- FTSE 100 in negative territory, down 24 points
- US markets lower following strong PCE figures
- Sterling falls as OBR forecasts will not be published until November 23
2.45pm: FTSE heads lower as US markets fall
Hopes for a positive Friday finish on the FTSE are fading fast as US markets fell at the open after the release of this month’s personal consumption expenditure (PCE) data which showed inflation remains red hot.
The Fed's preferred inflation reading, the PCE price index, increased 0.3% month-over-month in August, up 6.2% from the same month one year ago. Consumer spending, however, lifted during August by 0.4% to $67.5 billion.
Just after the open, the Dow Jones Industrial Average had dipped 108 points or 0.4% at 29,117 points, the S&P 500 was down 9 points or 0.2% at 3,632 points, and the Nasdaq Composite had slipped 21 points or 0.2% at 10,718 points.
This helped send shares in London down once more conceding the strong gains they held earlier.
FTSE 100 is now off 24 points at 6,857.
2.00pm: FTSE heads south as US PCE numbers come in above forecast
FTSE 100 is back around its opening levels now after data in the US highlighted inflationary pressures remained.
The lead index is around 4 points higher at 6,886 and in a volatile mood following the US figures with the personal consumption expenditures price index excluding food and energy rising 0.6% for the month after being flat in July, and ahead of the 0.5% analysts had forecast.
On a year-over-year basis, core PCE increased 4.9%, more than the 4.7% estimate and up from 4.7% the previous month.
The Federal Reserve generally favors core PCE as the broadest indicator of where prices are heading as it adjusts for consumer behavior.
12.55pm: Barclays hit by US$361mln fine
Some company news and Barclays PLC (LON:BARC) has agreed a $361m penalty with US regulators for "staggering" failures that led it to oversell US$17.7bn of structured products.
The conduct dates back to March this year when Barclays revealed it had accidentally oversold complex structured and exchange-traded notes, overshooting by about 75% a US$20.8 billion limit on such sales it had agreed with the Securities and Exchange Commission (SEC).
The bank failed to implement internal controls to track such transactions in real time, the SEC found.
"While we acknowledge Barclays' efforts to identify, disclose and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering," said Gurbir Grewal, director of the SEC's Division of Enforcement.
Shares in the bank were around 1% lower on the news.
12.18pm: US markets seen higher, PCE data awaited
On another busy day attention will be switching across the pond with a key inflationary indicator due at 1.30pm UK time.
The PCE deflator data is the Federal Reserve’s favourite measure of inflation and investors will be looking for a soft number to halt the slide in equities and bonds.
Ahead of that US tocks are expected to open higher on Friday in a cautious rebound from the selling frenzy yesterday, which sent the S&P 500 to a new low for the year.
Concerns over the gloomy prospects for the world’s biggest economy amid rising interest rates and stubbornly elevated levels of inflation have not dissipated, however, and trading is expected to be volatile.
Futures for the Dow Jones Industrial Average were up 0.8% in pre-market trading, while those for the S&P 500 rose 0.9%, and contracts for the Nasdaq-100 were 0.9% higher.
“Due today, investors will focus on the US income, spending, but more importantly the PCE data. The world is praying for a sufficiently soft PCE to cool down the selling pressure on bonds and equities,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
12.10pm: Treasury comments on OBR meeting
Here's the take from the Treasury following the meeting.
The Treasury said: “This morning the prime minister Liz Truss and chancellor Kwasi Kwarteng met with the OBR’s Budget Responsibility Committee, including the chair Richard Hughes, at No10 Downing Street.”
“They discussed the process for the upcoming economic and fiscal forecast, which will be published on 23 November, and the economic and fiscal outlook.”
“They agreed, as is usual, to work closely together throughout the forecast process and beyond.”
“The prime minister and chancellor reaffirmed their commitment to the independent OBR and made clear that they value its scrutiny.”
The pound is now down 0.5%. Equities are holding firm though, although well off earlier highs, with the FTSE 100 up 30 points at 6,912.
11.55am: Pound drops as OBR forecast will not be forecast until November 23rd
The pound fell back sharply following news that the OBR would not publish its full economic forecasts until November 23rd.
Sterling, which opened higher, is now down 0.43% at US$1.1065.
Treasury says Truss, Kwarteng and OBR discussed the "economic and fiscal outlook" as well as process for growth forecasts, which they *still* say won't be published until 23 Nov. Says they "value" the OBR's scrutiny (but obviously not so much they'd publish forecasts sooner).— Pippa Crerar (@PippaCrerar) September 30, 2022
11.35am: OBR to deliver forecast to chancellor on October 7th
A statement from the OBR following its meeting with the prime minister and the chancellor this morning.
