In a note headlined “ManuFractured”, Deutsche Bank's team point to recent industry surveys showing weaker export orders, higher output prices and worse supply chain constraints than industry peers.
Deutsche Bank said it fears the consequences if lost output is replaced by imports from abroad, weakening the UK current account and the pound as a result. “We stay short GBP”, the bank concluded.
08:10 , Graeme Evans
Holidays giant TUI is planning to tap shareholders for 1.1 billion euros (£937 million) in a fundraising that will help it refinance and pay back government loans.
The move follows an improved performance by TUI over the peak summer season, with more than 2.6 million customers booking a holiday in July and August. Bookings in the last few weeks in Germany and the Netherlands have also been above 2019 levels.
The fundraising, under which shareholders of the FTSE 250-listed company will be offered 10 new shares for every 21 existing shares, is fully underwritten and supported by TUI's major shareholders.
TUI's executive chairman Friedrich Joussen said: “We want to, we can and we will find our way back to economic strength. We are working on this relentlessly. The capital increase is a further step. We want to repay the government loans quickly.“
Barclays Bank Ireland, Bank of America, Citigroup, Deutsche Bank and HSBC are acting on the capital raise.
07:44 , Graeme Evans
UK natural gas futures are continuing to rise at close to 330p a therm today, having surged to an all-time high yesterday in a deepening of the global energy crunch.
Brent crude was also at a three-year peak of near to $83 a barrel as global gas supply shortages force industry buyers to turn to oil instead.
The oil price has risen by more than 50% so far this year, but natural gas is now reported to be trading at an oil equivalent price of more than $200 a barrel.
The surge in natural gas — or “bit-gas” as one trader called it due to recent price similarities with cryptocurrency bitcoin — threatens to damage the economic recovery if it leads to a spike in inflation and then higher interest rates.
Deutsche Bank research analyst Jim Reid called yesterday's move in the UK natural gas market above 300p a therm “astonishing”, noting that the 19.5% surge was the biggest daily percentage increase in over a year and represented an overall jump of 183.3% since the start of August. The situation was little different for European prices.
The main impact of higher energy prices appears be inflationary at the moment, rather than lower consumption or investment activity. However, analysts fear the longer the situation continues the greater the risk of some hit to economic output in the months ahead.
The Reserve Bank of New Zealand responded to rising inflation by lifting interest rates for the first time in seven years, making it one of the first major countries to reverse the support put in place during the pandemic. The move overnight had largely been priced in by traders.
Asian markets were lower overnight, with opening calls suggesting a weak session in the Europe. The FTSE 100 index is forecast to open about 45 points lower at 7,030, reversing the gains seen yesterday.