1st Nov 2024 07:53
(Alliance News) - The FTSE 100 is called to open flat on Friday, after a slump in New York, leaving London's flagship index set to register a negative week.
Post-UK budget trade has been characterised by a weaker pound and a surge in gilt yields. The FTSE 100 has not fared much better. After a solid rise on budget day, the FTSE 250 and AIM All-Share have since also struggled.
UK Chancellor Rachel Reeves got an endorsement from the International Monetary Fund, though the budget has still sent jitters through markets.
"It's not exactly Truss-esque yet, but the market's verdict on Chancellor Reeves' first budget, delivered on Wednesday, became increasingly clear yesterday," Pepperstone analyst Michael Brown commented.
"Gilt yields surged to 1-year highs as UK fiscal concerns mount."
Eyes now turn state side, where they will stay next week too, with a Federal Reserve decision and a US election to come. Before that is Friday's nonfarm payrolls report.
According to FXStreet cited consensus, the US labour market is expected to have added 113,000 jobs in October, down from 254,000 in September.
In early UK corporate news, Tesco sealed the sale of its banking operations to Barclays and confirmed plans to return some cash to shareholders. boohoo named a new chief executive, promoting the boss of Debenhams, despite the insistence of Frasers that Mike Ashley should have taken on the job.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up just 2.2 points, largely flat, at 8,112.30
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Hang Seng: up 0.9% at 20,494.43
Nikkei 225: down 2.6% at 38,053.67
S&P/ASX 200: down 0.5% at 8,118.80
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DJIA: closed down 378.08 points, 0.9%, at 41,763.46
S&P 500: closed down 1.9% at 5,705.45
Nasdaq Composite: closed down 2.8% at 18,095.15
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EUR: higher at USD1.0875 (USD1.0859)
GBP: higher at USD1.2898 (USD1.2870)
USD: higher at JPY152.21 (JPY152.45)
GOLD: higher at USD2,748.81 per ounce (USD2,742.90)
(Brent): higher at USD74.14 a barrel (USD72.67)
(changes since previous London equities close)
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ECONOMICS
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Friday's key economic events still to come:
09:30 GMT UK manufacturing PMI
12:30 GMT US unemployment
13:45 GMT US manufacturing PMI
14:00 GMT US ISM manufacturing PMI
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UK Chancellor Rachel Reeves is seeking to calm the markets and provide reassurance of the nation's stability after her budget borrowing spree sparked jitters. The budget increased state spending by almost GBP70 billion per year – a little over 2% of gross domestic product – funded by increased taxes and borrowing. The scale of extra borrowing – around GBP32 billion a year on average – saw yields on government bonds increase as the market responded to the chancellor's plans. Reeves has played down the impact, saying that "markets will move on any given day" and sought to offer reassurance of her commitment to "economic and fiscal stability". Paul Johnson, director of the Institute for Fiscal Studies, had warned that the "implausibly low spending increases" in the budget meant there was a risk taxes would have to rise again if the economic growth Labour is depending on does not materialise. But the chancellor told Channel 4 she would "absolutely not" come back and raise taxes once again. She said: "We have now set the envelope of spending for this Parliament, and we're going to live within our means." Asked if she was worried about the market response, Reeves said: "Markets will move on any given day, but we have now put our public finances on a firm footing with robust fiscal rules." The International Monetary Fund endorsed the investment and spending on public services in the chancellor's budget, as well as sustainable tax rises. In an unusual move, the Washington-based watchdog said: "We support the envisaged reduction in the deficit over the medium term, including by sustainably raising revenue." But the verdict of the IMF appeared not to reassure financial markets.
The yield – or interest rate – on a 10-year gilt, an indicator for the cost of state borrowing, hit 4.568% on Thursday afternoon, the highest point since August 2023, while the pound also weakened against the dollar.
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UK house price growth slowed last month, numbers from mortgage lender Nationwide showed. Annual house price growth ebbed to 2.4% last month, from 3.2% in September. On a monthly basis, prices edged up 0.1%. They had risen 0.6% in September from August. The average UK house price now stands at GBP265,738, according to Nationwide. "Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the significantly higher interest rate environment," Nationwide analyst Robert Gardner said. Gardner said a change to stamp duty rules announced in Wednesday's UK budget could see a spark in transaction activity, as buyers look to get deals done before measures come into effect.
