Yahoo Finance FTSE 100 Live: Pound dips to $1.11, Retail sales fall
Retail sales volumes have fallen by more than expected as households cut back spending in the face of rising borrowing and energy costs.
The decline of 1.4% reported by the Office for National Statistics for September was much higher than the 0.5% forecast and followed last month’s slump of 1.7%. It came as the monthly consumer confidence report from GfK showed a near record reading of minus 47.
There was a further blow for the UK economy today when it emerged that public sector borrowing hit £20 billion in September, compared with £17.1 billion forecast.
FTSE 100 Live Friday
Public sector borrowing surges to £20 billion
Retail sales weaker than expected
Weak session for markets on rate rise concerns
New York stocks slip as tech stocks falter after Snap revenue warning
14:52 , Michael Hunter
The S&P 500 fell slipped in early trade, as support from robust earnings news subsided and technology stocks came under pressure after social media company Snap slumped after a bleak revenue prediction.
Weekly jobs data looked to give the Federal Reserve more room to continue battling inflation with aggressive rate hikes, adding to the bleak mood. New York’s broad stock index fell 10 points to 3,653.0 , a drop of 0.4%.
Snap tumbled 30% after it forecast flat revenue for the current quarter, knocking sentiment toward other social media stocks. Meta, formerly known as Facebook, fell over 3%. Twitter lost over %.
American Express fell 6% after it reported a 3% rise in quarterly profit and said it was setting cash aside for any potential rise in defaults from borrowers during uncertain economic times.
Verizon, the cell phone giant, was down over 4% after its rate of customer acquisitions slowed as prices went up.
Gilt yields back above 4% as markets eye ‘Johnson factor'
13:46 , Michael Hunter
Investors were demanding returns of over 4% to lend to the UK government for 10-years, as the prospect of the return to power of Boris Johnson unnerved investors.
The benchmark 10-year gilt yield added 0.2% to 4.11%, with 5-year government bonds, which can be more sensitive to the short term monetary and political outlook, also rose above 4%, up 0.23% to 4.179%.
David Buik, the veteran City commentator was clear on Twitter about the trigger for the moves, which also knocked the pound:
The thought of Boris Johnson 'throwing his hat into the leadership ring' has rattled the cage of traders in the City - Uncertainty and division prevails - Cable $1.1079 - Gilt yields bounce worryingly - 2-years 3.89%, 7-years 4.26%, 10-years 4.13 - all three up circa 20 pips
— David Buik (@truemagic68) October 21, 2022
The moves came on a day when weak retail sales data and a rise in government borrowing to its second-highest level on record, in part due to rising interest payments on the debt, added to the bleak outlook for the UK economy.
James Hughes, analyst at Scope Markets, said: “There’s little consensus in the City right now beyond the old adage that markets hate uncertainty with a passion and that’s being illustrated today.
“Any hopes of a “Boris Bounce” or “The Johnson Factor” helping settle sentiment seems somewhat misplaced – the political uncertainty will continue for a good while yet and the lack of meaningful political direction is going to prove costly.”
Stock Exchange on the up despite market chaos
13:22 , Simon English
THE LONDON Stock Exchange looks to have avoided the worst of the chaos in markets under brief PM Liz Truss.
In the third quarter it saw revenues rise 16% to £1.9 billion, a bit better than City analysts were expecting.
In August the group announced a £750 million share buyback deal. Today it said it has so far £235 million of that.
The LSE bought data and analytics company Refinitiv for $27 billion in 2021, turning the exchange into a major market data player, but outages and sums invested in integration raised concerns among some investors.
David Schwimmer, CEO said: “We have delivered another strong quarter, with good growth across all businesses. The consistency of delivery in recent quarters demonstrates the strength of our business model, generating quality recurring revenues from a range of services that are highly valued by our customers.”
LSE shares slipped 212p to 7206p, which leaves the business valued at £41 billion.
“With sustained execution, a broad base of businesses and leading market positions, we remain well positioned,” Schwimmer said.
The LSE was first founded 220 years ago. It oversees around 2500 listed companies.
