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London open: Stocks in the red as BoE expands bond-buying scheme
London stocks fell in early trade on Tuesday after the Bank of England intervened in bond markets once more, and as investors mulled the latest UK jobs data.
At 0840 BST, the FTSE 100 was down 0.8% at 6,903.54, while the pound was 0.1% lower against the dollar at 1.1047.
Richard Hunter, head of markets at Interactive Investor, said: “The growing list of concerns with which investors are grappling has led to further market weakness in the absence of any respite.
“The latest semiconductor restrictions are a reminder of the fractious relationship between the US and China, while the fresh escalation of hostilities in the Russia and Ukraine war add to an already brittle sentiment. Alongside the existing recessionary fears following on from the Federal Reserve’s stubbornly aggressive policy in raising rates to tackle inflation, for the moment there seems to be little light at the end of the tunnel.”
On home shores, the Bank of England announced earlier that it has widened its emergency bond-buying programme to include index-linked bonds, which are linked to inflation. The Bank said the beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts.
“Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” it said.
The announcement followed another selloff in UK debt markets, particularly in the index-linked market, and came just a day after the BoE said it would double the size of its daily purchases to £10bn.
Neil Wilson, chief market analyst at Markets.com, said: “It all seems rather messy and panicky – as expected the market was always going to retest the Bank’s resolve and put the Budget to the sword. To expand your emergency intervention in the market once is unfortunate, to do so twice looks like carelessness.”
Investors were also mulling the latest figures from the Office for National Statistics, which showed the unemployment rate fell in the three months to August to its lowest level since February 1974 as more Britons dropped out of the workforce due to long-term illness.
The unemployment rate declined to 3.5% from 3.6% in the previous three months, versus expectations for it to remain unchanged. The ONS said the number of those “economically inactive” because they are long-term sick increased to a record high.
Total pay, including bonuses, rose 6% on the year, up from 5.5% in the three months to July. Regular pay, excluding bonuses, was grew 5.4%, up from 5.2%. In real terms, however, adjusted for inflation, total pay fell 2.4% and regular pay was down 2.9%.
The data showed that the number of workers on payrolls rose by 69,000 between August and September to a record 29.7m.
David Freeman, head of labour market and household statistics at the ONS, said: “The unemployment rate continues to fall and is now at its lowest for almost 50 years.
“However, the number of people neither working nor looking for work continues to rise, with those who say this is because they’re long-term sick reaching a record level.
“While the number of job vacancies remains high after its long period of rapid growth, it has now dropped back a little, with a number of employers telling us they’ve reduced recruitment due to a variety of economic pressures.
“However, because unemployment is also down, there continues to be more vacancies than unemployed people.”
Elsewhere, the latest BRC-KPMG Retail Sales Monitor revealed that sales volumes continued to fall in September as weakening consumer confidence weighed heavily on spending.
In equity markets, Aviva, Legal & General and Prudential all fell after the BoE warned over dysfunction in the government debt market.
PureTech Health was on the back foot after saying that it and US-based Nektar Therapeutics terminated merger talks only four days after they announced a potential tie-up.
Irish convenience food group Greencore fell after it said full-year adjusted operating profit and earnings per share were set to be at the lower end of the expected range, partly due to the impact of rail strikes.
Ferrexpo tumbled as the iron ore pellet maker said it had suspended operations in Ukraine after Monday’s Russian missile strikes on the country damaged electrical power infrastructure.
British Gas owner Centrica was boosted by an upgrade to ‘buy’ at Citi, while Drax was higher after an upgrade to ‘neutral’ by the same outfit. Both stocks fell sharply on Monday following reports UK ministers are pressing ahead with a renewable energy windfall tax.