"The OBR’s Budget Responsibility Committee met with the Prime Minister and Chancellor this morning."
"We discussed the economic and fiscal outlook and the forecast we are preparing for the chancellor’s medium-term fiscal plan."
"We will deliver the first iteration of that forecast to the chancellor on Friday 7 October and will set out the full timetable up to 23 November next week."
The OBR met with the Prime Minister and Chancellor this morning to discuss our upcoming forecast.Meeting summary on our website.https://t.co/gQuNnqGyE1
— Office for Budget Responsibility (@OBR_UK) September 30, 2022
11.20am: Hefty falls in house predicted
Economists were unanimous in their conclusions following the latest house price index figures from the Nationwide predicting falls in house prices in the coming months as rising mortgage rates take their toll on consumer finances.
The building society said its seasonally adjusted measure of house prices held steady on a month-to-month basis in September while year-over-year growth dropped to 9.5%, from 10..0% in August, and below the consensus of 9.9%.
Pantheon Macroeconomics senior UK economist, Gabriella Dickens, said it “was the start of a prolonged fall in house prices” due to the jump in mortgage rates and she expects “ house prices to fall by around 5% over the next 12 months.”
Capital Economics agreed but predicted prices would fall by even more.
“We suspect that, despite the reduction in stamp duty announced last week, this marks the beginning of the most significant correction in house prices since 2007.”
It said the data was consistent with its forecast that prices will be falling by the end of the year.
“The sharp rise in interest rates now expected means that prices are more likely to fall by 10- 15% than the 7% we previously anticipated.”
Myron Jobson, senior personal finance analyst, at interactive investor, said: “House prices might finally be coming back down to earth following a meteoric rise in recent history.”
“The recent violent gyrations in the money market, which wreaked havoc on the business models lenders use to price mortgages, could accelerate a more prominent property market slowdown” Jobson suggested.
Sarah Coles, senior personal finance analyst, at Hargreaves Lansdown (LON:HRGV) pointed to the pulling of 40% of mortgages this week suggesting that “When the dust settles, and lenders come back to the market, we can expect eye-watering rises in interest rates.”
“It's difficult to see this as anything other than a sign of things to come, as these pressures raise the risks not only that price rises stagnate, but that they begin to fall. There is the chance that we could see a significant correction in the coming months” she said.
The EY ITEM Club concurred saying the figures are “likely to be the precursor to a more significant weakening in house prices and housing market activity.”
10.37am: Eurozone inflation tops 10%
Eurozone inflation hit a fresh high in September reinforcing expectations for another large interest rate hike from the European Central Bank in October.
Price growth in the 19 countries sharing the euro accelerated to 10.0% in September from 9.1% a month earlier, data from Eurostat showed on Friday, beating expectations for a reading of 9.7%.
Figures a day earlier had shown inflation in Germany, the bloc's biggest economy, jumping to its highest rate since the time of the Korean War 70 years ago.
ING Economics said: "The September reading for inflation is ugly across the board with all broad categories experiencing accelerating inflation. This seals the deal on another 75 basis point hike from the European Central Bank in October."
Euro area #inflation up to 10.0% in September 2022: energy +40.8%, food, alcohol & tobacco +11.8%, other goods +5.6%, services +4.3% - flash estimate https://t.co/6PNYzrCwCS pic.twitter.com/NlnZGeoewp— EU_Eurostat (@EU_Eurostat) September 30, 2022
10.25am: Mortgage approvals rose in August - Bank of England
British lenders approved many more mortgages than expected in August, Bank of England data showed on Friday.
Mortgage approvals rose to 74,340 last month, up from 63,740 in July and the highest reading since January although economists warned it wouldn't last.
Samuel Tombs, chief UK ecomomist at Pantheon Macroeconomics said: "The sudden leap in house purchase mortgage approvals in August to their highest level since January likely reflects people attempting to secure loans ahead of expected increases in mortgage rates, rather than a fundamental strengthening of demand."
He said he "expects house purchase mortgage approvals to average just 55,000 per month in 2023, the least since 2012" following the spike in expected interest rates caused by the Chancellor’s tax cuts last Friday.
9.42am: Pound back above pre-Budget levels
Sterling extended its gains mid-morning and is now up 1% against the US dollar back above pre-Budget levels but analysts think it remains susceptible to further weakness.
Neil Wilson at Markets.com said “I hope this is the bottom for sterling and the market recovers - I am just not confident it is, and I worry what might happen still in gilt markets, especially once the Bank of England (BoE) intervention runs out in a few days.”
