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London open: FTSE nudges lower as GDP data raises risk of recession
London stocks nudged lower in early trade on Wednesday as the latest GDP data raised fears of a recession, with housebuilders under the cosh after Barratt Developments warned of a “less certain” outlook.
At 0835 BST, the FTSE 100 was down 0.1% at 6,879.28.
Meanwhile, sterling was 0.1% lower against the dollar at 1.0963, giving up earlier gains, as investors mulled mixed messages about the Bank of England’s bond market support.
BoE governor Andrew Bailey insisted on Tuesday that the Bank would not extend emergency support for the bond market and that pension funds had until Friday to shore up their portfolios against further shocks.
However, a Financial Times report suggested the Bank has indicated privately to bankers that it could extend the bond-buying programme past Friday’s deadline.
Oanda market analyst Craig Erlam said: “While Governor Bailey’s warnings to pension funds this week gave the impression there’s no turning back, it would appear that isn’t entirely true,” he said.
“And that shouldn’t be as surprising as it seemingly is. While the hope within the central bank will be that its emergency measures have allowed pension funds to recalibrate and address the vulnerability in the bond market, if that doesn’t prove to be the case it would be ridiculous to pull the rug from under it rather than extend the measures until the end of the month when we get the full budget.
“Still, at a time when investors are living in fear of what’s around the corner, perhaps the mindset of ‘prepare for the worst and hope for the best’ is behind it. It does go to show how huge the Chancellor’s budget is in three weeks and the carnage that another misstep could cause. The BoE can buy the government time for now but it isn’t a permanent solution.”
Investors were also digesting the latest data from the Office for National Statistics, which showed the economy unexpectedly contracted in August for the first time in two months, raising the risk of a recession.
GDP fell 0.3% following 0.1% growth in July, and versus expectations of flat reading. July’s growth was revised down from an initial estimate of 0.2%.
The data showed that the UK economy is now 0.5% above its pre-coronavirus level in the fourth quarter of 2019.
Manufacturing production fell 1.6%, while output in the services sector dipped 0.1% and is now 0.2% below pre-Covid levels.
ONS chief economist Grant Fitzner said: “The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole.”
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “The nation appears to have officially leapt from stagnation to contraction once again, in the latest instalment of the monthly GDP rollercoaster, with economic activity ebbing and flowing erratically for the last nine months.
“This latest data set unfortunately gels with the IMF’s recent warning that 2023 will feel like a recession for many people, and that the worst of the global growth slowdown is yet to come. Investors are waiting for signs that the recession has arrived, and while on traditional metrics, the UK isn’t there yet, today’s announcement takes us one heavy step closer to that reality.”
In equity markets, housebuilder Barratt Developments was the worst performer on the FTSE 100 after saying it expected annual results to be in line with expectations, but warning that private reservations had slipped as customers reacted to rising interest rates and reduced mortgage availability.
“The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market,” Barratt said. Peers Taylor Wimpey, Persimmon and Berkeley also fell.
Synthomer tumbled after the chemicals company said it had suspended dividend payments until the end of 2023, including the payment that is due this November.
Tullow Oil gushed lower after a downgrade to ‘hold’ at Jefferies.