B&Q owner Kingfisher was weaker after a downgrade to ‘sell’ at Numis.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Easyjet Plc | +3.04% | +9.00 | 305.00 |
| 2 |  |
Rolls-royce Holdings Plc | +2.79% | +1.92 | 70.81 |
| 3 |  |
Marks And Spencer Group Plc | +2.61% | +2.52 | 99.02 |
| 4 |  |
Tui Ag | +2.35% | +2.55 | 110.90 |
| 5 |  |
Rentokil Initial Plc | +2.00% | +9.30 | 474.40 |
| 6 |  |
Compass Group Plc | +1.51% | +27.00 | 1,820.00 |
| 7 |  |
Centrica Plc | +1.48% | +1.02 | 70.06 |
| 8 |  |
International Consolidated Airlines Group S.a. | +1.12% | +1.14 | 102.88 |
| 9 |  |
Next Plc | +1.06% | +48.00 | 4,577.00 |
| 10 |  |
Coca-cola Hbc Ag | +0.71% | +14.00 | 1,973.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Croda International Plc | -4.02% | -270.00 | 6,448.00 |
| 2 |  |
Antofagasta Plc | -3.96% | -44.50 | 1,078.50 |
| 3 |  |
Bhp Group Limited | -3.47% | -80.50 | 2,237.00 |
| 4 |  |
Glencore Plc | -3.31% | -16.35 | 477.05 |
| 5 |  |
Aviva Plc | -3.25% | -13.00 | 387.40 |
| 6 |  |
Anglo American Plc | -3.23% | -89.00 | 2,663.50 |
| 7 |  |
Bp Plc | -3.03% | -14.00 | 448.45 |
| 8 |  |
Legal & General Group Plc | -2.95% | -6.60 | 217.30 |
| 9 |  |
Rio Tinto Plc | -2.90% | -148.50 | 4,971.50 |
| 10 |  |
Johnson Matthey Plc | -2.63% | -49.00 | 1,815.00 |
US close: Stocks end session lower ahead of Q3 bank earnings
Wall Street stocks closed lower on Monday as market participants prepped for a busy week full of Q3 bank earnings.
At the close, the Dow Jones Industrial Average was down 0.32% at 29,202.88, while the S&P 500 was 0.75% weaker at 3,612.39 and the Nasdaq Composite saw out the session 1.04% softer at 10,542.10.
The Dow closed 93.91 points lower on Monday, extending losses recorded in the previous session after September’s non-farm payrolls left investors thinking that the Federal Reserve will likely hike short-term interest rates by another 75 basis points at its next meeting.
Monday marked the beginning of what will likely be a rollercoaster week for major indices, with four of the world’s largest banks reporting earnings throughout the week and a fresh monthly consumer price index reading coming on Thursday. Strong earnings are likely to be the only thing that could relieve equity investors’ central bank-fuelled pains.
While no major data points were due out on Monday, investors digested comments from the Federal Reserve’s Charles Evans, who said the central bank was holding fast in its commitment to bring down inflation – even if it means job losses.
Fed vice chair Lael Brainard also delivered a speech on Monday, saying the effect of interest rate hikes on high inflation may take longer than anticipated. Brainard said the moderation on the demand side due to the central bank’s aggressive monetary tightening was “only partly realised so far”. “We are starting to see the effects in some areas, but it will take some time for the cumulative tightening to transmit throughout the economy and to bring inflation down,” she added.
No major corporate earnings were released on Monday.
Bond markets were closed in observance of Columbus Day.
Tuesday newspaper round-up: Mortgage defaults, Community Fibre, Joules
Kwasi Kwarteng will need to find £60bn of savings by 2026 to fill the gap left by unfunded tax cuts and the costs of extra borrowing triggered by a panicked reaction on international money markets to the chancellor’s “mini-budget”, according to the Institute for Fiscal Studies. The UK will also struggle to hit the chancellor’s 2.5% growth target, with economic forecasts by the investment bank Citigroup that the IFS uses to underpin its analysis showing the UK will struggle to grow at more than 0.8% on average over the next five years. – Guardian
The boss of Santander UK says the bank is putting aside more money for potential defaults linked to the cost of living crisis after seeing a pickup in customers falling behind on mortgage and loan payments. Mike Regnier told the Guardian that he was keeping a close eye on the “strain and pressure” facing customers as a result of the cost of living crisis, which has made it harder for some households to keep up with rising food and energy bills and financial commitments such as home loans. – Guardian
More than one in three businesses are planning to raise workers’ pay to match or exceed inflation as companies battle to retain staff amid widespread shortages. According to a survey conducted by the Confederation of British Industry (CBI), three-quarters of businesses have been impacted by labour shortages over the last year, with half of those reporting they cannot meet demand from customers as a result. – Telegraph
A private equity backed-challenger to BT has secured nearly £1bn in funding to expand its full-fibre network across London, the latest injection of capital into the so-called “alt nets” taking on the former state monopoly. Community Fibre, which is backed by US fund Warburg Pincus, Deutsche Telekom, infrastructure fund Amber and the railways pensions scheme, is planning to wire up 2.2 million London homes to full fibre broadband by 2024. – Telegraph
Joules, which has 130 stores, said an insolvency deal with creditors and landlords could be a way to head off a collapse that has led to its shares falling sharply. A multimillionaire car dealer who has just become the second largest shareholder in Joules says he has not ruled out taking part in a rescue of the beleaguered fashion retailer. – The Times
