- FTSE 100 close to session highs, up 42 points
- Rishi Sunak to become new PM as Penny Mordaunt withdraws
- Pearson jumps 7.8% as tech push starts to pay of
3.00pm: US PMI
2.43pm: FTSE higher, bootsed by strong open in the US
FTSE 100 close to its best levels for the day following news that Rishi Sunak will be the UK’s new Prime Minister and as US markets made a strong start to the day.
At 2.40pm the lead index was 44 points to the good at 7,014 while the FTSE 250 was 218 points higher at 17,425.
Sunak’s appointment today removed a potentially damaging, protracted and divisive battle for the leadership and also means the government’s fiscal statement due next Monday is likely to go ahead as planned.
Equities were given a further boost from the US this afternoon where markets made a strong start to the day.
Just after the market opened, the Dow Jones Industrial Average had added 212 points or 0.7% at 31,294 points and the S&P 500 was up 14 points or 0.3% at 3,766 points, while the tech-laden Nasdaq Composite had slipped 47 points or 0.4% at 10,812 points.
2.20pm: FTSE moves higher as Sunak confirmed as next PM
News that Rishi Sunak is to be the new prime minister has gone down well with the markets with the FTSE 100 extending its gains moving to its session highs.
At 2.20pm London’s blue-chip index was 50 points higher at 7,109 while the FTSE 250 was up 229 points at 17,436, also at its best levels for the day/
Government borrowing costs also held their gains from earlier with yields on gilts sharply lower.
But the challenges for Sunak remain as today’s bleak OMI figures showed.
Piero Cingari, market specialist at Capital.com said: “In the short term, the appointment of Rishi Sunak as the UK’s next PM may lessen some of the pressure and volatility in the gilt market but fundamental issues remain for the medium term.”
“The Bank of England (BoE) still faces a tricky balancing act — on the one hand, the BoE still needs to raise rates materially from here especially as inflation is likely to climb further.”
“This might continue to exert upward pressure on gilt yields.”
“On the other hand a rising rate environment might increase the prospect of a recession, declining real incomes and softening demand in the economy—all of which will likely add further pressure on the pound."
Sunak is due to address the 1922 committee of MPs at 2.30pm.
2.03pm: Sunak confirmed as new Prime Minister
Former chancellor, Rishi Sunak, will be the new prime minister after his rival for the Conservative Party leadership, Penny Mordaunt, withdrew.
pic.twitter.com/w76rEvJdyQ— Penny Mordaunt (@PennyMordaunt) October 24, 2022
12.55pm: Mordaunt scrambling to make the magic 100 mark
Not long now until we find out how many votes Rishi Sunak and Penny Mordaunt have received in their bids to become the next Prime Minister.
Both require the support of at least 100 MPs to be put forward to a vote amongst Conservative members.
Sunak has already secured the public support of well over 100 MPs while Mordaunt is still hoping to hit this magic number.
There is increasing speculation that she will pull out of the race, even if she makes it to the 100 MP mark.
Mordaunt still short of 100. Frantic telephone calls to increase support, but colleagues are urging her to pull out with dignity intact. I assume she will make a statement saying she is pulling out in next hour or so. Not definite. Her manager Leadsom wants her to fight on— Robert Peston (@Peston) October 24, 2022
12.30pm: Pearson tops FTSE 100 risers
Pearson PLC (LSE:LON:PSON) topped the FTSE 100 risers today after the group said it was on track to deliver its full-year sales and profit guidance and confirmed it is hoping to achieve at least £100mln of cost efficiencies in 2023.
Victoria Scholar, head of investment, interactive investor said: “Pearson’s strategy to reposition itself away from traditional educational textbook publishing towards technology-enabled training is paying off.”
She noted that since Andy Bird’s appointment two years ago as CEO, shares in Pearson have staged an impressive turnaround, reversing the prior downtrend to gain more than 60% off the lows.
“Bird has helped secure several accretive acquisitions and the launch of Pearson+, its online subscription service with access to videos, textbooks and more” she pointed out.
“With the cost-of-living crisis as well as the rising cost of higher education, more and more people across age categories are looking for alternative ways to upskill, a trend that Pearson is successfully capitalising on” Scholar noted.
11.55am: FTSE 100 back in positive territory
London’s blue-chip index pushed into positive territory by midday after recouping early losses on hopes of a swift resolution to the political uncertainty in the UK and as the pound gave up most of its early gains boosting the dollar earners in the index.
By 11.55am the FTSE 100 was up 10 points at 6,979 while the broader FTSE 250 was up 115 points at 17,321.
