Proactive Investors -
- FTSE 100 down 40 points
- Royal Mail (LON:IDSI) owner IDS falls after losses
- Fed officials hawkish on US rate rises
9.50am: Pound loses early gains against the dollar
The slide continues although there is nothing too dramatic ahead of the chancellor's autumn statement measures.
The FTSE 100 is currently down 40.63 points or 0.55% at 7310.56.
The leading faller at the moment is Ocado Group PLC (LON:OCDO), down 5.29% as it continues its recent weakness.
Both Halma PLC (LON:HLMA) and Spirax-Sarco Engineering have fallen back following their latest update, down 5.02% and 4.7% respectively.
The pound climbed to as high as US$1.958 against the dollar but is now down 0.27% at US1.1881.
But it is virtually flat against the euro at €1.1463.
9.20am: Autumn statement all about restoring credibility
There may not be any major surprises in the autumn statement, says Neil Wilson at Markets.com.
"The messaging from the Treasury thus far has been very clear – heapings of fiscal discipline and lashings of austerity, no uncosted borrowing," he said. ".. It’s about restoring credibility in the financial markets and very little else. A surprise or two? Chancellors love to pull a rabbit or two out of the hat and fiscal credibility goes hand in hand with winning the next the election as far as the Tories go, so it might not be as horrendous as some of the various test balloons floated by the Treasury in recent weeks would suggest.
"A credibility premium, though, is worth more right now and the surprises will be saved up for next year ahead of the election…when they can apply some soothing tax cuts and say they could only do that because of the difficult steps taken in 2022."
Susannah Streeter, senior invesment and markets analyst at Hargreaves Lansdown (LON:HRGV), agrees the statement needs to restore credibility after the chaotic mini-budget.
But there is a risk the measures could hamper economic recovery.
She said: "The UK government’s Autumn Statement will mark a complete about turn from the Truss administration’s plans for a sugar rush boost to growth through tax cuts which sparked mayhem on bond markets and saw the UK’s risk premium shoot up. Gilt yields have come down significantly since the September scare which threatened to destabilise the UK financial system, and the Sunak administration is desperate to hold onto credibility.
"By taking all these steps the government hopes to fill in the fiscal ‘black hole’ which has emerged because successive Conservative ministers have said they want to see net debt falling by 2025-2026. Sunak and Hunt are trying to dance to a tune they think the bond markets are playing, but by keeping so strictly to their perceived rules, they risk playing it too safe, and pushing the prospects of economic recovery far into the distance.‘’
8.54am: Halma falls after update
Safety equipment firm Halma PLC (LSE:HLMA) is high among the fallers in the leading index after underwhelming half year results.
Pretax profits dropped 13% to £145.5mln, although the decline was due to a gain on disposal last year of £34mln which was not repeated.
It also said half year revenues had reached record levels, its order book was strong and it was on track for further progress in the second half.
Its shares however have fallen 3.36% following the update.
Elsewhere Hargreaves Lansdown PLC (LSE:HL.) is down 1.79% to 855.6p after analysts at RBC cut their recommendation from outperform to sector perform.
They also reduced their price target from 1650p to 1050p, but this is still much higher than the current market price.
Overall the FTSE 100 is now down 24.66 points or 0.34% to 7326.53.
Victoria Scholar, head of investment at interactive investor said: “European markets have opened mostly higher with the DAX outperforming thanks to strong results from Siemens while the FTSE 100 is lagging behind, trading below the flatline [ahead of the autumn statement]."
Just over 6 points of the decline can be attributed to companies seeing their shares go ex-dividend, including Pershing Square (NYSE:SQ) Holdings which is down 1%.
8.34am: US Fed members hawkish on rate rises
The hawkish signals from US Federal Reserve officials came thick and fast yesterday.
Kansas City Fed president Esther George cautioned about prematurely ending rate hikes in a Wall Street Journal interview, saying that “the more important question for this committee, looking out over next year, is being careful not to stop too soon”
Mary Daly, president of the San Francisco said it was reasonable to think rates could rise to between 4.75% and 5.25%, with the top end of that range higher than the 4.92% currently priced in by markets.
And Fed governor Christopher Waller said he was becoming more comfortable with the next rate rise being 50 basis points rather than 75 after the more benign inflation readings recently.
