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FTSE 100 down but at best levels for the day as oil stocks push higher

Published 05/09/2022, 14:30
Updated 05/09/2022, 14:40
© Reuters.  FTSE 100 down but at best levels for the day as oil stocks push higher

  • FTSE 100 pushes back close to opening levels
  • Oil stocks rise as OPEC cuts output pushing oil price higher
  • Liz Truss the new UK Prime Minister

Oil cartel Opec and its allies, including Russia, has decided to cut oil output by 100,000 barrels per day in October.

The Opec+ group has decided to reverse the 100,000/day increase it agreed a month ago in a move designed to support oil prices, after Brent crude dropped below $100/barrel in August, on fears that major economies were falling into recession, hitting demand for energy.

Brent extended its earlier gains, up 3.75% to $96.60 per barrel.

2.10pm: Truss set for short premiership - William Hill

William Hill make Liz Truss odds-on at 4/6 to spend a shorter time in office than Theresa May, whose 1,106 in office remains the shortest spell of any Conservative PM in the last 50 years.

The new Prime Minister takes charge at a time of uncertainty, and with a general election perhaps not as far away as was expected, the bookies believe there’s a strong chance she’ll spend less time in office than May, who served in the role for just over three years.

Hills make Truss the 5/4 second favourite to lead the country after the next General Election, with Keir Starmer the 8/11 market leader.

William Hill spokesperson, Tony Kenny, said: “Liz Truss might have won the Conservative Leadership battle, but it certainly won’t be plain sailing when she begins her new role with several key issues needing addressing.”

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Plenty of comment following news that Liz Truss is to be the next UK Prime Minister.

1.40pm: Truss Premiership could spark higher UK interest rates

Frédérique Carrier, head of investment strategy at RBC Wealth Management said he believes a Truss premiership is likely to lead to higher interest rates.

He said: “PM Truss will likely be less keen to balance the country’s books than former Chancellor Sunak would have been, and interest rates are likely to increase further during her premiership.”

“PM Truss seems less fiscally conservative than former chancellor Sunak. She now seems to be in favour of supporting the economy other than through tax cuts.”

“This ultimately means higher borrowing, and in turn it means the Bank of England could be forced to increase rates further than otherwise would have been the case” Carrier cautioned.

“For now, we expect the Bank of England to deliver two 50bps rate hikes at its meetings on September 15th and November 3rd as economic data has not deteriorated sufficiently yet to prevent it from being hawkish” Carrier said.

12.40pm: Truss confirmed as new Prime Minister

Liz Truss has won the battle to become the next leader of the Conservative Party and the next Prime Minister beating Rishi Sunak after a lengthy election process.

Truss won 57.4% of the vote with 82.6% of Conservative members voting.

The FTSE 100 was down 44.76 at 7,236.43 ahead of the news.

12.20pm: Truss to go "bigger than expected" on energy - Sky

Liz Truss will go "bigger than expected" on energy if she is announced as the new prime minister this afternoon, according to Sky News.

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The foreign secretary is widely tipped to win the Conservative leadership contest over rival Rishi Sunak - handing her the keys to Number 10 on Tuesday.

Speculation is mounting she is considering freezing energy bills for millions of households, Sky said.

The Daily Telegraph reported she is planning such a freeze in order to halt "energy armageddon."

Sky said its political editor Beth Rigby understands from political and Whitehall sources that - if she wins the leadership contest - Ms Truss will announce a package of support that is going to be bigger than perhaps expected.

11.55am: PMI figures unlikely to alter path of UK interest rates

Reflecting on the latest services sector PMI Martin Beck, chief economic advisor to the EY ITEM Club, said: “Amid a succession of downbeat developments for the UK economy, August's services PMI remained in expansionary territory, which provides some consolation.”

“However, a fourth successive monthly decline in the index - to 50.9 from July's 52.6 - signals a further slowdown in activity growth.”

“Combining the services reading with August's manufacturing survey, the composite PMI of 49.7 was the lowest for 18 months and pointed to the private sector as a whole stagnating.”

“In tandem with August's manufacturing survey, the latest services gauge pointed to a slowdown in input price inflation” although “output price inflation accelerated slightly from July's five-month low.”

“With the Bank of England due to announce its next monetary policy decision on September 15th, the combination of weak activity growth and some better news on inflation could be consistent with a shift in the UK central bank's thinking.”

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“The increase in future energy prices over the past couple of weeks point to an even higher inflationary peak than the Bank of England forecast in August.”

