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London open: FTSE up but gains muted after Fitch downgrade
London stocks were higher in early trade on Thursday, but gains were unspectacular after Fitch downgraded the UK’s credit rating outlook.
At 0830 BST, the FTSE 100 was up 0.2% at 7,064.94, while sterling was 0.1% firmer versus the dollar at 1.1339.
Late on Wednesday, Fitch downgraded the UK’s credit outlook to “negative” from “stable”, citing the government’s recently-announced mini-budget.
Fitch said: “The large and unfunded fiscal package announced as part of the new government’s growth plan could lead to a significant increase in fiscal deficits over the medium term.”
The ratings agency maintained its AA- credit rating for the UK. This is one notch lower than Standard & Poor’s.
Fitch said the change in fiscal trajectory will push general government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting both higher primary deficits and a weaker growth outlook.
“This level would be more than double the forecast ‘AA’ median of 49%,” it said.
It also noted the recent surge in government bond yields, saying this reflects higher interest rates and uncertainty over the fiscal strategy.
Fitch said the government deficit will remain elevated at 7.8% of GDP in 2022 and increase to 8.8% in 2023, due to the impact of high inflation on index-linked government debt, household support, the energy price cap and tax cuts, before easing to 7.2% in 2024.
This compares with deficits projected to average 2% for the ‘AA’ median, it noted.
The ratings agency also said that although the government reversed the scrapping of the 45p top rate tax, “the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy”.
In equity markets, tobacco company Imperial Brands jumped to the top of the FTSE 100 as it unveiled a £1bn share buyback and said current year trading was in line with expectations. “In line with previous guidance, we expect full-year net revenue and group adjusted operating profit to both grow by around 1% at constant currency,” the company said.
RS Group – formerly Electrocomponents – rallied after it said full-year revenue and adjusted pre-tax profit were set to be “slightly ahead” of current consensus estimates following strong trading year to date.
On the downside, Shell lost ground as it warned third-quarter profits would be hit by a sharp decline in oil refining margins and weaker natural gas trading.
Victoria Scholar, head of investment at Interactive Investor, said: “Shell enjoyed record profits in the first and second quarter spurred by a surge in underlying oil and gas prices following Russia’s invasion of Ukraine. However, since June, oil has posted four consecutive months of declines, with Brent crude down by around 25% even after this week’s countertrend rally.
“In what is a notoriously cyclical business, Shell is grappling with a dysfunctional and volatile gas market as well as expectations of softening oil demand, particularly from China as the global economy cools.”
Elsewhere, DS Smith, Centrica, Kingfisher and Synthomer fell as they traded without entitlement to the dividend.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Imperial Brands Plc | +3.80% | +72.00 | 1,969.00 |
| 2 |  |
Tui Ag | +3.18% | +3.50 | 113.55 |
| 3 |  |
Segro Plc | +2.51% | +18.20 | 742.40 |
| 4 |  |
Prudential Plc | +2.14% | +19.80 | 946.60 |
| 5 |  |
Flutter Entertainment Plc | +2.03% | +210.00 | 10,535.00 |
| 6 |  |
Informa Plc | +1.92% | +10.20 | 542.20 |
| 7 |  |
Rentokil Initial Plc | +1.81% | +8.90 | 501.00 |
| 8 |  |
Marks And Spencer Group Plc | +1.75% | +1.70 | 98.58 |
| 9 |  |
International Consolidated Airlines Group S.a. | +1.59% | +1.59 | 101.30 |
| 10 |  |
Ocado Group Plc | +1.53% | +7.00 | 463.10 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Shell Plc | -4.29% | -102.00 | 2,276.50 |
| 2 |  |
Smith (ds) Plc | -2.75% | -7.10 | 251.40 |
| 3 |  |
Anglo American Plc | -2.40% | -69.00 | 2,801.00 |
| 4 |  |
Hikma Pharmaceuticals Plc | -1.77% | -23.00 | 1,278.50 |
| 5 |  |
Centrica Plc | -1.31% | -0.94 | 70.68 |
| 6 |  |
Bp Plc | -1.28% | -5.90 | 454.30 |
| 7 |  |
Barclays Plc | -1.07% | -1.58 | 146.04 |
| 8 |  |
Bunzl Plc | -1.00% | -28.00 | 2,775.00 |
| 9 |  |
Kingfisher Plc | -0.98% | -2.20 | 223.30 |
| 10 |  |
Carnival Plc | -0.78% | -4.40 | 558.20 |
US close: Stocks off earlier lows after avalanche of data
Wall Street stocks closed in the red on Wednesday, but off earlier lows, after a number of data points were released earlier in the session.