M&C Saatchi deal fails
13:21 , Simon English
The on-off takeover tussle for M&C Saatchi was off again today when suitors Next Fifteen effectively called off the hunt.
M&C has been in takeover turmoil for months.
First then deputy chairman Vin Murria launched a bid, in effect going against the wishes of her own board.
Although she controls 22% of the shares, her offer never gained popularity with the executives.
A rival bid from digital agency Next 15 then emerged and at first seemed likely to go through.
Today Next 15 conceded that shareholders are unlikely to back its offer, especially since Murria has made her own opposition clear.
Her investment vehicle ADV earlier said: “ADV continues to believe that although Next Fifteen Communications plc (“NFC”) is a credible buyer of M&C Saatchi, its offer price does not reflect the value of foregoing control and the significant synergies available to NFC. Based on the current implied value of NFC’s offer, ADV and Vin Murria intend to vote their shareholdings in M&C Saatchi against NFC’s scheme.”
The Next Fifteen offer is worth about 175p a share at the moment, compared to an M&C share price of 138p. But the stock has been well over 200p as recently as May.
M&C, perhaps the best known ad agency in Soho, has had a turbulent few years.
An accounting issue in 2019 was later investigated by the City watchdog and led to the exit of co-founder Maurice Saatchi and other directors. In the end, the FCA took no action.
M&C has close links to the Tory party, famously coming up with the “Labour isn’t working” poster than helped force out Labour PM James Callaghan.
M&C said today its directors are “unable to recommend” the Next 15 offer, due to the fall in the value of the suitors shares.
M&C is valued at £170 million by the stock market.
Next 15 said: “While this would be a disappointing outcome and the Board of Next 15 (the “Board”) continues to believe in the benefits which a combination of Next 15 and M&C Saatchi could deliver, the Board will always maintain pricing discipline when pursuing its M&A strategy which may result in certain transactions not proceeding.”
Pound touches $1.11 as traders measure UK political risk factors
12:30 , Michael Hunter
The UK’s turbulent politics were feeding through into the value of the pound as speculation over the identity of the country’s next prime minister reveberated around the City and across Westminster.
Its low point for the day took sterling to $1.1100 before it bounced to $1.1123, leaving it 1% lower for the day. While the dollar was stronger overall -- the index tracking it against a series of other currencies was up 0.5% -- the pound’s decline was steeper than its rivals from G7 countries. The euro was only down 0.5% against its US rival, while the Canadian dollar was 0.3% weaker against its nearest neighbour.
Michael Hewson, chief market analyst at CMC Markets UK, said that Liz Truss’s resignation after such a short time in power “brought about a brief respite to the political risk premium” over the pound, “it didn’t last very long given the realisation that it is hard to see how any replacement will be able to coalesce around any form of unity of policy in this carnival of chaos of a government.”
Hewson added: “The reality is that the Conservative party in its current form is so riven by partisanship that anyone who takes over, even Rishi Sunak who appears to be favourite, as is widely being predicted, there will always be those working in the background to undermine him. If, as is being speculated, Boris Johnson was to make a return then we really would be through the looking glass.”
Looking at the charts on sterling, he said: “We need to see a move above the $1.1500 area to stabilise. Interim support at $1.1150, and the lows last week at the $1.0920 area. A move below $1.0920 opens up a return to the $1.0800 area.”
The pound’s fall also came after government borrowing hit £20 billion in September, significantly more than forecast, as the interest payable on government debt rose. It was the second highest figure on record, under the peak reached during the pandemic.
Takeover saga at M&C Saatchi off as deal is ditched
11:40 , Simon Hunt
The on-off takeover tussle for M&C Saatchi was off again today when suitor Next Fifteen effectively called off the hunt.M&C has been in takeover turmoil for months. First then deputy chairman Vin Murria launched a bid, in effect going against the wishes of her own board. Although she controls 22% of the shares, her offer never gained popularity with the executives.A rival bid from digital agency Next Fifteen then emerged and initially seemed likely to go through.
Today Next Fifteen conceded that shareholders are unlikely to back its offer, especially since Murria has made her own opposition clear.