But he added that getting inflation down to target would require rate rises into next year: "We still have a ways to go."
8.13am: Markets calm ahead of chancellor's statement
Leading shares have slipped back ahead of the delayed autumn statement, with increased taxes and spending cuts widely expected.
With a decline on Wall Street after poor results from Target (NYSE:TGT) and some hawkish comments from Federal Reserve members, the FTSE 100 is down 11.16 points or 0.15% at 7340.03.
But investors are mainly keeping their powder dry until chancellor Jeremy Hunt has made his pronouncements.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: "The UK braces for ‘austerity in steroids’ wrote Bloomberg, reminding that Sunak government must fill in a £55bn hole by increasing taxes and cutting spending.
"For investors, though, austerity means a more stable budget, less negative pressure on the sovereign bonds, and an ideally stronger British pound...
"Maybe we won’t see a kneejerk positive reaction right away, because politicians tend to overpromise and underdeliver. But in all cases, we are confident that the budget announcement under Sunak won’t trigger the same chaos as under Liz Truss."
Among the early movers, Royal Mail owner International Distributions Services PLC (LSE:IDS) is down 3.63% after it reported an operating loss of £163mln compared to a profit of £311mln this time last year.
The company was hit by weak parcel volumes, an inability to deliver productivity improvements and the impact of the current industrial dispute.
7.49am: Gilts rise, Sterling stands its ground against US dollar as autumn statement approaches
Today brings the delayed UK autumn budget, with tax policy and spending cuts front and centre of expected policy- it’s just a matter of how much and how severe.
With the Office for Budget Responsibility forecasting an excess of £70bn to the government’s borrowing budget, chancellor Jeremy Hunt’s acknowledged that "we are going to see everyone paying more tax” in a BBC interview, but the government is also wary of hobbling business investment at the risk of stagflation.
Not to mention that adding more pain to the cost-of-living crisis would be both unreasonable and a political own goal.
Yet it comes at a time when 10-year gilt yields just fell to their lowest level in two months while Cable has been making solid gains, indicating at least some optimism in the UK’s economic prospects.
Despite the pair cutting back 20 pips this morning, GBP/USD still holds strong at US$1.189.
GBP/USD awaits chancellor Hunt’s autumn statement – Source: capital.com
EUR/GBP has been rangebound for the past two weeks and this morning was no different. The pair hit a high of 87.3p this morning before cutting back to 87.15p.
Euro area inflation data is due this morning, with forecasts pointing to a record high of 10.7% year on year.
Against that backdrop, EUR/USD is in an indecisive mood, with the pair cutting back to US$1.036 before inching higher to US$1.039 during this morning's Asia trading session.
7.00am: FTSE 100 seen lower ahead of Autumn Statement
FTSE 100 set to open slightly lower with the chancellor taking centre stage as he delivers his autumn statement which is expected to contain a raft of tax increases and spending cuts.
Spread betting companies are calling the lead index down by around 10 points.
Jeremy Hunt has already warned that some “eye-watering” decisions need to be made on spending cuts and tax increases.
Michael Hewson chief market analyst at CMC Markets UK said: “Over the past few weeks, we’ve heard an array of estimates of the size of the fiscal black hole at the heart of the public finances, ranging from £40bn to £55bn, however this week we got a new one in the form of a higher number, this latest one being £70bn, begging the question as to how big the fiscal hole is.”
“While we know a good proportion of this is due to higher borrowing costs due to high inflation, as well as the potential for a slowdown in the UK economy, it seems odd that the size of the hole has gone up at the same time UK gilt yields have gone down, along with natural gas prices.”
Before that, there will be a busy morning of financial news, including from Royal Mail owner International Distributions Services PLC, which will report half-year results amid a continued uncomfortable atmosphere for investors, management and workers.
Burberry Group PLC (LON:BRBY), Great Portland Estates, Halma PLC and Intermediate Capital Group (LON:ICP) are other companies reporting today.
In the US markets ended a subdued day the wrong side of the line with all three major indices ending in negative territory.
At the close the Dow Jones Industrial Average was down 39 points, or 0.12%, to 33,554, the S&P 500 fell 33 points, or 0.83%, to 3,959, and the Nasdaq Composite dipped 174 points, or 1.54%, to 11,184.