- FTSE 100 heads south, down 52 points
- Retail sales fall 1.4%, government borrowing hits £20 billion
- Battle to be the next prime minister hots up
12.20pm: Sondrel rises on market debut as IPO dearth continues
Sondrel (Holdings) PLC, only the second float in London this month, saw its shares rise on its first day of dealings.
The UK fabless semiconductor business said it raised gross proceeds of £20mln in the initial public offering (IPO) and saw its shares rise to around 58p, above the placing price of 55p.
There has been a dearth of IPOs in the past few months, with only one other, Milton Capital, this month, three in September and none in August.
EY reported earlier this month that UK IPO activity in quarter three 2022 on the main market and AIM had fallen 76% in terms of deal numbers and 86% in terms of proceeds compared to the same quarter in 2021.
This reflected trends globally with EY noting global IPO activity was also significantly lower with a year-on-year 41% decrease in deal numbers in quarter three 2022.
11.51am: FTSE 100 close to session lows, US markets expected to make a weak start
FTSE 100 remained close to session lows around midday as the disappointing economic data and political uncertainty continue to weigh on sentiment.
At 11.51am the lead index as down 58 points at 6,886, while the FTSE 250 was nearly 300 points lower, or 1.71%, at 17,091.
Support is unlikely to come from the US which is expected to open lower on Friday as the earnings season continues to unfold with mixed results so far.
Rising bonds yields and expectations of further interest rate hikes against the backdrop of a tight labour market and continuing inflation pressures are likely to keep trading volatile after the roller coaster ride seen over the past few weeks.
Futures for the Dow Jones Industrial Average were down 0.4% in pre-market trading, while those for the S&P 500 were 0.5% lower, and contracts for the Nasdaq-100 shed 0.8%.
Investors continue to worry that the Federal Reserve will go too far with interest rate hikes as its attempts to crimp inflation, clouding the outlook for corporate America in the process.
Over the course of the week, the corporate earnings have come in mixed with some big banks posting decent growth but the likes of Procter & Gamble (NYSE:PG) warning that sales for the fiscal year 2023 could fall significantly.
11.10am: FCA survey shows millions are struggling to pay their bills
Millions of people in the UK are struggling to pay their bills, according to the City watchdog, which said a growing proportion of the population is having trouble making ends meet.
A survey by the Financial Conduct Authority (FCA) said about one in four (24%) of adults in the UK were either in financial difficulty or would fall into trouble if they suffered a financial shock.
The FCA found that about 7.8mln people were finding it a heavy burden to keep up with their bills, an increase of about 2.5mln people since 2020, as wage growth failed to keep pace with soaring inflation to 40-year highs, currently at 10.1%.
The report also showed that 4.2mln people had missed bills or loan payments in the six months before the survey took place, in the four months between February and June.
The financial challenges were concentrated in more deprived areas across the UK, with people in economically challenged regions roughly seven times more likely to be in financial difficulty than their peers.
About 12% of people in the north-east and 10% in the north-west were struggling financially, compared with 6% of people in the south-east and south-west.
The statistics were gathered as part of the FCA’s financial lives survey, which polled more than 19,000 people and will be published in full in early 2023.
10.25am: Barclays (LON:BARC) hit with £50mln fine over Qatar deal
The Financial ConductAuthority has hit Barclays PLC (LSE:BARC) with a £50mln fine over a failure to disclose certain arrangements in its £4bn Qatari funding deal in 2008.
The City watchdog said the bank's conduct in the capital raise was "reckless and lacked integrity".
In 2020 three former Barclays bankers were cleared of fraud over their role in the investment.
They had been accused of funnelling £322mln in secret fees to Qatar in exchange for emergency funding at the height of the financial crisis.
Mark Steward at the FCA said: "At the height of the financial crisis in October 2008, Barclays paid hundreds of millions of pounds in fees to certain Qatari investors so that they would contribute new capital."
"Barclays did not inform the market and shareholders about these matters as required."
"Barclays’ failure to disclose these matters was reckless and lacked integrity and followed an earlier failure to disclose fees paid to Qatari investors in June 2008. There was no legitimate reason or excuse for failing to disclose these matters, certainly no basis for doing so because of the financial crisis" he said.
Shares in Barclays were 1.55% lower at 143p.
10.03am: Pound extends falls, bond yields rise, equities slip further
The pound extended its falls and gilt yields have risen reflecting the political uncertainty and weak UK economic data.