Her investment vehicle ADV earlier said: “ADV continues to believe that although Next Fifteen Communications plc (NFC) is a credible buyer of M&C Saatchi, its offer price does not reflect the value of foregoing control and the significant synergies available to NFC. Based on the current implied value of NFC’s offer, ADV and Vin Murria intend to vote their shareholdings in M&C Saatchi against NFC’s scheme.”
The Next Fifteen offer is worth about 175p a share at the moment, compared with an M&C share price of 138p. But the stock has been well over 200p as recently as May.
M&C, perhaps the best known ad agency in Soho, has had a turbulent few years. An accounting issue in 2019 was later investigated by the City watchdog and led to the exit of co-founder Maurice Saatchi and other directors. In the end, the FCA took no action.
M&C said today its directors are “unable to recommend” the Next Fifteen offer, due to the fall in the value of the suitor’s shares. M&C is valued at £170 million by the stock market.
Revenues rise 16% to keep London Stock Exchange safe from chaos
11:12 , Simon Hunt
THE LONDON Stock Exchange looks to have avoided the worst of the chaos in markets under brief PM Liz Truss.In the third quarter it saw revenues rise 16% to £1.9 billion, a bit better than City analysts were expecting.
In August the group announced a £750 million share buyback deal. Today it said it has handed out £235 million of that so far.The LSE bought data and analytics company Refinitiv for $27 billion in 2021, turning the exchange into a major market data player, but outages and sums invested in integration raised concerns among some investors.
David Schwimmer, CEO said: “We have delivered another strong quarter, with good growth across all businesses. The consistency of delivery in recent quarters demonstrates the strength of our business model, generating quality recurring revenues from a range of services that are highly valued by our customers.”
LSE shares slipped 212p to 7206p, valuing the business £41 billion.
“With sustained execution, a broad base of businesses and leading market positions, we remain well positioned,” Schwimmer said.
Wickes says falling timber prices ease price inflation at DIY chain
10:52 , Simon Hunt
The home improvement chain, raised some hope today that the rate of cost inflation in the building trade is showing signs of having peaked.
The 230-store chain said cheaper timber in the third quarter meant “there has been some moderation in the rate of retail price inflation” since the first half, as sales from its stores open for at least a year rose 2.6% in the 13 weeks to October 1, helping it leave full-year profit guidance steady at between £72 million to £82 million.
Sales were hit by the heatwave in July and August, but strengthened from the start of September. Wickes is used by professional tradesman and do-it-yourself customers alike. It said its number of TradePro customers rose 10,000 to 720,000, while DIY sales remained lower year-on-year, but showed “no signs of further softening”.
Shares in the company fell 9p to 116p, a drop of 7%.
Shares in Royal Mail owner fall 4%, FTSE 100 lower
10:13 , Graeme Evans
Shares in the owner of Royal Mail are down another 4% following a broker downgrade and as official figures point to weaker internet shopping volumes.
Liberum’s Gerald Khoo slashed his target price on International Distributions Services (IDS), which is the new name for Royal Mail, by 38% to 115p after flagging that the company’s problems go much deeper than current industrial action.
He said longer-term prospects were hit by a lack of pricing power, with savings from redundancies only sufficient to stabilise margins on a temporary basis. “Repeated redundancy rounds do not appear sustainable,” Khoo said.
IDS recently warned that up to 10,000 Royal Mail jobs are at risk as it braces for a full-year loss of at least £350 million in its UK arm. Half-year results are due on 17 November.
Royal Mail shares were 630p during pandemic lockdowns in April 2020, a period of trading that ultimately led to the return of £400 million of surplus cash to shareholders.
They’ve since retreated to 193p, with the stock down another 4% or 7.8p today. Many postal workers and small investors still hold the shares, which made their debut nine years ago this month at a price of 330p.
The shares were among the big fallers as the FTSE 250 index slumped 1.2% or 212.13 points to 17,176.80, reflecting another grim batch of updates from the UK economy. Rail ticketing business Trainline and pavings firm Marshalls were caught in the sell off as their shares lost 4%.
