- FTSE 100 opens sharply lower, down 60 points
- Gas prices rise sharply as Russia closes Nord Stream 1
- UK services PMI falls to 50.9 in August from 52.6 in July
The UK service sector continued to expand during August, but only just as growth softened to a marginal rate that was the slowest in the current 18-month run according to the S&P Global/CIPS UK services PMI.
The index fell to 50.9 in August from 52.6 in July.
Although sales continued to rise, they did so only modestly amidst growing economic uncertainty, reduced client confidence and worries over high inflation.
The report showed that cost pressures remain extremely elevated, linked in the main to rising energy, fuel, and utility bills while confidence about the future was again historically subdued.
But on the bright side the labour market remained, however, a source of notable resilience.
Although staffing levels rose at a slower rate, growth remained marked as firms responded to higher workloads and continued to plug previously unfilled vacancies.
9.35am: Euro falls to a 20 year low aginst the dollar
The euro has fallen to a 20 year low against the dollar and under $0.99 after Russia indefinitely suspended gas flows through the Nord Stream 1 pipeline to Germany, sending gas prices surging.
Neil Wilson at markets.com said “EURUSD took a 0.98 handle for the first time in 20 years, underscoring the scale of the challenge facing the European Central Bank this week.”
“Sterling was also lower, with GBPUSD taking out a fresh low with a 1.14 handle, coming nervously within touching distance of the March 2020 lows” he noted, adding that “Under that and we are back to an almost 40-year low.”
9.00am: Daiwa looks ahead to a Truss led economy
With Liz Truss expected to be appointed as the new Conservative Party leader today (and Prime Minister officially tomorrow) Daiwa Capital has raised concerns over her credibility and economic plans.
“The opportunistic UK Foreign Secretary, who presented herself as a libertarian throughout her campaign, badly lacks credibility, going some way to explain the kicking received by sterling over the past month” Daiwa said.
According to a YouGov (LON:YOU) poll published on the weekend, only 12% of Brits expect her to be a good or great prime minister, while more than half expect her to be poor or terrible.
“And markets appear to take a similar view” Daiwa noted.
“Certainly, her plans raise significant questions about her commitment to fiscal sustainability.”
“Proposals for a reversal of this year’s increase in national insurance contributions and a commitment not to hike the main corporation tax will cost upwards of £30bn, while vague proposals to increase very significantly public spending – purportedly worth somewhere between £50bn to £100bn – to soften the blow of energy price hikes on households and firms will further add to borrowing, making it inevitable that she will suspend the government’s current fiscal rules” Daiwa commented.
“Added to similarly vague proposals to review the BoE’s mandate, there’s no surprise that the credibility of the UK’s macro policy framework has been called in to question, pushing sterling lower and gilt yields higher, and increasing the likelihood that the BoE will need to tighten monetary policy all the more aggressively over coming months” Daiwa cautioned.
8.40am: Selective briefings unsettle ASOS (LON:ASOS) analysts
The Sunday Times has reported that retailer, ASOS PLC (LSE:ASC) has privately briefed City analysts on guidance for full year 2022 and full year 2023 profits sending shares down by 4.75%.
The article said one analyst anonymously expressed unease at how ASOS was managing expectations.
Shore Capital analyst Eleonora Dani said she was concerned about the potential for selective disclosure whilst acknowledging no non-public information was shared.
Based on the new unofficial guidance, Dani said ASOS expects full year 2022 pre-tax profits at the lower end of the previously communicated guidance of £20mln-£60mln.
Dani pointed out that whilst market expectations in aggregate have not necessarily been adjusted, “we would be very worried about the basis for an orderly market in the group's shares as discussions and research notes around forecasts were evident from deliberately selective conversations with analysts.”
Dani concluded “We would take a very dim view of the possibility, never mind the reality, of such behaviour and reiterate our sell rating.”
8.30am: Oil pries advance ahead of OPEC meeting
Oil companies and index heavyweights, BP PLC (LSE:LON:BP.) and Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL), were rare risers in the FTSE 100 today as oil prices rose ahead of the OPEC meeting today.
Victoria Scholar, head of investment, interactive investor said “Oil prices are trading higher with brent crude and WTI both up by around 2% as OPEC+ considers cutting output at its meeting later today.”
“In order to stem some of the recent bearishness in the market, the cartel is understood to be considering reducing its production to limit supply and provide some support for prices.”
“Having peaked in March, the global benchmark brent crude has suffered a more than 25% slide from the peak, breaking below psychological support at $100 a barrel amid expectations of softening demand as the global economy cools.”
“Although a production cut is on the table, the most likely outcome of today’s discussions is that OPEC+ sticks to its current output levels.”
“The cartel’s verbal intervention with the threat of more aggressive action is at least providing somewhat of a floor and slowing recent losses.”
8.15am: FTSE opens lower, gas prices jump
The FTSE 100 started the week nursing heavy losses as Russia’s decision to close the Nord Stream 1 pipeline sent gas prices soaring amid growing fears of an energy crisis.
At 8.15am the lead index was trading 57.05 points lower at 7,224.97.