US markets are not expected to provide a huge stimulus with stocks expected to open flat to modestly higher on Monday, retreating after sharp gains at the end of last week, as the earnings season continues to unfold with a string of key tech companies reporting this week.
Futures for the Dow Jones Industrial Average were flat in pre-market trading, while those for the S&P 500 were also flat, and contracts for the Nasdaq-100 were 0.2% higher.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that big US techs are among the companies due to release results this week, highlighting Google owner Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT), which are due to report on Tuesday, with Facebook’s Meta on Wednesday, and Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday, while oil giants Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are due to report their earnings on Friday.
11.30am: Consumers to cut back spending at Christmas
Half of Britons plan to spend less on Christmas this year as the cost of living crisis dents their purchasing power, market researcher Kantar said today.
It said one in three shoppers plan to cut gift budgets for close friends and family by over £25 per person.
UK consumers have been reining in their spending with inflation hitting 10% and they also face the prospect of a tighter squeeze in 2023 after the new chancellor Jeremy Hunt said he would scrap tax cuts previously planned by outgoing prime minister Liz Truss.
Kantar said 37% of UK customers are struggling with their financial situation while 47% are worried about Christmas.
"With the inflationary backdrop, brands will need to ensure their Christmas advertising campaigns strike the appropriate note with the public," it said, noting that only 18% of consumers strongly agree that they are looking forward to festive ads this year.
10.50am: Profit warnings on the rise - EY-Pantheon
Profit warnings issued by UK-listed companies reached their highest third-quarter total since 2008, according to EY-Parthenon’s latest Profit Warnings report.
In total, 86 profit warnings were issued between July and September 2022, compared to 51 in the same period of 2021, an increase of 69% and a 34% increase from quarter two 2022when 64 warnings were issued.
The highest number of Q3 warnings was in 2001 when 133 warnings were issued.
The rise in warnings has been driven by a significant increase in the number of warnings from consumer-facing companies, which rose almost three-fold year-on-year.
The report revealed that 57% of warnings during quarter three cited rising costs, while 23% were prompted by labour market issues.
The three warning ‘danger zone’ now contained 28 listed companies who have issued their third consecutive profit warning in the last year, compared to 18 at the end o quarter two.
On average, one-in-five companies delist within a year of their third warning, most due to insolvency, the report said.
Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader: “Businesses are facing an unprecedented combination of headwinds including rising costs, slowing demand and excess supply, making it increasingly difficult to balance competing priorities.”
10.25am: UK downturn picking up pace
Today’s sharp fall in the UK’s composite PMI showed that the downturn in the UK is intensifying according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Tombs pointed out the data signals that the sharp rise in borrowing costs for households and businesses has had an immediate chilling effect on economic activity with the composite PMI at its lowest level since March 2009, excluding months of Covid lockdowns.
He estimated the figures equated to a level consistent with GDP falling at a 0.3% quarter-on-quarter pace with further falls expected over the coming months given that the new orders index dropped to just 44.7, from 48.6.
With interest rates still are on course to rise to levels many CFOs thought unimaginable a few months ago, and both monetary and fiscal policy now set to weigh on households’ real disposable incomes Tombs said a protracted recession looks likely and he estimated a 1.5% year-over-year decline in GDP next year.
9.35am: UK PMI hits 21-month low
The flash composite UK PMI for October hit 47.2, a 21-month low, with the flash UK Services PMI at 47.5 down from 50.0 in September although the flash UK manufacturing output Index rose to 45.6 from 44.2 in September, a three-month high.
The S&P Global / CIPS data for October highlighted a reduction in UK private sector output for the third month running.
???????? October flash data for the UK indicated a solid contraction, with the #PMI at a 21-month low of 47.2. Intense inflationary pressures, escalating political uncertainty and rising interest rates led to downbeat sentiment. Read more: https://t.co/rT0SRXlFWy pic.twitter.com/ocFqzO1Muw— S&P Global PMI™ (@SPGlobalPMI) October 24, 2022
Adding to signs of weakening underlying demand, new orders decreased at the sharpest pace since January 2021 which was attributed to a considerable downturn in business and consumer confidence in recent months.
UK flash #PMI output and price data to October tracked against #BoE policy decisions underscores the extent to which higher interest rates may be helping cool inflationary pressures but risk driving the economy deeper into #recession pic.twitter.com/qOTuQjvJYs— Chris Williamson (@WilliamsonChris) October 24, 2022
UK private sector firms also indicated a steep fall in business expectations for the year ahead, with optimism the lowest since April 2020 with intense inflationary pressures, escalating political uncertainty and rising interest rates amongst the most commonly cited reasons for downbeat sentiment in October.
On the upside. overall input cost inflation eased to its lowest since September 2021 and staff hiring remained a relatively bright spot.