This, combined with the expected package of fiscal support to households and firms means that overall, the EY ITEM Club does not anticipate the Bank of England deviating from its rate rise path just yet.”

11.40am: Shares in Belvoir fall after first half profits dip

Shares in Belvoir Group PLC (AIM:BLV) fell 4.4% to 216p on Monday after it said a weaker market and higher costs had hit its first-half profit.

In the first half of 2022, the Lincolnshire based property franchise group said revenue rose 12% year-on-year to £15.4mln from £13.8mln but pre-tax profits dropped 16% to £4.0mln from £4.8mln.

The firm said the profit decline was expected, and due to the lower volume of property sales transactions after an "exceptionally strong market" in the previous year.

Belvoir also noted an increase in costs as operations returned to normal after the Covid lockdowns in the first half of 2021.

Chief executive officer, Dorian Gonsalves, said "given the strong pipelines of agreed house sales and mortgages at the end of [first half], the board is confident of achieving its expectations for the full year."

11.00am: New Conservative leader set to be announced

The next leader of the Conservative Party, and by default the next UK Prime Minister, is set to be announced at 12.30pm today with Conservative party members choosing between Liz Truss and Rishi Sunak.

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Truss is the strong favourite to win the race so how do the rivals compare on their plans for the economy, how to deal with the energy crisis and some other key areas which would impact on business.

1, Energy crisis

Truss has promised to unveil a plan to deal with the energy crisis within a week if she becomes prime minister - though she has refused to go into any detail on what this might look like.

Sunak said he would reduce VAT on energy bills and has proposed a further £5bn more to help those most vulnerable to rising prices.

2. Tax

Truss:

  • plans for immediate tax cuts
  • to reverse the national insurance increases imposed in April
  • to cancel the proposed corporation tax rate rises next April
  • the temporary removal of green energy levies on electricity bills.

Sunak

  • plans to cut basic rate of income tax to 16% if the Tories are reelected in 2024.

Sunak is also a believer in tax cuts BUT the key difference is he believes they are only possible after bringing inflation under control which alters the time scale of when they would happen.

3. Economic Growth

Truss has pinned her hopes on her tax cuts having powerful effects on stimulating investment and labour supply.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, was sceptical: “We’re not buying Truss’ argument that these tax cuts would trigger a big enough supply-side response to offset a decent chunk of their cost to the Treasury.”

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Sunak has promised a Thatcherite agenda of reforms, but has not mentioned any new specific policy reforms.

4. Brexit

Truss has vowed to review all EU laws retained after Brexit by the end of next year, and to scrap or replace those that are deemed to hinder UK growth.

Sunak has also committed to a bonfire of EU laws that are “getting in the way” of British businesses.

5. Climate

Truss has committed to maintaining the government’s legally binding goal of reaching net zero emissions by 2050, but has said she would suspend green energy levies.

Sunak would set a new legal target for the UK to be energy independent by 2045 at the latest and has committed to maintaining the government’s legally binding goal of reaching net zero emissions by 2050 and has assured the Tories’ green wing he would protect the environment.

10.00am: Aston Martin shares fall after discounted rights issue

Shares in Aston Martin Lagonda Global Holdings PLC (LSE:AML) crashed 11.35% after the luxury motor vehicle manufacturer announced a heavily discounted rights issue aiming to raise £575.8mln.

AJ Bell investment director Russ Mould was not impressed.

“For what’s meant to be a premium brand, Aston Martin is behaving like a desperate start-up company, going cap in hand once again to shareholders asking for more money.”

“Its offering of shares at a 78.5% discount to last Friday’s closing price shows how desperate it is to secure new funds.”

The fund raising plans are backed by Saudi Arabia's sovereign wealth fund, the Public Investment Fund, Lawrence Stroll's Yew Tree Consortium, and fellow car maker Mercedes-Benz Group all of which are taking up their full entitlements, amounting to 45% of the total rights issue.

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Aston will issue 559mln new shares as part of its rights issue, on a four for one basis, at a price of 103p, reflecting a 79% discount to the company's closing price on Friday last week at 480p.

Mould suggested the fund raising “might simply be Aston Martin finding another piece of frayed rope to keep it afloat and avoid sinking completely into quicksand.”

“The car manufacturer has been a flop since joining the stock market and one has to wonder if it would be better off as a privately-owned company.”

9.50am: UK services sector PMI falls in August

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.

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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.

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“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.

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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.

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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

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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.”

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“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.”

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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.

Read more on Proactive Investors UK

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