Russia has halted gas deliveries to Germany via a key pipeline for an indefinite period, after saying Friday it had found problems in a key piece of equipment, a development that will worsen Europe's energy crisis.
Gazprom (MCX:GAZP) said Friday that the Nord Stream pipeline, due to reopen at the weekend, would remain shut until a turbine is repaired.
Victoria Scholar, head of investment, interactive investor said, “The euro has slumped below $0.99 for the first time in twenty years after Russia indefinitely shut down the Nord Stream 1 gas pipeline to Europe as the G7 agrees to impose a price cap on Russian oil exports.”
“European futures suggest stock markets are set to open sharply lower while gas prices are soaring amid the fresh squeeze on supply.”
“Dutch wholesale gas prices are up almost 30% so far in today’s session.”
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, added: "Gazprom said that a leak was detected, and that the pipeline could not operate before it's fully repaired.”
“But of course, the decision suspiciously came slightly after the G7 countries agreed to impose a price cap on Russian oil, probably around the Russian production cost.”
"It's unsure whether the plan would work, as there are doubts that some of Russia's big clients like China, India, or even Turkey would follow G7 in this unprecedented decision.”
“But they may have to, as most of the world's oil is transported by Western shipping companies, and if they can't transport the Russian oil anymore - unless people pay the price that Europeans want them to, there would be no oil for them."
"Russia's decision not to resume gas flows through the main Nord Stream 1 pipeline to Germany has prompted a surge in European wholesale gas costs, intensifying concerns for supplies across Europe for the coming winter"
7.50am: European gas prices soar in early trading
The benchmark Dutch TTF October gas contract rose by 62 euros ($61.34), or 30%, to €272 per megawatt hours (MWh) in early trading, reversing losses seen last week..
The jump comes after Russia scrapped a Saturday deadline to resume flows following maintenance on the Nord Stream 1 pipeline, which runs under the Baltic Sea to Germany, historically supplied around a third of the gas exported from Russia to Europe.,
7.40am: Vistry agrees to buy Countryside in £1.25mln deal
The UK housebuilding sector is set for a shake up with news that Vistry Group (LON:VTYV) PLC (LSE:VTY) has agreed to buy Countryside Partnerships PLC (LSE:CSP) in a £1,254mln deal.
The deal, funded by cash and shares, will see Countryside shareholders receiving 60p cash and 0.255 of a new Vistry share for every Countryside share held.
The enlarged group has a strong strategic rationale and the potential for material value creation for shareholders, the companies said in a statement.
The enlarged group is targeting 40% return on capital employed in the short-term and expected to increase to over £3bn revenue per annum in the medium term,
Synergies of at least £50mln are seen from the combined business.
7.20am: Footsie set for a sticky start
Michael Hewson chief market analyst at CMC Markets UK said: “The late US weakness looks set to translate into a sharply lower European open as we look ahead to a big week for the European Central Bank, as they look to navigate a way through a crisis that could put the finances, as well as the borrowing costs of some of the weaker members of the currency bloc under huge strain.”
“Russia’s actions on Friday in indefinitely closing the pipeline could also see renewed upward pressure on European and UK natural gas prices when markets reopen today, after seeing big falls in prices last week as UK natural gas prices fell 39%, while European prices fell 33%.”
“Today’s other economic focus is set to be in the latest services PMI numbers for August.”
“The UK services sector is also feeling the strain but is still showing some signs of resilience at 52.5, although the weakness in the currency is making inflationary pressures across the sector that much worse.”
“Hopefully this weakness could well be close to ending now that the conservative leadership contest is finally over, as later today we get to find out who the next Prime Minister is likely to be, with all of the betting money expected to see the UK end up with its third female Prime Minister in Liz Truss, when the results are announced at 12:30pm today.”
“With the pound now below 1.1500 against the US dollar the new PM and the cabinet will need to set out how they intend to deal with the sharp rises in energy prices that are set to kick in next month, and without some form of government intervention to help with gas and electricity costs could see hundreds of businesses go to the wall.”
“We probably won’t find out any of the details today, but we could see VAT reductions, as well as possible reductions in business rates, as well as targeted measures for the most vulnerable members of society where energy makes up a much higher percentage of their monthly bills.”
6.55am: FTSE expected to open sharply lower
The FTSE 100 is expected to open sharply lower when trading resumes on Monday following the sharp falls in the US on Friday and news that Russia is suspending gas deliveries via the Nord Stream 1 pipeline indefinitely.
Spread betting companies are calling the lead index down by around 80 points.
The Dow closed Friday down 338 points, 1.1%, at 31,319, the Nasdaq Composite lost 154 points, 1.3%, to 11,631 and the S&P 500 slipped 42 points, 1.1%, to 3,924.
The benchmarks started positive but turned sour in the afternoon, clinching their third-straight week of losses. For the Nasdaq Composite, Friday was the sixth-consecutive losing day.
In London, the confirmation of a new Prime Minister will take centre stage with Liz Truss expected to be confirmed as Boris Johnson’s replacement while results from Dechra Pharmaceuticals (LON:DPH) are also due.