At the close, the Dow Jones Industrial Average was down 0.14% at 30,273.87, while the S&P 500 lost 0.2% to 3,783.28 and the Nasdaq Composite was off 0.25% at 11,148.64.
The Dow closed 42.45 points lower on Wednesday, taking a chunk out of solid gains recorded over the preceding two days.
“There is less chatter about a potential “pivot” from the Federal Reserve and as a result, yields are up, and equities are down,” said Equiti Capital market analyst David Madden.
“It is fair to say that profit taking is playing a role in equities sell off too as the indices saw major rallies in the previous two sessions.”
There were a number of data points released through the course of the day, with the first cab off the rank being US mortgage applications.
They fell 14.2% week-on-week in the seven days ended 30 September, according to the Mortgage Bankers Association.
Elsewhere, the US private sector added more jobs than expected in September, according to the latest data from ADP.
Employment rose by 208,000, versus expectations for a 200,000 jump and up from a revised 185,000 in August.
On another note, the US trade deficit narrowed to $67.4bn in August, according to the Bureau of Economic Analysis, slightly below market forecasts for a print of $67.7bn and the lowest reading seen since May 2021.
Imports declined 1.1% to $326.3bn, while exports fell at a much slower 0.3% clip to $258.9bn.
Still on data, S&P Global‘s US composite purchasing managers’ index (PMI) was revised slightly higher to 49.5 in September, up from a preliminary reading of 49.3 and pointing to a much smaller contraction in private sector activity than August’s print of 44.6.
Finally, the Institute for Supply Management‘s non-manufacturing PMI dipped from 56.9 in August to 56.7 in September, beating forecasts for a print of 56 and above its historical average of 55.
The drop was principally a result of a slowdown in business activity and new orders that offset the effects of improved employment and easing price pressures.
In equities, Eiger BioPharmaceuticals lost 5.01% after it said it would no longer seek emergency use authorisation from the FDA for its experimental treatments for Covid-19.
On the upside, potato peddler Lamb Weston added 4.19% after it beat expectations for first-quarter profit amid higher prices.
Consumer products firm Helen of Troy was ahead 3.44% after it too beat quarterly earnings expectations, although the maker of Braun and Honeywell household goods did lower its full-year outlook.
Thursday newspaper round-up: Stealth tax, mortgage rates, UK credit rating
Millions of households are facing a “stealth” tax raid under Liz Truss’s government despite her promise to support workers through the cost-of-living crisis by lowering their tax bills, Britain’s leading economic thinktank said on Wednesday. The Institute for Fiscal Studies (IFS) has calculated that for every £1 given to workers by cutting headline tax rates, £2 was being taken away through a freeze on the level at which people begin paying tax on their earnings. – Guardian
The average rate on a new two-year fixed mortgage has risen above 6% for the first time since 2008, according to data that will intensify concern about the crisis in the home loans market. News that the typical new rate had climbed to 6.07% came the day before the chancellor, Kwasi Kwarteng, was due to meet with executives from Britain’s biggest banks to discuss the impact of the financial markets turmoil on mortgages and availability. – Guardian
Fitch has threatened to downgrade the UK’s credit rating in the wake of spending plans set out by Liz Truss and Kwasi Kwarteng in the mini-Budget. Fitch said the country’s credit rating remained “AA-” but said there had been a “material change” which required it to update investors. – Telegraph
The Treasury will impose an additional £21bn of income taxes despite Liz Truss’s “tax-cutting” mini-Budget, a detailed analysis released on Thursday has revealed. The average household will be £1,450 per year worse off as a result of the stealth raid, according to the Institute for Fiscal Studies (IFS) think tank. – Telegraph
A City solicitor who told a client to “burn” a secure messaging system in a dispute with Ocado has avoided jail after being found in contempt of court. Raymond McKeeve, a former partner at the London office of US law firm Jones Day, was yesterday fined £25,000 and ordered to pay £600,000 costs. – The Times
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