From the end of March, the temporary increase in the nil rate stamp duty thresholds will end. For first-time buyers of a home under GBP500,000, the nil rate band falls to GBP300,000 from GBP425,000 currently. For other home buyers, the nil rate band threshold is to decline to GBP125,000, from GBP250,000. "This will lead to a jump in transactions in the first three months of 2025 (especially March), and a corresponding period of weakness in the following three to six months," Gardner added.
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Fewer customers hit the shops in the UK in October, although the fall mainly reflected the timing of the school half-term, figures showed. According to BRC-Sensormatic data, total UK footfall decreased by 1.1% in October on-year, swung from a 3.3% annual rise in September. High street footfall decreased by 3.6% in October, compared with a rise of 0.9% in September. Retail park footfall increased by 4.8% in October, slowing from a 7.3% rise in September. Shopping centre footfall fell by 1.6% in October, swung from a 2.3% increase in September. Helen Dickinson, chief executive of the British Retail Consortium, said: "October's footfall figures showed a marginal decline compared to last year, primarily due to half-term moving out of the comparison. Despite the decline, retail parks continued to attract shoppers, as they saw positive footfall growth for the third consecutive month. Across England, the northern towns performed best, with Leeds and Liverpool seeing positive footfall last month." Andy Sumpter, retail consultant EMEA for Sensormatic, commented: "We expect to see a bumpy recovery as a myriad of market conditions - from the cost of living to shaky consumer confidence around the [UK government] budget – continue to make footfall performance volatile."
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Factories in Ireland were humming again last month, thanks to the strongest growth in new orders in over two years, survey results from S&P Global showed. The AIB Ireland manufacturing purchasing managers' index rose to 51.5 points in October from 49.4 in September, moving above the neutral 50-point mark to indicate expansion in the sector. It was the best manufacturing PMI score since February this year. New orders improved for the first time in eight months, S&P Global said, and the rate of growth in this new business intake was the strongest since May 2022. The improvement was driven entirely by a recovery in domestic demand in Ireland, survey participants reported, as export sales decreased for the ninth straight month. They attributed the lower export orders to weak demand from Europe.
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BROKER RATING CHANGES
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JPMorgan cuts Smith & Nephew price target to 1,180 (1,248) pence - 'overweight'
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Berenberg starts Morgan Sindall with 'buy' - price target 4,500 pence
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COMPANIES - FTSE 100
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Tesco confirmed it will press on with a plan to return cash to shareholders, as it sealed the sale of its banking operations to Barclays. The grocer is to keep "all the existing insurance and money services activities, including ATMs, travel money and gift cards". "These are capital-light, profitable businesses with a strong connection to the core retail offer," Tesco said. The deal had been announced in February. Barclays will pay about GBP600 million for the business, which has been in operation for more than 25 years. Tesco noted at the time that it will receive about GBP1 billion in cash in total, including a special dividend of GBP250 million paid by Tesco Bank back in August. Tesco added on Friday: "Having now completed the sale of its banking operations, Tesco is pleased to confirm that it intends to return GBP700 million to shareholders via an incremental share buyback, being the full cash proceeds and the additional net cash after the settlement of certain regulatory capital amounts and after transaction costs. This is expected to commence following completion of the final tranche of the GBP1 billion buyback programme which is currently underway." Tesco and Barclays will team for an initial period of 10 years to "distribute credit cards, unsecured personal loans and deposits using the Tesco brand", the lender said.
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Hargreaves Lansdown's buyers said a deal to acquire the wealth management platform has received the backing of the Turkish Competition Board. The deal still has some remaining conditions, including approval from the UK Financial Conduct Authority. Hargreaves back in August accepted a GBP5.44 billion offer from a consortium made up of CVC private equity funds, Nordic Capital XI Delta and Platinum Ivy B 2018 RSC Ltd, part of Abu Dhabi Investment Authority. Shareholders will receive 1,140 pence per share in cash, including a 30p dividend from Hargreaves.
