- FTSE 100 down 11 points
- Shell (LON:RDSa) drops after warning
- Imperial Brands lifted by buyback plans
10.12am: Footsie goes into reverse
Leading shares have dipped into the red as the early enthusiasm - tenative as it was - wears off.
The FTSE 100 is now down 11 points at 7041.61, having earlier touched 7079.
AJ Bell investment director Russ Mould said: “It doesn’t feel like Tuesday’s market rally was built to last as the dollar is back on the march.
“The gilt market is once again under pressure as a second ratings agency effectively puts the UK on watch for a credit downgrade. The current government still has a job on its hands to convince it has a handle on the country’s finances.
“Adding to a difficult picture, oil prices are back on the move. Having helped ease inflationary pressures in the last month or two as crude slipped back, OPEC’s decision to go for higher-than-expected output cuts is driving the market higher once again.”
Brent crude is currently up 0.16% at US$93.52 a barrel.
9.58am: Energy and inflation still top of business concerns
UK businesses are worried about the outlook, but slightly less so than a month ago.
According to the latest Office for National Statistics insights survey, 70% said they had some concern for their business but this is marginally down on the September figure of 72%.
High inflation and energy prices are, unsurpringly, the main worry.
70% of trading businesses said they had some concern for their business for Oct 2022 (BICS data from 20 Sept to 2 Oct).The top two concerns remain to be:
???? input price inflation (24%)
⚡️ energy prices (23%)
➡️ https://t.co/jQtePG3FGt pic.twitter.com/ofBSOmR4AD
— Office for National Statistics (ONS) (@ONS) October 6, 2022
9.39am: UK construction improves but outlook is cautious
UK builders did better than expected in September, but growth was mainly fuelled by the resumption of delayed projects and they remain cautious about their prospects amid rising interest rates.
The S&P Global / CIPS UK Construction Purchasing Managers’ Index came in at 52.3 last month, up from 49.2 in August and the highest reading for three months.
But the report said subdued demand persisted, as signalled by the weakest trend for new orders since the recovery began in June 2020.
Looking ahead to the next 12 months, survey respondents remain cautious about their growth prospects. The degree of confidence towards the business outlook dropped to its lowest for over two years in September, mostly reflecting concerns about higher interest rates and a downturn in the wider UK economy.
On a more positive note, supply shortages eased in September, with delivery delays the least widespread since February 2020.
House building was the best-performing category in September, with growth reaching a five-month high. Commercial work increased only marginally while civil engineering activity fell for the third month in a row.
UK S&P Global/CIPS UK Construction PMI Sep: 52.3 (est 48.0; prev 49.2)— LiveSquawk (@LiveSquawk) October 6, 2022
Tim Moore, economics director at S&P Global Market Intelligence,said: "UK construction companies experienced a modest increase in business activity during September, but the return to growth was fuelled by delayed projects and easing supply shortages rather than a flurry of new orders.
"Reports of delivery delays for construction products and materials were the least widespread since the pandemic began as greater business capacity and improved transport availability helped to ease pressure on supply chains
"However, forward-looking survey indicators took another turn for the worse in September, with new business volumes stalling and output growth expectations for the year ahead now the lowest since July 2020. This reflected deepening concerns across the construction sector that rising interest rates, the energy crisis and UK recession risks are all set to dampen client demand in the coming months."
9.14am: UK bond yields edging up again
UK bond yields have been edging up after the Bank of England seemed to ease things with its intervention in the gilts market in the wake of the turmoil caused by the mini-budget.
The yield on 30 year gilts is up 5 basis points at 4.272% while the 10 year is up a similar amount to 4.09%, and if things carry on, the Bank may have to act again after pausing its buying programme.
The decision by Fitch to cut the outlook on the UK's credit rating is not helping matters of course.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV), said: "This matters because even without a downgrade the UK’s borrowing costs have risen sharply, and if the ‘stable’ rosette is ripped off, foreign creditors are going to demand even more money to fund the government’s growing debt pile. Moody’s has also warned that large unfunded tax cuts risks damaging the country’s debt affordability.
"Interest payable on long dated government debt had come down, after the Bank of England intervened last week to scoop up bonds, with 30 year gilt yields retreating from highs of 5%. But they are creeping higher again, and although the Bank paused its emergency purchases, to assess the market, if yields start to march up, it may have to dive back into bond buying. The Bank is still having to deal with an internal policy tug of war, it’s poised to keep stimulus flowing to bring down government borrowing costs, yet is also warning that interest rates will have to rise further given the parlous state of inflation."
Meanwhile the FTSE 100 continues to drift, now up 4.77 points at 7057.39.
8.34am: Ex-divs hit market but Imperial provides support
Imperial Brands PLC (LON:IMB ) is leading the FTSE 100 risers after an upbeat trading statement and news of a £1bn share buyback.
Its shares are up 3.88%, and Richard Hunter at interactive investor, said: “Having reduced net debt and further strengthened its balance sheet to its own acceptable levels, Imperial Brands has accelerated shareholder returns.
