Yahoo Finance Pound continues to punish jittery euro; Yellen says the Fed should be wary of moving too gradually
Marketing giant WPP will struggle to sell even itself to investors in the “tepid” advertising environment gripping the sector, Morgan Stanley argued today, sending the Sir Martin Sorrell-led firm sinking to the bottom of the FTSE 100.
The broker claimed that there would be “no early redemption” for WPP, which plunged 11pc last month after slashing its full-year growth forecasts and warning that 2017 will be the worst year for advertising in a decade.
The industry slowdown is mainly due to low GDP growth and pressure put on marketing budgets in the fast-moving consumer goods sector, which includes products such as food, toiletries and over-the-counter drugs, analyst Patrick Wellington told clients.
He added in his downgrade of WPP to “equal-weight”, which sent it sliding a further 24p to £13.99 yesterday, that, while the third quarter looks weak for the ad firm, the sector’s recent problems are mainly cyclical and its digital business will be a source of growth.
The firm has dived 27pc since its 2017 peak in March, shedding nearly £7bn off its value as the global slowdown in the sector drags down huge ad firms and broadcasters such as ITV.
Elsewhere, easyJet flew 19p higher at £11.99 as traders digested the no-frills airline entering talks to pick the meat off the carcass of insolvent European rival Air Berlin and UBS commented that the carrier is the most likely to benefit from Ryanair’s recent woes.
Ahead of easyJet’s Capital Markets Day tomorrow, there is no sign that aviation spend is suffering from the consumer slowdown and the airline's customer base overlaps more with Ryanair’s than British Airways’ does, the UBS Evidence Lab found
Oil major Royal Dutch Shell ‘B’ continued to climb, advancing 18.5p to £22.78, despite Brent crude easing off its overnight gains, which took it to its highest price in over two years. The energy giant’s heavy weighting on the FTSE 100 could not stop the index slumping early on with investors given a short-lived fright by North Korea accusing the US of declaring war. The tension soured the morning’s trading on equity markets and despite briefly flirting with positive territory the UK’s benchmark index closed 15.55 points lower at 7285.74.
Retailer Card Factory failed to tempt investors with a generous dividend as higher costs knocking profits was ruthlessly punished on the FTSE 250, its shares plunging 65p to 290p, a 18pc nosedive.
The unveiling of new boss Simon Breakwell at AA couldn’t turn the tide on the firm’s recent drift downwards, the breakdown service nosediving as much as 12pc in intraday trading before closing 10.7p lower at 157p after “erratic workload patterns” held back profitability in its roadside assistance arm.
Finally, Victoria Oil & Gas pushed up 6.5p to 70p after announcing that testing at its La-107 well in Cameroon had beaten management expectations.
Markets wrap: Fed should be wary of moving too gradually, says Yellen
The dollar has extended its rally on the currency markets this evening after US Federal Reserve chair Janet Yellen said that the central bank should be wary of moving too gradually.
She added in a speech in Cleveland that inflation will probably stabilise at 2pc in the coming years and that it would be "imprudent to keep monetary policy on hold until inflation is back to 2pc". Already struggling against the greenback, the pound has nudged down 0.1pc against the currency to $1.3441 while against a basket of the leading currencies the dollar has advanced 0.5pc.
Angela Merkel entering coalition talks with a weaker hand than expected has pulled down a jittery euro today, sterling jumping 0.3pc higher to €1.14 against the currency, while the FTSE 100 has been the sole struggler in Europe with equity markets brushing aside North Korea worries.
IG chief market analyst Chris Beauchamp said on this afternoon's action:
"The FTSE 100 has struggled back to unchanged on the day, while on Wall Street US markets are continuing the overnight rebound from the lows. Fears of nuclear annihilation, at least in the near-term, have receded, and the dip buying that has held this market up so well in recent months is active once again.
"Still, there is a feeling that we should be on watch for more comments and provocations, as the situation remains extremely febrile. With the quarter-end looming, equities look set to continue to gain, even with the worries over North Korea still present. Meanwhile in the US tech stocks are looking to move higher, having suffered the worst of the selling yesterday."