Sterling, which spiked above $1.13 in the immediate aftermath of the resignation of Liz Truss, has since fallen back and is down 1% today at $1.112.
The rise in government borrowing has once again put the strength, or otherwise, of the UK’s finances in question and heaped further pressure on the chancellor, Jeremy Hunt, as he tries to balance the books ahead of his 31 October fiscal statement.
The political uncertainty has added further fuel to the fire with concerns that a possible return to office by Boris Johnson would prompt further divisions in the ruling Conservative party.
The concerns were reflected in the bond markets. The yield, or interest rate, on the 30-year UK government bond has risen back above 4%, up 15bps, while the 20-year yield has added 9 bps to 4.2%, the 10-year yield has climbed 8 bps to 3.9% and the two-year yield increased to 3.68%.
Equities have also headed south. The FTSE 100 is now down 52 points at 6,892, while the FTSE 250 has slumped 236 points to 17,153.
9.40am: Chancellor pledges to do "whatever necesary" to bring debt down
Chancellor Jeremy Hunt said he would do “whatever necessary” to bring down national debt as the latest official figures showed government borrowing jumped in September and debt interest payments hit a record high.
In a statement he said: “Strong public finances are the foundation of a strong economy. To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.”
“We will do whatever is necessary to get drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy.
Jake Finney, economist at PwC, said the latest public sector finances data highlights the challenges faced by the incoming prime minister and the chancellor.
“Public borrowing in September was around 13pc higher than at the same time last year, in large part due to rising spending on interest payments and cost-of-living payments to households, such as the Winter Fuel Payments” he noted
“Looking forward, all eyes are on October 31, when chancellor Jeremy Hunt will present a new fiscal strategy for the country.”
Finney estimated that “To meet its current fiscal targets the government will need to announce around £30 to 40 billion of spending cuts or tax rises.”
This is equivalent to around a fifth of the core NHS budget, he pointed out.
9.02am: FTSE 100 remains subdued, retail stocks under pressure
FTSE 100 remained lower following the disappointing economic data and with political uncertainty following the resignation of prime minister, Liz Truss, with former leader of the Conservative Party, Boris Johnson now being talked as a possible successor.
An unusually long 1500 words for our front page piece today trying to capture all the drama of yesterday - resignation, plotting, old rivalries renewed. Read the full thing over here: https://t.co/zuHlsOx2AH pic.twitter.com/vXi8Bh2tG0— Ben Riley-Smith (@benrileysmith) October 21, 2022
The weak retail sales numbers put retail share prices under pressure with ASOS (LON:ASOS) PLC (LSE:ASC), JD Sports Fashion PLC (LSE:JD.), Frasers Group PLC (LSE:FRAS) and Next plc (LON:NXT) amongst those in the red after the Office for National Statistics reported retail sales fell 1.4% in September, worse than City forecasts.
Martin Beck, chief economic advisor to the EY ITEM Club, said the “underlying headwinds mean the outlook for retailers is a poor one.”
Government borrowing figures were also worse than expected at £20 billion and Ruth Gregory, senior UK economist at Capital Economics, said both sets of figures added to the pressures that the new prime minister will face: “The weakness in retail sales and overshoot of the Office for Budget Responsibility’s March public borrowing forecast won’t make the next prime minister’s task any easier in navigating the economy through the cost of living crisis, cost of borrowing crisis and the cost of credibility crisis.”
"Overall, we still think that the chancellor has a big challenge ahead to fill the remaining hole of about £34bn and restore credibility in policy-making in the eyes of the financial markets" she commented.
The economic data and political uncertainty weighed on sterling with the pound now down 0.48% to $1.118.
8.32am: Retail sales confirm households remain cautious
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said September’s retail sales figures bring more evidence that consumers are choosing to spend less as their real incomes drop, rather than deplete their savings or borrow more.
He doubted that the closure of some shops for the Queen’s funeral on September 19 made a material difference, given the prevalence of online shopping and the scope for catch-up spending later in the month, pointing out that even in the pre-internet age, shop closures for Princess Diana’s funeral in September 1997 had no discernible impact on sales.”
He suggested that in theory, retail sales have scope to recover a little in quarter four, given that households’ disposable incomes are being strongly supported by one-off grant payments from the government.