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COMPANIES - FTSE 250
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CMC Markets said it has struck a partnership with New Zealand's ASB Bank. The online trading platform for contracts-for-difference and other financial instruments said it will provide ASB clients with "access to market-leading technology and execution". CMC's mobile and desktop trading technology will be integrated with ASB Bank's current tech offering, the FTSE 250 listing said. "Integration is expected to take between 12 and 18 months, with the associated costs expected to be largely capitalised and revenue upside proving meaningful in the context of our Invest business. On an ongoing basis, the cost impact is expected to be incremental as the group leverages existing scale to service the business," CMC said. "ASB customers will receive CMC's award winning mobile and desktop trading technology, as well as access to over 15 international markets, extensive market research and tax reporting tools." ASB is one New Zealand's largest banks. It has around 1.5 million customers.
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OTHER COMPANIES
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boohoo named Dan Finley, once of JD Sports and the current boss of Debenhams, as its new chief executive officer with immediate effect, resisting pressure from Frasers Group to appoint Mike Ashley. boohoo said Finley joined the company as Debenhams CEO back in January 2022, after the brand was bought out of administration by the online-only retailer. "Under his leadership, the business has been transformed into Britain's leading online department store," boohoo added. Prior to joining Debenhams, Finley held the role of multi channel director at athleisure retailer JD Sports. "He delivered unprecedented digital growth as JD Sports became a global multi-channel leader and entered the FTSE 100," boohoo said. Finley replaces John Lyttle, whose planned departure was announced last month. Lyttle was to stay until a successor was found, boohoo said at the time. Sports Direct owner Frasers , which has roughly a 27% stake in boohoo, wanted to install Mike Ashley as chief executive. Frasers had also hit out at a GBP222 million debt facility boohoo agreed with a consortium of its existing relationship banking group. Frasers labelled it "unsatisfactory" and a "backward step". In response to the Frasers suggestion that Ashley be CEO, boohoo said it must weigh up its "commercial position and the interests of other shareholders". It noted Frasers owns a 24% stake in rival Asos. Ashley founded Frasers, was formerly its CEO and owns around a 73% stake.
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Secure Trust Bank warned on annual profit as it cautioned that it will take longer than expected to recover value from defaulted vehicle finance balances. It also noted a recent UK Court of Appeal verdict which sided with consumers. The retail bank provides motor finance through the V12 Vehicle Finance and Moneyway brands. Secure Trust now expects continuing pretax profit to "fall materially below market expectations by between GBP10 million and GBP15 million" in 2024. Chief Executive Officer David McCreadie said: "We are disappointed that it will take longer than expected to recover value from the excess level of defaulted Vehicle Finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024. Notwithstanding the near-term impacts of the excess defaults in Vehicle Finance, we have seen arrears in Vehicle Finance fall to the lowest level since 2021, have continued to grow total net lending, continued to optimise our cost base, made good progress on early repayments of TFSME funding, and see continued growth opportunities ahead of us." Last week, the Court of Appeal ruled in favour of the appeals of three claimants, Johnson, Wrench and Hopcraft, against FirstRand Bank and Close Brothers Group PLC - the so-called Hopcraft case.
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Recent London-listing Fairview International said measures announced in the UK budget will "not adversely impact its trading". Fairview said it does not own any UK private schools and currently only owns independent schools in Malaysia. The budget announcement said VAT will be applied on private school fees from January 2025. Fairview Chair Daniel Chian said: "Firstly, we have made no secret of our plans to grow our network of schools and have identified the UK as one of our target countries for expansion. As much as I regret being the beneficiary of another person's misfortune, it is surely very probable that a number of UK independent schools will struggle under the higher costs imposed by the new tax regime - as well as sadly face the possibility that some students will leave due to the imposition of VAT on fees. Fairview, through our network, prides itself on providing high quality and premium education with affordable school fees. This model enables us to operate competitively even in challenging markets and our team will examine suitable acquisition opportunities in the UK, many of which could now be available on more attractive terms." The schools operator floated last month at 10 pence per share. Shares are up 14% since then.
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By Eric Cunha, Alliance News news editor
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