Irn-Bru maker AG Barr's new recipe powers sales in spite of price rises
The maker of Irn-Bru has outpaced its peers in spite of having to pass on some of the £5m Brexit-induced cost rises to customers through higher prices.
Roger White, the chief executive of AG Barr, said sterling’s fall on the back of the outcome of the EU referendum had cost the business roughly £5m in increased import costs of items such as fruit and packaging.
The pound is still down 13pc against the euro at €1.13 in spite of a recent rally. The slump has made the cost of imported goods more expensive.
Mr White said the company had worked hard to cut costs but that roughly 1.5 percentage points of its 8.8pc rise in revenue to £136.6m came from price increases. The chief executive said this pace of sales growth was a “significant outperformance” of the total soft drinks market which grew value by 4.2pc in the 26 weeks to July 30, according to IRI Market Place data.
Read Bradley Gerrard's full report here
Pound erases losses against dollar buoyant on comments by Fed rate-setter
Ahead of those speeches from key figures at the Federal Reserve this afternoon, the pound has erased some of the losses it sustained this morning against the dollar, now trading just 0.1pc lower at $1.3442.
The greenback has been supported by comments overnight from New York Fed president and rate-setter William Dudley arguing that the factors pulling down inflation and hopes of an interest rate hike in December are "fading".
#NewYork President William #Dudley signalled likelihood of one more hike this year, calling factors holding down prices temporary #economy
— Michael Tan (@ocbc_MichaelTan) September 26, 2017
Lukman Otunuga, research analyst at FXTM, said that Mr Dudley's comments would be "music to the ears of market players anticipating higher US rates".
He added:
"With last week’s hawkish FOMC statement and these recent comments from Dudley boosting hopes of the central bank taking action this year, the Dollar may remain supported in the short term.
"Janet Yellen will be in the spotlight today, with investors closely scrutinizing her speech for further clues on rate hike timings this year. With the Dollar falling into the category of currencies that have become quite sensitive to monetary policy speculation, volatility may be on the cards before and after Yellen’s speech."
On the economics front in the US this afternoon, new home sales data due is the main highlight of a light macro calendar with a recovery expected from July's 9.4pc month-on-month drop in volumes.
North Sea oil minnow Faroe Petroleum returns to profit as cash flows triple
North Sea oil minnow Faroe Petroleum has returned to profit after its $70m (£52m) bet on Dong Energy’s remaining oil and gas assets helped to triple its revenue in the first half of the year.
The Aberdeen-based company’s revenues climbed to £80.1m for the first six months of the year from £23.1m in the first half of 2016 when oil prices hit their lowest point in twelve years.
Faroe used the downturn to snap up North Sea assets at a discount, and said the cash flow boom has already paid back its $70m acquisition of five fields from wind-power focused Dong Energy.
The gradual market recovery combined with Faroe’s enlarged portfolio helped return the company to a modest loss of £300,000 compared to a £34.3m loss in the same period last year.
Read Jillian Ambrose's full report here
Afren bosses charged with $400m fraud that 'triggered collapse' of oil explorer
The former leadership of Afren have been charged with a $400m (£300m) fraud that allegedly led to the collapse of the former FTSE 250 oil explorer.
Osman Shahenshah, Afren’s former chief executive, and Shahid Ullah, who served as chief financial officer, appeared at Westminster Magistrates Court this morning to face claims they abused their positions and laundered money.
The charges come after a two-year investigation by the Serious Fraud Office (SFO).
The Telegraph revealed in April that Mr Shahenshah was among the targets of a criminal probe of an offshore vehicle that it is claimed distributed large bonus payments from Oriental Resources, an Afren partner in Nigeria.
Read Christopher Williams' full report here
Lunchtime update: North Korea fears on the markets begin to ease
The euro has continued to sink on the currency markets this morning as German chancellor Angela Merkel enters complex coalition talks following her party's underwhelming election victory. Sterling has been lifted 0.3pc higher against the sliding currency to €1.1390, a two-month high, but has dipped against the dollar ahead of a packed afternoon of speakers from the US Federal Reserve.