But he cautioned “the continued extreme weakness of GfK’s composite index of consumers’ confidence in October signals that households likely will be very cautious.”
With mortgage repayments set to rise and the government’s energy support package ending in April Tombs said he expect households’ real expenditure to fall by about 1.5% year-over-year in 2023; adding retailers won’t be shielded from the downturn.
8.15am: FTSE 100 lower on economic gloom, political uncertainty
FTSE 100 made a weak start on Friday with markets on the backfoot following weak economic data which added to the nervousness caused by political uncertainty as the UK looks to appoint a new prime minister following the resignation of Liz Truss.
At 8.10 London’s blue chip index was down 42 points at 6,902, while the FTSE 250 fell 121 points to 17,268.
Retail sales slumped in September, down 1.4%, below City forecasts for a fall of 0.5%, while government borrowing soared to £20 billion in the same month, again worse than expected.
Adding to the gloom was a report on consumer confidence from GfK which although it showed a slight rise in October remained at historically depressed levels.
The disappointing economic news sent the pound lower against the US dollar, falling 0.42% to $1.1188, after going above $1.13 in the immediate aftermath of Truss’s resignation.
Richard Hunter, head of markets at interactive investor said “With the latest figures indicating a drop in retail sales and a further increase in government borrowing, the intense pressure will remain on not just the economy itself, but also for the country as an investment destination which had been showing some signs of life and overseas interest earlier in the year.”
Investors were also nervously looking at the runners and riders in the race to become the new Conservative Party leader after the market turmoil caused by the previous PM, Truss.
Rishi Sunak, Penny Mordaunt and Boris Johnson are in the running.
The urgency of the election is clear with the new chancellor, Jeremy Hunt, set to deliver his fiscal plan on 31 October.
On the corporate front, British food delivery company Deliveroo PLC (LSE:ROO) said full-year revenue growth will be at the lower end of its range as the squeeze on household budgets from inflation caused people to cut back on take-aways.
But the group added that it was confident it could adapt to the worsening economic outlook.
Full-year gross transaction value (GTV) growth was now expected to be in the range of 4-8% in constant currency, the lower part of the previously announced 4-12% range, which Deliveroo had already downgraded from 15%-25% in July.
But shares were unfazed by the news, rising 1.5% in early trading to 83.20.
8.07am: Sterling hits a wall of resistance against the US dollar and Japanese yen
The GBP/USD pair was making ground yesterday before hitting a stiff resistance wall at US$1.133.
Ultimately, amid chaos in the UK parliament, the pound had any gains chipped away, and this morning’s Asia trading hours have further extended these losses.
As of now, cable is over 40 pips down against the day and is changing hands at US$1.11.
The dollar’s strength remains resolute against the pound
Somewhat worryingly, the pound is trading 0.28% lower against the embattled Japanese yen after similarly hitting a resistance wall at 169.
GBP/JPY is now sitting slightly above the 168 yen price point, while the Japanese government continued to weigh up an intervention into the Bank of Japan’s ultra-loose monetary policy.
On that note, the US dollar remains at a 32-year high of 150 yen.
Less surprising is Sterling's shoddy performance against the Euro in a continuation of recent trends.
The EUR/GBP pair is now trading at an eight-day high of 87.2p.
The euro remains in a broader downtrend against the US dollar and remains under parity at US$0.97.
But there does seem to be some consolidation forming at the price point, with the one-hour chart showing a sideways trade, at least in the short term.
The euro is unlikely to regain parity in the short term
The Australian dollar is changing hands at US$0.626 after dipping 0.33% overnight.
7.37am: Government borrowing hits £20 billion in September, higher than expected
Public sector net borrowing was £20.0 billion in September 2022, which was £2.2 billion more than in September 2021 and the second highest September borrowing since monthly records began in 1993, according to the Office for National Statistics (ONS).
The figure was around £3 billion higher than City forecasts.
Public sector net borrowing excluding public sector banks was £20.0 billion in September 2022.This was £2.2 billion more than in September 2021 but £8.2 billion lower than in September 2020 at the height of #COVID19.
➡️ https://t.co/n7fZn0cNpL pic.twitter.com/l1ONIDphGS
— Office for National Statistics (ONS) (@ONS) October 21, 2022
Central government debt interest payable was £7.7 billion in September 2022, which was £2.5 billion more than in September 2021 and the highest September figure since monthly records began in April 1997.