Elsewhere, energy firms were in focus and holding up well after the government announced late on Tuesday that it will in fact be going ahead with a windfall tax for low carbon generators.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Carnival Plc | +3.77% | +19.20 | 528.00 |
| 2 |  |
Astrazeneca Plc | +2.45% | +241.00 | 10,066.00 |
| 3 |  |
Spirax-sarco Engineering Plc | +2.30% | +240.00 | 10,695.00 |
| 4 |  |
Burberry Group Plc | +1.85% | +34.50 | 1,900.00 |
| 5 |  |
Bunzl Plc | +1.80% | +48.00 | 2,712.00 |
| 6 |  |
Tui Ag | +1.79% | +2.00 | 114.00 |
| 7 |  |
Rentokil Initial Plc | +1.65% | +7.80 | 481.30 |
| 8 |  |
Centrica Plc | +1.56% | +1.08 | 70.44 |
| 9 |  |
Diageo Plc | +1.35% | +49.50 | 3,711.00 |
| 10 |  |
Croda International Plc | +1.35% | +88.00 | 6,604.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Barratt Developments Plc | -4.58% | -15.70 | 327.30 |
| 2 |  |
Barclays Plc | -4.28% | -6.00 | 134.16 |
| 3 |  |
Persimmon Plc | -3.58% | -43.50 | 1,170.00 |
| 4 |  |
Lloyds Banking Group Plc | -3.29% | -1.36 | 40.13 |
| 5 |  |
Marks And Spencer Group Plc | -2.26% | -2.22 | 95.98 |
| 6 |  |
British Land Company Plc | -2.05% | -6.80 | 325.10 |
| 7 |  |
Ocado Group Plc | -2.00% | -8.30 | 406.20 |
| 8 |  |
Berkeley Group Holdings (the) Plc | -1.91% | -63.00 | 3,230.00 |
| 9 |  |
Aviva Plc | -1.90% | -7.30 | 376.40 |
| 10 |  |
Land Securities Group Plc | -1.84% | -9.20 | 491.00 |
US close: Stocks deliver mixed performance ahead of Q3 earnings
Wall Street stocks put on a mixed showing on Tuesday as market participants continued to brace for the rapidly approaching Q3 earnings season.
At the close, the Dow Jones Industrial Average was up 0.12% at 29,239.19, while the S&P 500 was 0.65% weaker at 3,588.84 and the Nasdaq Composite saw out the session 1.10% softer at 10,426.19.
The Dow closed 36.31 points lower on Tuesday, extending losses recorded in the previous.
Market participants digested comments from JPMorgan’s Jamie Dimon throughout the session, after the bank’s chief executive warned that the US looked set to fall into a recession at some point over the next “six to nine months” and cautioned that the S&P 500 may fall as much as another 20%.
Also in focus, the yield on the 30-year US Treasury note climbed to 3.927% on Tuesday, after hitting its highest level in nine years, while the benchmark 10-year note yielded 3.945% and the two-year yield inched higher to 4.295%.
Escalating tensions in Ukraine, rising Covid cases in China, and mounting tensions between Washington and Shanghai also dampened sentiment prior to the opening bell.
On the macro front, the National Federation of Independent Businesses‘ business optimism index rose to a four-month high of 92.1 in September, up from 91.8 in August. However, the NFIB said fewer business owners expect to experience better business conditions over the next six months.
Still to come, consumer inflation expectations fell for a third consecutive month in September, according to the Federal Reserve Bank of New York, dropping from 5.7% in August to 5.4% in September. Consumers now expect prices to rise 0.5% for gas, 6.9% for food, 9.0% for college education and 9.7% for rent.
Wednesday newspaper round-up: Windfall tax, trade, pensions
Renewable power companies will have their revenues capped in England and Wales, after the government bowed to pressure to clamp down on runaway profits. The announcement late on Tuesday night provoked immediate accusations that Downing Street had performed “another screeching U-turn” – having previously rejected calls to impose a windfall tax on power giants. – Guardian
UK regulators are struggling to cope with the post-Brexit trading environment because of “poor preparation and planning”, a House of Commons committee investigation has found. Almost two years after the UK quit the EU, there are still shortages of vets, toxicologists, lawyers and economists to deal with the UK’s new status as a “third country”, found the public accounts committee report, Regulating After EU Exit. – Guardian
The publisher of the Financial Times has revealed a slowdown in subscriber growth despite returning to profit. The Financial Times Limited, its UK business, reported a profit after tax of £11.6m for 2021, having fallen to a £34.5m loss the previous year. – Telegraph
Pension chiefs have warned the Bank of England it risks creating further market chaos by ending its bond-buying support later this week after officials were forced into another intervention. The industry urged Governor Andrew Bailey to extend the Bank’s bond purchases to at least the Chancellor’s Hallowe’en fiscal statement amid growing fears of more market chaos when the support wraps up on Friday. – Telegraph
Investors withdrew £11.25 billion from UK-domiciled open-ended investment funds and exchange-traded funds, the largest sum in more than a decade, according to the financial research firm Morningstar. Markets worldwide have seen a big sell-off since the start of the year as the war in Ukraine, rising interest rates, inflation and threats of recession rattle investors. An open-ended fund is a mutual investment fund that can issue and redeem shares at any time. – The Times