Brent crude has eased off the two-year high it hit overnight but is holding recent gains well after Turkey threatened to cut off a pipeline exporting oil from Kurdish territory in Iraq, squeezing supply on the market.
London's two oil majors, BP and Shell, couldn't lift the FTSE 100 this morning, however, with the mood soured on equity markets by tensions spiking again on the Korean Peninsula. Stocks in Europe have pared some early losses as investor geopolitical jitters begin to dissipate but the FTSE 100 and CAC 40 remain stuck in the red.
Accendo Markets head of research Mike Van Dulken said this on stock markets this lunchtime:
"Equities are holding up well despite a supposed heightening of geopolitical risk. This after North Korea's foreign minister stepped up threats to the US, giving fresh impetus to safe havens (bonds, gold, the yen and Swiss franc).
"A muted reaction among risk assets (equities, commodities), however, suggests traders are almost ignoring this war of words, potentially calling bluff on the potential for actual conflict. "
Expensive London property will 'bounce back in price once Brexit is decided'
London's lethargic high-end property market will bounce back to growth once the uncertainty of Brexit has been settled, according to Savills.
After years of price falls and sluggish activity, the most expensive homes in central London will rise in value by 8pc in 2020. Between 2018 and 2022, prices are forecast to grow by 20pc, which would recover the fall of 15pc made since 2014.
“We think the risks regarding London’s position as a global commercial centre have been overplayed," said Yolande Barnes, head of world research at Savills. "Whatever the challenge from other cities, London will almost certainly remain a key global financial centre and develop as one of several European hubs for the growing tech sector.
"Its prime markets will therefore benefit from new domestic wealth generation as well as attracting wealthy international buyers.”
Read Isabelle Fraser's full report here
Pound stuck in flat territory against dollar ahead of packed afternoon of speakers
Sterling has consolidated its 0.4pc gain against the struggling euro as we approach lunchtime but remains in first gear against the dollar ahead of a packed afternoon of central banking speakers stateside.
US Federal Reserve chair Janet Yellen will have the opportunity to reinforce the hawkish tone adopted by the central bank in a speech titled 'Prospects for Growth in Shifting Global Economy' just before 6pm while arch dove Lael Brainard's appearance at 3.30pm could prove a little trickier for the dollar, which sunk earlier this month after the Fed policymaker warned that inflation could be too weak for a third interest rate hike in December.
Investors will be keen to see if Ms Brainard's rhetoric on a hike has eased a little after the Fed put a rate increase back on the table at its latest monetary policy decision last Wednesday.
Spreadex analyst Connor Campbell said this on the wave of factors weighing down the euro this morning:
"Just like on Monday, the spotlight has largely been on the euro, which is continuing to suffer in the aftermath of Sunday’s German election.
"The potential Eurozone problems caused by the new far right presence in the Bundestag (and Emmanuel Macron’s French Senate struggles at the weekend (oh and the Catalonia independence referendum in Spain)) have dragged the currency lower, with it losing 0.4% against the dollar and 0.3% against the pound."
Housing market still under pressure despite improving mortgage figures
42k home buyer mortgage approvals by major high street banks in August. Unchanged on July. Points to v. modest y/y house price growth ahead. pic.twitter.com/veXVwet4Y8
— Rupert Seggins (@Rupert_Seggins) September 26, 2017
Those improving mortgage approval figures easing fears of a housing market slowdown have been greeted with a big dollop of scepticism by economists this morning.
Note the annual comparison is distorted due to mortgage approvals being subdued in Summer 2016 following the EU Referendum.#ukhousinghttps://t.co/jwjmWfUp2q
— Noble Francis (@NobleFrancis) September 26, 2017
EY ITEM Club's chief economic advisor Howard Archer said that the housing market is still under pressure from weakened consumer purchasing power and hesitancy over big financial commitments.