9.19am: Eurozone PMI slips further in October
Ahead of the flash purchasing managers’ index for the UK we have have the composite PMI for the eurozone which indicated business activity levels contracted at its fastest pace in two years in October.
The composite PMI, which accounts for both the services and manufacturing sectors, fell to 47.1 from 48.1 in September, below expectations for a reading of 47.5.
The #Eurozone economy fell into a steeper downturn in October, as #output contracted at the fastest rate since April 2013 barring pandemic lockdowns (#PMI at 47.1; Sep: 48.1) (1/4) https://t.co/iCRpHH4Nsx pic.twitter.com/PrWKxXLePY— S&P Global PMI™ (@SPGlobalPMI) October 24, 2022
A reading below 50 signals contraction.
Business activity was impacted by the cost of living crisis, which has hit consumer spending, which factories have been hard-hit by surging energy prices and supply chains still recovering from Covid and taking a further hit from the war in Ukraine.
9.00am: FTSE 100 heads south, losing early shine
The FTSE 100 failed to hold onto its early gains and headed south as concerns for the prospects for global economic growth overtook the initial relief that the race to become the next prime minister could be over swiftly, possibly today.
By 9.00am the lead index was down 24 points at 6,945, after briefly going back above 7,000, although the FTSE 250 rose 80 points to 17,286.
With growth prospects globally on the wane, the future for the UK economy under the regime is freshly in focus and Guy Hands, the billionaire businessman, is not optimistic.
Speaking on the BBC Radio 4’s Today programme he said the Conservative party needed to start “admitting some of the mistakes they’ve made over the last six years, which have frankly put this country on a path to be the sick man of Europe.”
He called for a Tory leader with “the intellectual capability and the authority to renegotiate Brexit” and turn around the economy.
“Without that the economy is frankly doomed,” Hands said.
Sterling also lost some of its early lustre, with the pound now up only 0.2% against the US dollar at 1.132.
Oil prices fell around 1.5% on Monday after Chinese data showed that demand from the world's largest crude importer remained lacklustre in September as strict COVID-19 policies and fuel export curbs depressed consumption.
Brent crude futures were down 1.52% at $90.462 a barrel while US West Texas Intermediate crude prices were down 1.63% at $83.552 a barrel.
On the corporate front shares in Asos PLC advanced 4.1% following a report over the weekend that Frasers Group PLC has built a 5% stake in the online fashion retailer and become its fourth-largest shareholder.
8.21am: Bond yields tumble
Bond yields have fallen sharply this morning on hopes for a swift resolution to the race to become the next prime minister.
Yields on all dated gilts were all down around 20 basis points with money markets now pricing in interest rates of just under 5% next year, well below the levels seen in the aftermath of the mini-budget.
GoshAs of this morning, money markets are pricing in @bankofengland interest rates of (just) under 5% next year.
That’s the lowest expected peak I’ve seen since the mini-budget.
A few weeks ago the peak on this curve was up above 6%… pic.twitter.com/1LvpnsgXSb
— Ed Conway (@EdConwaySky) October 24, 2022
8.17am : Sterling starts strong while US dollar dips and recovers against yen
Volatility and gilt yields are two terms that don’t typically go together, but are unsurprisingly fitting now, given the ongoing parliamentary chaos.
Nonetheless, 10year gilts pushed lower over the past week and the pound benefitted from it, with Monday morning’s cable performance trending in the right direction.
At the time of writing, the GBP/USD pair is changing hands at US$1.135, sparking hopes of a recovery to the US$1.14 price point.
Some recent gains, yet the pound remains in a long-tail downtrend
The EUR/GBP pair is sitting at 86.7p, having chopped back at the end of last week, while the pound has started the week with a strong gain on the Canadian dollar, Swiss franc and unsurprisingly the Japanese yen.
Confidence in the pound may be spurred by the likelihood of Rishi Sunak entering No. 10, thus making a delay to the next October 31 budget less likely.
The euro is buying a little over US$0.98 throughout Monday’s Asia trading hours, meaning no losses week-on-week, though a long-tail bear channel is likely to continue amid high inflation and the continental energy crisis.
The USD/JPY pair, having broken through the 150 yen barrier at the end of last week, has actually retraced and is sitting closer to 149.
Still a grim reading, but an apparent bond buying from the Bank of Japan offered some relief, though perhaps only short term, as the US dollar seems to be making gains on the one-hour chart.
USD dips and regains against the yen
8.12am: FTSE makes a bright start to the week
FTSE 100 made a bright start to trading on Monday on hopes for a swift conclusion to the race to become the next prime minister which would bring the latest bout of political uncertainty to an end.