7.30am: Consumer confidence rises slightly in October but remains fragile - GfK
Consumer confidence rose slightly in October but remained at near historic lows as the UK grapples with the "new abnormal" of soaring energy, food and mortgage costs.
GfK's long-running consumer confidence index clawed back two points but continues to languish at an overall score of minus 47.
October’s UK Consumer Confidence sees the Index severely depressed at -47. The Major Purchase Index fell to -41, especially worrying for the final quarter of the year, which many businesses rely on to balance the books. https://t.co/1Czj3PUr0r #CCBUK pic.twitter.com/SNGtOBtGJz— GfK (@GfK) October 21, 2022
A three-point fall in the major purchase measure, an indicator of confidence in buying big ticket items, continued a steep downward trend that began in July 2021 and will be especially worrying for retailers in the crucial final quarter.
Confidence in personal finances for the next 12 months increased six points to minus 34 but remains 35 points lower than this time last year.
Expectations for the general economic situation over the coming 12 months have improved by seven points to minus 61, although this is still 35 points lower than last October.
Joe Staton, client strategy director at GfK, said: "Households are not just running scared of burgeoning energy and food prices, and the prospect of further base rate rises increasing mortgage costs, they are now facing the likelihood of tax rises and even austerity measures.”
7.17am: UK retail sales slide 1.4% in September, worse than expected
UK retail sales volumes fell by 1.4% in September 2022; making them 1.3% below pre-coronavirus (COVID-19) February 2020 levels according to the Office for National Statistics (ONS).
The figure was well below City forecasts of a fall of 0.5%.
The ONS said while retailers continued to mention the effect of rising prices and the cost of living on sales volumes, data for September 2022 was also affected by the bank holiday for the state funeral of Her Majesty Queen Elizabeth II, when many retailers closed.
Retail sales volumes fell by 1.4% in September, following August’s 1.7% fall.Retail is now 1.3% below its pre #COVID19 level https://t.co/FX2DEHxzN3 pic.twitter.com/2S3rlV53Ga
— Office for National Statistics (ONS) (@ONS) October 21, 2022
In the three months to September 2022, sales volumes fell by 2.0% when compared with the previous three months continuing the downward trend seen since summer 2021, the ONS reported.
Food store sales volumes fell by 1.8% in September 2022, which left them 3.2% below their pre-coronavirus levels in February 2020.
Non-store retailing (predominantly online retailers) sales volumes fell by 3.0% in September 2022; despite this fall, sales volumes were 18.0% above their February 2020 levels.
Automotive fuel sales volumes fell by 1.3% in September 2022; these were 10.2% below their February 2020 levels.
Online sales were 26.4% of total sales in September 2022.
7.00am: FTSE set to follow US lower
FTSE 100 expected to lower on Friday following falls in the US and Asia and as political uncertainty grips the country once more following the resignation of prime minister, Liz Truss.
Spread betting companies are calling the lead index down by around 40 points.
In the UK the search for a new prime minister with former chancellor, Rishi Sunak the favourite to succeed Truss, although he is likely to face competition from Penny Mourdaunt and former PM, Boris Johnson.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said "Rishi Sunak seems like the best option. The previous Chancellor of Exchequer has a solid track record; he knows he can’t spend, or make tax decisions without justification. He knows that, despite the unideal economic environment, he can’t increase debt without increasing the cost of borrowing. And more importantly, he is supported by the market."
"Penny Mordaunt is another candidate that could replace Liz Truss."
"And finally, Boris Johnson could be back in the race! He quit because of scandals. But none of them seems as a big deal compared to Liz Truss who destroyed confidence in the UK government, and almost abated the British pension system."
In the US markets retreated in afternoon trading to end the day in negative territory as comments from a US Federal Reserve official brought worries about the future path of interest rates back to the forefront of investors minds and overshadowed a flurry of solid earnings.
At the close the Dow Jones Industrial Average was down 91 points at 30,333, the S&P 500 slipped 30 points to 3,666 and the Nasdaq Composite fell 66 points to 10,615.
In the UK trading updates are due from Deliveroo PLC (LSE:ROO), Intercontinental Hotels Group PLC (LSE:LON:IHG) and London Stock Exchange Group PLC (LSE:LON:LSEG) amongst others.
UK retail sales figures are also due.
Read more on Proactive Investors UK