He added:
"It is also very possible that potential house buyers will be concerned by the Bank of England indicating that interest rates could well rise sooner rather than later, with a hike as soon as November a very real possibility.
"Having said that, the Bank of England has regularly stressed that interest rates will rise only gradually and to a limited extent."
Watchdog opens probe into price comparison site as it sets 'ground rules' for sector
The UK's competition watchdog has opened a probe into a price comparison website that it suspects has been hiking home insurance prices, as it announced the conclusions of a year-long investigation into the sector.
The Competition and Markets Authority said the sector - used by consumers to find cheaper insurance, credit card deals or energy contracts - needs to be clearer about how it is making money and why it presents results the way it does, noting that there are "significant opportunities" to make more data available.
The watchdog launched its investigation into the fast-growing industry last September, amid concerns that sites were promoting certain deals higher than others and therefore limiting competition.
Read Lucy Burton's full report here
Card Factory plunges as higher costs weigh on profit
It's probably about time we had a look at the big movers in London this morning.
Retailer Card Factory has plunged 13pc to the bottom of the FTSE 250 after higher costs dented profits in its latest figures while breakdown service AA is also lagging its mid-cap peers, diving just under 10pc after slashing its full-year profit guidance.
CMC Markets analyst David Madden explained investors' ruthless reaction to Card Factory's figures:
"Revenue for the first six months rose slightly, but costs ticked up due to the weakness in the pound, and the rise in the minimum wage.
"The company tried to soften the blow by announcing a special dividend of 15p, but it wasn’t enough to win over investors. Investec were quick to cut their ratting on the stock from buy to hold, and they reduced their price target to 320p from 405p. The stock has gapped lower this morning and hit a level not seen since mid-July."
Meanwhile, advertising giant WPP has retreated most on the blue-chip index, dipping 1.6pc following a ratings downgrade from Morgan Stanley, while crude's overnight rally to fresh highs has lifted the two oil giants, BP and Shell, on the FTSE 100.
The markets are caught in two minds over risk appetite as tensions rise in Asia, according to IG market analyst Joshua Mahony.
He explained:
"European markets are starting yet another day in the red today, as the risk-off sentiment driven by the continued war of words between the US and North Korea continues to dominate.
"Despite Donald Trump’s inflammatory comments, it is clear that not everyone shares his approach, with Secretary of Defence James Mattis citing the desire to solve the issue diplomatically. However, it feels as though markets are in a state of flux, with uncertainty over a return to either full risk-on or risk-off."
Mortgage approvals remain steady, eases housing market slowdown fears
UK mortgage approvals remained steady in August, UK Finance revealed this morning, easing fears of a slowdown in the housing market.
Mortgage approvals picked up slightly last month, rising to 41,807, marginally ahead of economists' expectations. Pantheon Macro's UK chief economist Samuel Tombs believes that the figures will soon begin to decline, however.
He explained that new mortgage rates will increase in response to movements at the Bank of England and inflation outpacing wage growth means that fewer would-be homebuyers will pass banks' affordability tests or feel confident enough to make major financial commitments.
Simon Breakwell named AA boss as profits rise
Expedia co-founder Simon Breakwell has been made permanent boss of the AA, after its executive chairman was fired over a punch-up with a colleague earlier this year.
Mr Breakwell had been serving as acting CEO of the roadside recovery and insurance business since Bob Mackenzie’s departure in August following an altercation in a hotel bar. Mr Mackenzie's legal team is currently fighting back over the terms of his dismissal.
The new boss, who also helped Uber set up shop in Europe, has been on the board of the AA since 2014. He said he was “now reviewing what the business needs to deliver its potential”.
Read Jon Yeomans' full report here
North Korea spooks investors after accusing the US of declaring war
Analysts are pinning this morning's weakness on European stock markets on rising tensions on the Korean Peninsula but the major indices have pared some early losses and are moving back towards flat territory.