The FTSE 100 index shed 0.7% or 51.04 points to 6892, fuelled by weak trading on Wall Street and the reaction to a poor trading update from social media platform Snap. Tech and growth stocks were under pressure in London, with Auto Trader down 27.5p to 490.7p and grocery warehouse business Ocado off 27.5p to 469.5p.
IHG sees third-quarter boost but warns of labour shortage strain
10:02 , Simon Hunt
Hotel firm IHG saw a boost in third-quarter sales as holidaymakers resumed international travel but warned labour shortages in the hospitality sector continued to put a strain on the business.
The Denham-based business, which runs the Crowne Plaza and Holiday Inn brands, reported a 28% jump in revenues per room over 2021, 2.7% ahead of pre-pandemic levels, while occupancy remained down 6%.
The firm opened 51 new hotels and added a further 89 to its pipeline of openings. The firm plans to add a further 278,000 rooms to its collection taking the totel number of rooms to over one million.
IHG CFO Paul Edgecliffe-Johnson said recruitment of hospitality workers “is one of our biggest challenges…in the UK and the US and most parts of Europe.”
“There is a shortage of labour in most of the markets in which we operate. We have systems that allow us to identify worker in the hospitality industry [but] with unemployment at record lows in the US it doesn’t look like it will get easier any time soon.”
IHG hotels sees growth on pre-pandemic levels but warns recruiting staff is “one of our biggest challenges” in the US and UK.
IHG also announced Edgecliffe-Johnson would be stepping down as CFO and group head of strategy after almost 20 years at the firm and 8 years on the board. Paul will leave in six months’ time and the company has begun the process of appointing a successor, IHG said.
IHG shares fell 4% to £4,383p.
Retailers add to FTSE 100 weakness, Royal Mail owner down 4%
08:30 , Graeme Evans
Consumer-focused stocks are dominating the FTSE 100 index fallers board after this morning’s weaker-than-expected retail sales figures.
JD Sports Fashion dropped 4p to 96.3p, Next lost 116p to 4761p and Sports Direct owner Frasers Group retreated 18.5p to 628.5p.
BAE Systems lifted 7.2p to 816.6p, but the FTSE 100 index fell 46.48 points to 6897.43 as investors also reacted to Wall Street weakness.
The UK-focused FTSE 250 index lost 0.7% or 121.99 points to 17,266.94, led by a fall of 4% or 7.85p to 193.256p for Royal Mail business International Distributions Services.
The latest decline for the strike-hit business followed the decision of Liberum analysts to cut their price target from 185p to 115p.
Pressure on Chancellor after borrowing surge
08:19 , Graeme Evans
The £20 billion borrowing figure is much higher than forecast, but revisions to estimates for previous months mean that the total in the first six months of the fiscal year is £400 million lower than the Office for Budget Responsibility (OBR) expected at this stage.
However, this is before taking into account the government’s energy price support and what’s left of the mini-budget tax cutting measures.
Capital Economics thinks borrowing will be closer to £210 billion in 2022/23, rather than the OBR’s March forecast of £99 billion.
Ruth Gregory, senior UK economist at the consultancy, said: “This means the Chancellor will need to reveal further policy measures of about £34 billion to fill the remaining fiscal hole and restore credibility in the eyes of the financial markets.”
Deliveroo shares rise after uptick in orders
08:13 , Simon Hunt
Shares in Deliveroo grew 2.5% to 84p this morning after the firm reported a boost in the size of orders in the third quarter.
Orders grew 5% in the UK during the third quarter, while the size of orders increased too. However, order numbers contracted 7% internationally.
However, the firm re-adjusted its sales expectations to the bottom end of its forecast, attributing the cut to wider economic conditions.
The firm said it didn’t expect to reach profitability before the second half of next year.
Flutter appoints new chief financial officer
07:57 , Michael Hunter
Flutter, the FTSE 100 gambling and gaming company, has reshuffled its senior ranks, appointing a new chief financial officer and setting up an new chief operating officer role.