"The announcement of a share buyback programme to the tune of £1 billion should lend further to the share price and the key metrics such as earnings per share in particular. In addition, a dividend yield which currently stands at a punchy 7.4% is an attraction to income-seeking investors in its own right...
"In terms of outlook, the group is maintaining expectations for full-year trading to be in line. Net revenues and adjusted operating profit are both expected to benefit by 1% due to currency tailwinds, while overall capital expenditure to drive future growth will be between £300 million and £350 million per annum."
A handful of companies have gone ex-dividend and seen their shares slip accordingly.
These include DS Smith PLC (LSE:SMDS), down 3.6%, Centrica PLC (LON:CNA), off 1.4% and Kingfisher PLC (LON:KGF), 0.67% lower.
Meanwhile Shell PLC continues to be weak after it warned on third quarter profits, down 2.99%.
Overall the FTSE 100 is just about still in positive territory but has lost much of its early gains. It is now up just 3.35 points at 7055.97.
8.25am: Fitch warns of rise in UK deficit, IFS says tax cuts will not benefit households
The decision by Fitch to move the outlook for the UK's credit rating from stable to negative is largely driven by the fact that the government has not yet announced how it will fund its tax-cutting package.
Despite earlier suggestions, there is still no sign that the costing statement will be brought forward from 23 November, although there is still pressure for this to happen.
Fitch said: "The large and unfunded fiscal package announced as part of the new government's growth plan could lead to a significant increase in fiscal deficits over the medium term.
"We consider that statements by the chancellor hinting at the possibility of additional tax cuts and the likely modification of fiscal rules legislated in January reduce the predictability of fiscal policy."
Fitch was not the only one to come out with its verdict on the mini budget.
The Institute for Fiscal Studies said that by 2025-26, the cuts will not only put a considerable strain on public finances but it will not benefit households either.
It said the freeze on thresholds for income tax and benefits will take away £2 for every £1 given through the cuts.
8.12am: Footsie up, Shell down
Leading shares are edging higher as investors shrugged off news that another ratings agency - Fitch - had followed Moody's in putting the UK's credit rating on negative watch.
The FTSE 100 is up 16.86 points at 7069.48 in early trading after falling 33 points on Wednesday as prime minister Liz Truss pointedly stuck to her controversial economic plans in a speech to the Tory party conference.
The tentative rise today also comes despite a drop on Wall Street following its surge earlier in the week, as investors wondered if they had been too optimistic about the US Federal Reserve turning more dovish.
Jim Reid at Deutsche Bank (ETR:DBKGn) said: "After an astonishing rally at the beginning of the fourth quarter, markets reversed course yesterday as investors became much more sceptical that we’ll actually get a dovish pivot from central banks after all. The idea of a pivot has been a prominent theme over recent days, particularly after the financial turmoil during the last couple of weeks, thus sparking the biggest 2-day rally in the S&P 500 since April 2020 as the week began.
"But over the last 24 hours, solid US data releases have created a pushback against that narrative, since they were seen as giving the Fed more space to keep hiking rates over the coming months. And if markets had any further doubt about the Fed’s intentions, San Francisco Fed President Daly explicitly said yesterday that she didn’t expect there to be rate cuts next year, in direct contrast to futures that are still pricing in rate cuts from the second quarter."
All eyes now will be on the US non-farm payroll report to see if the market continues to treat good news as bad and vice versa.
Markets had also been rattled by news that OPEC+ unveiled a 2mln barrel a day cut in oil production, more than had been expected.
Back in the UK, chancellor Kwasi Kwarteng is due to meet bank bosses to discuss the mortgage market, which has been disrupted by the turmoil following the mini-budget.
The average rate of a new two year fixed mortgage is now above 6%, the highest level since 2008.
This follows lenders removing hundreds of mortgage products in the wake of soaring bond yields last week.
Elsewhere Shell PLC is down 3% after it said its third quarter results, due for release on 27 October, would be hit by a sharp fall in refining margins while results from its Integrated Gas business were expected to be significantly lower compared to the second quarter.
7.00am: FTSE set for a bright start
FTSE 100 is set to open higher on Thursday despite another hit resulting from the chancellor’s mini budget.
Spread betting companies are calling the lead index up by around 50 points.
Sterling was higher in Asian trading at $1.1363 despite a downgraded outlook for the credit rating of UK government debt as Fitch lowered the outlook for the debt to negative from stable while leaving the rating itself unchanged at "AA-".
In the US markets ended down, but off earlier lows, consolidating some of the strong gains of the past two days.
By the close The Dow Jones Industrial Average was down 42 points to 30,275, the S&P 500 lost 7 points to 3,784 and the Nasdaq Composite slipped 28 points to 11,149.
“It’s a moment of pause for the market to reflect on how durable the rally the past two days actually could turn out to be,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.
In the UK, results from mining firm Ferrexpo and a trading statement from tobacco firm Imperial Brands are due.
In the economic calendar, there is the UK construction PMI reading while US jobless claims are due this afternoon.