North Korea's foreign minister Ri Yong Ho spooked investors by accuseing the US of declaring war on the rogue state and said that it would have the right to shoot down US bombers.
The war of words took gold back over $1,300 per ounce and sunk US stocks overnight with a tech sell-off also wounding the NASDAQ, which retreated most.
Hussein Sayed, chief market strategist at FXTM, said this on how the escalation will affect markets:
"So far, every aggressive selloff in equities and move to safe havens on geopolitical risks, has proven to be short-lived.
"The best-case scenario is for the U.S. to add more pressure on China and Russia, to increase sanctions against Pyongyang and pressure Kim Jong-un to sit around a negotiation table. However, as an investor, you should keep all options on the table."
Brent crude eases off highs
Brent crude, the UK's benchmark oil price, has eased off its highs a little in the last half an hour, pulling back to $58.70 per barrel.
Overnight the price hit its highest level since July 2015 on fears of squeezing supply after Turkey threatened to close the tap on a pipeline exporting oil from the Kurdish region of Iraq in opposition to a referendum on independence.
The pipeline has the capacity to transport 700,000 barrels per day with an average of 590,000 barrels per day exported from the region and a cut-off would cause "fairly significant" disruption on the oil market, according to ING.
With the threat of shale drillers returning to rigs in the US increasing with every price rally, many predicted that crude prices would struggle to even get this close to $60 per barrel for the foreseeable future.
Accendo Markets head of research Mike Van Dulken said this on oil's recent rally:
"Brent Crude traded a 27-month high overnight as the Kurdish referendum stokes supply concerns, while strong demand from China also aids sentiment.
"The global benchmark traded above $59.1 a barrel for the first time since July 2015, exacerbating the spread between Brent and its US counterpart, which is struggling to overcome resistance at $52.2. Despite coming off overnight highs of $59.5, Brent is holding around $59. "
Agenda: Sterling continues to punish euro; Brent crude hits highest level since 2015
Welcome to our live markets coverage.
The euro is continuing to struggle on forex markets after Angela Merkel opened the door to the far right in Germany's federal election, weakening her hand in coalition talks, with the pound rallying 0.5pc against the currency early on to €1.1412, its highest level since mid-July.
North Korea's sensational claim that the US has declared war on the rogue state has soured the mood on equity markets with the FTSE 100 lurching into negative territory early on. European stock indices are red across the board this morning with the CAC 40 and DAX shedding 0.2pc apiece.
Asia mkts in risk off mode amid fresh threats from N Korea but declines modest. Tech shares lower w/ Apple supply chain continuing to weaken pic.twitter.com/tnjPQgJohB
— Holger Zschaepitz (@Schuldensuehner) September 26, 2017
After breaching the $59 per barrel mark, Brent crude has hit its highest level in two years as rising tensions in the Kurdish region of Iraq ignite fears of squeezing supply and demand picks up.
On the macroeconomics front, we have to wait until the US session for our daily fix of data with consumer confidence and home sales figures due from the States while US Federal Reserve chair Janet Yellen could provide a little more clarity on the central bank's recent policy shift in a speech later this afternoon with persistently weak inflation still the main worry for policymakers across the pond.
Interim results: Personal Group Holdings, Instem, Universe Group, S&U, Inspiration Healthcare Group, GYG, Moss Bros Group, AG Barr, Mortgage Advice Bureau, Ebiquity, Taptica International, e-Therapeutics, Premier Technical Services Group, Minds + Machines Group, Public Power GDR, Card Factory, Horizon Discovery Group, Faroe Petroleum, Time Out Group, Mi-Pay Group, Altitude Group
Full-year results: Transense Technologies, Netcall, Mysale Group, Close Brothers Group, Animalcare Group
Trading statement: United Utilities Group, Thomas Cook Group
AGM: Great Eastern Energy Corporation, Arcontech Group, Scientific, Digital Imaging, Meikles, MediaZest, Galileo Resources, Kromek Group, Vitesse Media
Economics: New Home Sales (US), CB Consumer Confidence (US)