At 8.10m the lead index was up 33 points at 7,003, while the FTSE 250 was 162 points higher at 17,369.
Rishi Sunak became the firm favourite to become the next prime minister following the withdrawal of Boris Johnson on Sunday evening and could be announced as early as today. Rival Penny Mordaunt is still in the race and pushing ahead with her bid to succeed Liz Truss.
The pound rose sharply as markets were relieved a swift end to the election for a new prime minister is now unlikely to delay the fiscal statement on 31 October.
In early trading sterling was up 0.56% against the US dollar at $1.135.
But analysts remained unsure as to whether the new prime minister can forge ahead successfully.
Citi asked “ Can a government emerge with the legitimacy required to manage the current economic challenges?” adding “We remain sceptical.”
“Political machinations over the weekend point to a party beset with divisions. With party unity and legitimacy conspicuously threadbare, we expect a structural credibility gap to remain."
"Tighter fiscal policy may therefore allow the Bank to tighten less aggressively, but these lingering issues are likely to limit the extent of any associated monetary pivot” it said in a note today.
In corporate news Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL) said on Sunday it has invested in the second phase of a mega liquefied natural gas (LNG) project in Qatar, just three months after buying into the initial stages of the development.
The energy giant has been selected to participate in the next wave of Qatar’s LNG expansions – the North Field South project (NFS).
Shell will take a 9.375% participating interest in the NFS project, worth around around $1.5 billion.
But shares fell back around 2% as the oil price dipped 1%.
On the upside education provider, Pearson PLC (LON:PSON), jumped 2.4% after it and confirmed that it remains on track to meet full year sales and adjusted operating profits in line with expectations.
The group described trading as strong with an “outstanding” result in English Language Learning and a good performance in Virtual Learning, Workforce Skills and Assessment & Qualifications, offset by an expected decline in Higher Education.
The company said it is on track to deliver at least £100mln of efficiencies in 2023 which will accelerate improved margin expectations from 2023 to 2025.
7.40am: Pearson on track
Pearson PLC (LSE:PSON) reported sales growth of 7% for the nine months to September and confirmed that it remains on track to meet full year sales and adjusted operating profits in line with expectations.
The group described trading as strong with an “outstanding” result in English Language Learning and a good performance in Virtual Learning, Workforce Skills and Assessment & Qualifications, offset by an expected decline in Higher Education.
The company said it is on track to deliver at least £100mln of efficiencies in 2023 which will accelerate improved margin expectations from 2023 to 2025.
Andy Bird, Pearson's chief executive, said: “We are executing well on our plan for accelerated margin improvement” adding “"We believe Pearson is well positioned for the future, and we are confident of being able to navigate the challenging macroeconomic environment.”
7.26am: Frasers building stake in ASOS (LON:ASOS) - reports
Online fashion retailer Asos PLC is set to confirm that the billionaire retailer Mike Ashley has built up a stake of more than 5% in the retailer.
A report in The Guardian said Ashley’s fashion and sportswear retailer Frasers Group PLC informed Asos on Friday that it had become one of the company’s most significant shareholders.
The move made Frasers the fourth largest shareholder in Asos.
Frasers has also announced today that it has increased its stake in Hugo Boss and now holds 4.3% of Hugo Boss stock directly and a further 28.5% via the sale of derivatives known as put options.
The British sportswear and apparel retailer first took a stake in Hugo Boss in 2020.
Frasers first took a smaller stake in Asos earlier in the year, continuing the company’s record of building holdings in other retailers, making it one of the few businesses expanding on the high street.
Meanwhile FTSE 100 futures have ticked higher and the FTSE is now expected to post gains at the open.
7.00am: FTSE seen weaker
FTSE 100 expected to open slower slightly lower this morning with investors awaiting the outcome of the Conservative Party leadership election to see who will be the next prime minister.
Spread betting companies are calling the lead index down by around 7 points.
Rishi Sunak is now the firm favourite to become the next prime minister following the withdrawal of Boris Johnson although Penny Mourdaunt is pressing ahead with her push to get the keys to number 10.
Johnson's withdrawal means the contest could be decided by early afternoon on Monday unless both the remaining candidates can get the support of 100 MPs.
In a statement on Sunday evening, Johnson said there was a "very good chance" he could have been back in No 10 by the end of the week if he had stood.
However his efforts to "reach out" to his rivals – Rishi Sunak and Penny Mordaunt – to work together in the national interest had not been successful so he was dropping out.
Sterling rose sharply in Asian trading on the news with hope that the fiscal statement due on October 31 would not be delayed and all eyes will be now be on the UK gilt markets when it reopens this morning.
Investors will also flash PMI data to digest as fears of a global recession intensify.