He said “Traders were covering shorts as the BoE’s emergency bond-buying intervention and plans by the OBR to bring forward the publication of fresh economic assessments eased the immediate concerns of a run to parity.”
“Nevertheless, the pound remains susceptible to further lurches lower as neither of the above fix the underlying problems facing the UK: rising twin deficits, soaring inflation that hits consumers, rising mortgage rates that cripples families, anaemic growth, etc, etc” he warned.
9.00am: FTSE 100 up, sterling up, so far, so good this Friday
Brighter news so far this Friday as the FTSE 100 and the pound made progress in early trading and as Q2 GDP figures were revised upwards showing the UK was not yet in recession.
By 9.00am London’s blue chip index was trading 50 points higher at 6,931 while the pound was up 0.35% at US$1.1154.
As PM meets OBR, £ is back up to USD levels during mini budget..Not aware of precedent for this, eg Chote didnt meet Cameron in this way.
..OBR, whose offer of mini budget forecast was rejected, despite having provided a draft on first day of administration, in strong position pic.twitter.com/YEYby1Xt1N
— Faisal Islam (@faisalislam) September 30, 2022
Investors took some hope that a meeting between prime minister, Liz Truss, and the Office for Budget Responsibility would lead to an earlier publication of economic forecasts that would flesh out the government’s fiscal plans.
News that the UK economy did not shrink in quarter two was also welcome although it was accompanied by downward revisions to growth in 2020 meaning the UK economy was still below pre-pandemic levels.
Housebuilders topped the charts on the FTSE 100 after recent hefty falls with Barratt Developments PLC (LON:BDEV), Persimmon PLC (LON:PSN) and Taylor Wimpey PLC (LON:TW) all making strong gains.
Exporters were amongst the fallers on the lead index following the bounce in the pound with Unliever PLC and Reckitt Benckiser Group PLC (LON:RKT) lower.
8.40am: Good news and bad news in the UK GDP figures
There was good news and bad news from today’s UK GDP figures as upward revisions to the quarter two figure were accompanied with downward revisions to growth for 2020 .
For quarter two the 0.1% q/q contraction in GDP was revised up to a 0.2% q/q rise meaning that if the UK does have a recession it will be later than many analysts thought.
But downward revisions were made to growth in 2020 meaning that rather than being 0.6% above the pre-pandemic level in Q2 2022, real GDP is now thought to be 0.2% below it.
The GDP figures for 2021 were revised slightly higher to 7.5% from 7.4%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “These revisions will compel the OBR to revise down further its estimates for future potential GDP, though as they also imply that the tax-to-GDP ratio is higher than previously estimated, the impact on the public finances should be modest.”
He said the revisions implied “that the damage inflicted to the economy’s supply side by Covid and Brexit is even larger than previously thought.“
Capital Economics suggested the news would put further pressure on the chancellor: The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels. It’s the only G7 economy in that situation and it makes the chancellor’s fiscal plans look even more untenable.”
Martin Beck, chief economic advisor to the EY ITEM Club said much would now depend on the next fiscal moves by the UK Government.
“The outlook for the economy is uncertain” he said adding “much will now depend on how on the successful articulation of how tax cuts will prove compatible with a sustainable fiscal position, and how the promised supply-side reforms will be delivered. On that score, a 23 November statement does seem quite far away.”
8.13am: FTSE 100 makes a bright start, sterling higher
FTSE 100 made a bright start on Friday as investors digested the latest UK GDP figures and ahead of a meeting between prime minister, Liz Truss and The Office for Budget Responsibility.
At 8.10am the FTSE 100 was 21 points at 6,902, while the broader FTSE 250 jumped 79 points to 16,869.
UK Q2 GDP figures were revised upwards to show growth of 0.2%, better than expected, but there were downward revisions to the figures for 2020. .
Capital Economics said: “The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels.”
“It’s the only G7 economy in that situation and it makes the Chancellor’s fiscal plans look even more untenable.”
In corporate news, Barclays PLC (LON:BARC) had its knuckles rapped by a US regulator, agreeing a US$200mln penalty for the overselling of financial instruments, while JD Sports Fashion PLC (LON:JD) announced a partnership with fellow sportswear apparel maker Nike (NYSE:NKE).
8.00am: British pound gains; Dollar falls against Swiss franc; Euro remains under parity
The British pound is making incremental gains among the G10 set as the third quarter comes to a close.
GBP/CAD is 0.2% up at C$1.52, with similar price action being seen against the Swiss franc.
The GBP/USD pair is sitting at US$1.11, a small improvement from the previous day and marking the third consecutive day of clawbacks following the Bank of England’s sovereign bonds intervention.
