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London open: Stocks fall, sterling drops again as IMF criticises UK tax cuts
London stocks fell in early trade on Wednesday, with sterling under the cosh again after the International Monetary Fund criticised the UK government’s tax plan.
At 0820 BST, the FTSE 100 was 0.8% lower at 6,930.20, while the pound was down 0.6% against the dollar at 1.0673 after the IMF urged the UK to reverse the tax cuts announced in the mini-Budget last week, warning that the measures will add to inflation and increase inequality.
In addition, Moody’s cautioned late on Tuesday that the mini-budget risks “permanently weakening the UK’s debt affordability”, suggesting that a credit rating downgrade could be on the cards.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The IMF’s move has added to worries that the UK is fast taking on the characteristics of an emerging market economy, and risks ditching its developed country status. It’s now not only wracked with trade disruptions, an energy crisis and soaring inflation but it’s also being closely monitored by international body known as the world’s lender of last resort.
“UK gilt yields – the interest paid on government debt – have retreated marginally but they are still sky high, with the yield on 10-year gilts hovering around 4.4%, up my more than 340% in a year. They have hit the highest level since the financial crisis in 2008, which is piling pressure on mortgage holders, given gilt yields have an impact on swap rates, which guide lenders’ mortgage offers.
“Expectations that there will be a super-size interest rate hike coming from the Bank of England to try and counter the government splurge on tax cuts and spending have increased. But chief economist Huw Pill signalled this significant monetary response would not come until policymakers are due to meet as scheduled in November, instead of an emergency hike, which is likely to have added to the pound’s fresh weakness.”
In equity markets, luxury fashion brand Burberry was the standout gainer on the FTSE 100 even as it said that chief creative officer Riccardo Tisci will be stepping down at the end of the month. Tisci has decided to leave after almost five years, during which he spearheaded Burberry’s creative transformation.
He will be succeeded by Daniel Lee, who will join the group on 3 October. Burberry said that Lee – an award-winning designer – will be based at the company headquarters in London and report to chief executive Jonathan Akeroyd.
Elsewhere, manufacturing firm Spirax-Sarco Engineering ticked up after agreeing to buy US custom electric thermal solutions specialist Durex International in a deal valued at $342.2m.
Outside the FTSE 350, fast-fashion retailer Boohoo slumped as it cut its outlook for the full year and reported a slide in interim profit, pointing to a challenging consumer backdrop.
The company said it now expects lower sales than previously anticipated, which in turn means that adjusted EBITDA margins are likely to be between 3% and 5%, down from previous guidance of 4% to 7%. Boohoo, which had previously guided to “low single digits” growth in revenue, highlighted an increase in inflation-driven costs.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Burberry Group Plc | +3.27% | +55.00 | 1,739.50 |
| 2 |  |
Hikma Pharmaceuticals Plc | +2.10% | +26.00 | 1,267.00 |
| 3 |  |
Gsk Plc | +0.87% | +11.40 | 1,328.00 |
| 4 |  |
British American Tobacco Plc | +0.31% | +10.50 | 3,385.00 |
| 5 |  |
Fresnillo Plc | +0.03% | +0.20 | 713.40 |
| 6 |  |
Morrison (wm) Supermarkets Plc | +0.00% | +0.00 | 286.40 |
| 7 |  |
Evraz Plc | +0.00% | +0.00 | 82.68 |
| 8 |  |
Royal Bank Of Scotland Group Plc | +0.00% | +0.00 | 120.90 |
| 9 |  |
Reckitt Benckiser Group Plc | +0.00% | +0.00 | 6,498.00 |
| 10 |  |
Rsa Insurance Group Ld | +0.00% | +0.00 | 684.20 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Legal & General Group Plc | -8.18% | -19.10 | 214.30 |
| 2 |  |
Aviva Plc | -7.51% | -30.70 | 378.20 |
| 3 |  |
Ocado Group Plc | -7.50% | -40.60 | 500.60 |
| 4 |  |
Direct Line Insurance Group Plc | -6.80% | -12.60 | 172.75 |
| 5 |  |
Phoenix Group Holdings Plc | -6.66% | -37.20 | 521.60 |
| 6 |  |
Easyjet Plc | -6.65% | -20.00 | 280.80 |
| 7 |  |
Rolls-royce Holdings Plc | -6.64% | -4.60 | 64.63 |
| 8 |  |
Admiral Group Plc | -6.58% | -130.00 | 1,846.50 |
| 9 |  |
Tui Ag | -5.91% | -7.90 | 125.75 |
| 10 |  |
Barclays Plc | -5.78% | -9.00 | 146.84 |
US close: Dow Jones extends losses
Wall Street stocks turned in a mixed performance on Tuesday after the blue-chip Dow Jones closed at its lowest level in more than two years in the previous session.