The owner of the Paddy Power, Betfair and Sky Betting brands said Paul Edgecliffe-Johnson will join as CFO from the same job at hotels group IHG in the first half of next year. Flutter’s current CFO, Jonathan Hill , will move over to become its inaugural COO.
In the new job he will “maximise the benefits of Flutter’s global scale and support the strategic direction of the business,” Flutter said.
Tech shares under pressure, FTSE 100 seen lower
07:47 , Graeme Evans
Shares in Wall Street technology companies are facing a difficult session after social media platform Snap missed third quarter revenue expectations and disappointed with its guidance for the current trading period.
Snap’s shares slumped 27% last night in trading after the closing bell, while there was also pressure on Google business Alphabet and Facebook owner Meta Platforms after their shares dropped by 2% and 4% respectively.
The Nasdaq Composite and other leading US indices are pointing lower when dealings resume later, having fallen during Thursday session after US Treasury yields rose on expectations for more steep interest rate hikes.
In London, the pound has fallen below $1.12 after today’s worse than expected retail and public sector borrowing figures. Sterling briefly went above $1.13 after Liz Truss announced her resignation as prime minister yesterday afternoon.
The FTSE 100 index added 0.3% yesterday but CMC Markets expects a fall of 35 points 6908 when trading resumes this morning.
New CEO at Rightmove
07:46 , Michael Hunter
Rightmove, the FTSE 100 online property portal, has appointed a new CEO.
Johan Svanström, who worked in a senior role at travel site Expedia, will take over from the retiring Peter Brooks-Johnson after the company’s next set of full-year results.
A Swedish national based in the UK, Johan will move over from EQT, the global investment organisation. Rightmove pointed to his has many years of experience as a board director of both public and private technology companies across multiple countries.
Svanström will join Rightmove on 20 February 2023 as Executive Director and CEO designate and will be appointed chief executive officer on March 6.
Borrowing above expectations as debt bill surges
07:31 , Graeme Evans
The public finances continue to deteriorate after the Office for National Statistics (ONS) recorded the second highest September borrowing figure since monthly records began in 1993.
The total of £20 billion was £2.2 billion higher than a year ago and compared with the consensus forecast of £17.1 billion.
Central government day-to-day expenditure rose to £79.3 billion, which was £5.8 billion more than in September 2021 due to a £2.5 billion increase in debt interest payments to £7.7 billion. This was the highest September figure since records began in 1997 and reflected the effect of rising inflation on index-linked gilts.
Net social benefit payments were £25.7 billion, £4.4 billion more than in September 2021 following an increase in cost-of-living payments. This included enhanced Winter Fuel Payments that are recorded each September to be paid out during November and December.
Retail sales fall 1.4% in September
07:23 , Simon Hunt
Retail sales volumes have fallen by more than expected in another blow to the high street as households cut back spending in the face of rising borrowing and energy costs.
The decline of 1.4% reported by the Office for National Statistics for September was much higher than the 0.5% forecast and followed last month’s slump of 1.7%. It came as the monthly consumer confidence report from GfK showed a near record reading of minus 47.
Food store sales volumes fell by 1.8% in September 2022, which leaves them 3.2% below their pre-coronavirus levels in February 2020, as cash-strapped shoppers swapped premium supermarkets for budget stores.
Online retail sales volumes fell by 3.0% in September 2022 but sales volumes were 18.0% above their February 2020 levels.
Phil Monkhouse, Head of Sales at global financial services firm Ebury, said: “The economic storm clouds are gathering ominously and casting a growing shadow over the UK. Chaotic political uncertainty combined with double-digit inflation, rising borrowing costs, a likely recession and a winter energy bill shock are all slamming the brakes on high-street shopping.
“Household budgets are being squeezed forcing cut-backs on non-essential spending in a trend we only expect to accelerate and entrench over the coming months. Even the declining sales data itself masks declining real-terms shopping volumes as inflation means the value of sales broadly keeps pace with previous months.
“Food prices jumped nearly 15% in September and while the value of goods bought at food stores has increased over the previous months, the volume of goods has collapsed as customers are able to afford less with their food shop budget.”