Despite gains over three days, GBP/USD faces a steep hill – Source: capital.com
The US dollar is fairly soft compared to its impressive run of late, partially due to yesterday’s gross domestic product (GDP) results that showed negative growth of 0.6% (though that was to be expected).
Against the Swiss franc, the dollar lost ground, though a bullish clawback is already being entertained on the four-hour trading chart.
Bullish support on the USD/CHF pair – Source: capital.com
The Euro is still under parity against the US dollar at US$0.98, but has gained slightly against CHF and CAD.
Today’s Eurozone inflation data is expected to come in at 9.7%, and all eyes will be on how the Euro responds to actual results.
7.40am: PM and Chancellor to meet with OBR
Liz Truss will hold emergency talks with the head of Britain’s independent fiscal watchdog after failing to dampen panic in the financial markets or shore up support from Tory MPs on her radical economic plan, according to The Guardian.
In a highly unusual move, the prime minister will meet the Office for Budget Responsibility’s (OBR) Richard Hughes on Friday, along with her chancellor, Kwasi Kwarteng, before being presented with a first draft of its full fiscal forecasts next week.
Truss faces urgent calls from the Treasury select committee to bring forward the government’s financial statement, which is not due until 23 November, by at least a month – and to publish growth forecasts as soon as possible to help calm jitters.
On Thursday night the OBR confirmed that it could have produced a forecast in time for the mini-budget, but was not asked to do so by Kwarteng.
The Treasury select committee’s chair, Mel Stride, told the Guardian there was a path out of the current economic situation for the government, but added: “It’s not a very broad path. There is a lot of work to be done. This is a huge challenge.”
7.25am: UK current account deficit falls
The underlying UK current account deficit excluding precious metals reduced to £32.5bn or 5.3 % of gross domestic product (GDP) in quarter two (Apr to June), a change of £4.4bn from the previous quarter.
Figures from the Office for National Statistics showed that the UK current account deficit, when trade in precious metals is included, reduced to £33.8bn, or 5.5% of GDP in the quarter.
The ONS also said figures for the underlying current account deficit had been revised downwards to show a deficit of £37.0 billion (6.1% of GDP), from an initial estimate of £44.2 billion (7.1% of GDP).
The revision is primarily because of investment income earnings from abroad (credits) being higher than previously estimated.
7.15am: UK Q2 GDP revised upwards
Some better news.
UK GDP for quarter two of this year has been revised upwards to show growth of 0.2% from the previous estimate of a contraction of 0.1% suggesting the UK may not be in recession.
Figures from the Office for National Statistics showed that services output is estimated to have increased by 0.2% in quarter two, reflecting an easing in information and communication, and professional, scientific and technical activities output although there was also continued weakness in the wholesale and retail trade, and health industries.
We’ve published revised GDP data today including improved methods and sources https://t.co/7BFolSeRYrGDP has been revised up from -0.1% to +0.2% in Q2.
However, the overall size of the economy is smaller than previously estimated, 0.2% below its pre #COVID19 pandemic level. pic.twitter.com/FjJVPEBNGb
— Office for National Statistics (ONS) (@ONS) September 30, 2022
The latest update also contained revisions for growth in 2020 and 2021.
The ONS said estimates show that UK GDP contracted by a downwardly revised 11.0% in 2020, reflecting the effects of coronavirus (COVID-19) restrictions, while UK GDP is now estimated to have expanded by an upwardly revised 7.5% in 2021.
Overall, the level of real GDP is now estimated to be 0.2% below where it was pre-coronavirus at quarter four (Oct to Dec) 2019, downwardly revised from previous estimates of 0.6% above.
7.00am: FTSE 100 set to open slightly lower
FTSE 100 is expected to open slightly lower on Friday after another day of drama on the financial markets yesterday.
Spread betting companies are calling the lead index down by around 18 points.
UK gross domestic product figures for the second quarter are due this morning with a 0.1% decline forecast whilst Nationwide's house price data for September is also due.
UK Prime Minister Liz Truss and Chancellor Kwasi Kwarteng will meet with the head of the Office of Budget Responsibility on Friday, in the latest effort by the pair to reassure markets and voters that the economic turmoil of recent days is under control.
In the US, markets headed downwards once again as investors continued to fret that the Federal Reserve's aggressive fight against inflation could hobble the US economy and also worried about a rout in global currency and debt markets.
By the close the Dow Jones Industrial Average was 458 points, or 1.54% lower, at 29,226, the S&P 500 eased 79 points, or 2.11%, to 3,640 and the tech-heavy Nasdaq Composite slid 314 points, or 2.84% to 10,738.
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