At the close, the Dow Jones Industrial Average was down 0.43% at 29,134.99, while the S&P 500 was 0.21% weaker at 3,647.29 and the Nasdaq Composite saw out the session 0.25% stronger at 10,829.50.
The Dow closed 125.82 points lower on Tuesday, extending losses recorded in the previous session amid a surging dollar and heightened bond yields.
The greenback was in focus yet again on Tuesday as the British pound bounced back more than 1% in early trading to sit at $1.083 just 24 hours after hitting a record low against the USD as investors looked for further clarity regarding UK monetary policy amid calls for aggressive rate hikes in order to stabilise the pound.
Oil prices were slightly higher on Tuesday after tumbling to their lowest level since January in the previous session, with West Texas Intermediate crude futures up more than 1% at over $78 per barrel.
Comments from Cleveland Fed president Loretta Mester also drew an amount of investor attention, with the central banker saying inflation was “unacceptably high” and that uncertainties had made monetary policy decisions “not trivial”.
“When there is uncertainty, it can be better for policymakers to act more aggressively,” she said. “Aggressive and pre-emptive action can prevent the worst-case outcomes from actually coming about.” Mester added that she would be “very cautious” when assessing inflation data.
On the macro front, new orders for manufactured durable goods slipped 0.2% month-on-month in August, according to the Census Bureau, following a revised 0.1% drop in July and better than estimates for a larger fall of 0.4%.
Elsewhere, US house price growth eased in July, according to the latest S&P CoreLogic/Case-Shiller national home price index. The national home price index, which covers all nine US census divisions, rose 15.8% on the year, down from 18.1% a month earlier. This marked the slowest pace of growth since April 2021.
Still on data, new home sales in the soared 28.8% month-on-month in August to a seasonally adjusted annual rate of 685,000, according to the Census Bureau, the biggest increase since June 2020, the highest level in five months, and above market expectations for a reading of 500,000.
Finally, the Conference Board‘s September consumer confidence index increased to 103.2 in August, according to the Conference Board, up from 95.3 in July and following three straight monthly declines.
In the corporate space, Cracker Barrel shares rose in early trading after the restaurant and retailer posted a quarterly profit beat and issued some upbeat revenue guidance, while Blackberry shares slipped in extended trading after the group reported a drop in Q2 cybersecurity revenues.
Wednesday newspaper round-up: Royal Mail, building societies, pension funds
The International Monetary Fund has launched a stinging attack on the UK’s tax-cutting plans and called on Liz Truss’s government to reconsider them to prevent stoking inequality. In rare public criticism of a leading global economy, the Washington-based fund said Kwasi Kwarteng’s mini-budget risked undermining the efforts of the Bank of England to tackle rampant inflation amid the cost of living emergency. – Guardian
Royal Mail workers are to hold a further 19 strikes in October and November in a deteriorating and long-running dispute over pay and conditions. The Communication Workers Union (CWU) announced that the industrial action in the run up to Christmas will be a mixture of single days and rolling action across Royal Mail Group’s network. – Guardian
The Daily Mail and its gossipy sibling Mailonline are to merge under plans unveiled by their publisher as it attempts to forge a digital future for titles that frequently overlap and compete. In a memo to staff that sparked newsroom fears of significant job cuts, their editors said they would be “ending unnecessary duplication”. – Telegraph
Building societies could be forced to stop offering fixed rate mortgages for months as soaring lending costs cause havoc among smaller lenders, brokers have warned. Some of the UK’s biggest mortgage lenders, including Skipton Building Society, Virgin Money and Paragon Bank, have withdrawn new mortgage products this week due to spiralling borrowing costs. – Telegraph
City chiefs have expressed concern that an unprecedented rise in yields on long-dated government bonds is inflicting huge and sudden cash calls on traditional pension funds that could damage the gilts market. Investors dumped 30-year gilts yesterday, sending their price sharply lower and their yield soaring 45 basis points to 4.97 per cent, a huge rise for a single day. – The Times
American regulators have fined 16 financial firms including Barclays, Goldman Sachs and Citigroup more than $1.8 billion over “widespread and longstanding failures” to track employees’ messages. A wide-ranging investigation by the US Securities and Exchange Commission (SEC) found “pervasive” communications on unofficial channels, the agency said. – The Times
