Proactive Investors -
- FTSE 100 rises 11 points
- Pound drops on comments from Bank of England governor
- Tesco (LON:TSCO) first-half profits jump
Bank of England decision maker survey
Released at the same time at the PMI, the Bank of England's decision maker panel survey showed business uncertainty fell in the three months to September.
The DMP reading on output prices remained at 3.6%, though, higher than the 3.4% consensus estimate.
One-year CPI price expectations also remained unchanged, at 2.6%, below the 2.7% estimate.
Average employment growth across companies surveyed for Sep was 0%, the lowest in the survey since Covid.
⚠️ This from the latest DMP survey will add fuel to the fire around front-loaded BoE cuts. Average employment growth across companies surveyed for Sep was... 0% (lowest in the survey data since Covid and significantly softer than pre-Covid levels). UK jobs mkt looks bleak $GBP pic.twitter.com/TKvD3KBHc8— Viraj Patel (@VPatelFX) October 3, 2024
Services PMI adds to inflation positivity
The UK services purchasing manager's index came in lower than expected but had encouraging news on inflation.
September's final services PMI reading was 52.4, down from 53.7 in August and below the 52.8 flash estimate. A reading above 50 indicates growth.
Business activity growth eased to three-month low last month, says S&P Global, which runs the survey, though "robust" order books underpinned positive business expectations for the year ahead.
Prices charged inflation slowed for third month in a row to the lowest since February 2021.
Pound falls as six BoE cuts expected by end of 2025
Some thoughts on the comments from Andrew Bailey earlier, where he said the Bank of England could become "more aggressive" and "more activist" on rate cuts if inflation proves to be contained.
Over the past five days the pound has dropped over 2% against the dollar from $1.34 to $1.313 now, with the Iran-Israel fighting leading to safe haven flows into the US currency and taking another leg lower today thanks to the Bailey interview.
These "dovish" comments rattled sterling, says market analyst Katheleen Brooks at XTB, which has had "a bruising week" that leaves the $1.35 predictions some were making seeming "like a mountain to climb from here".
Bailey’s comments have "undermined the pound’s yield differential with the US and Europe", Brooks says, noting that the market has fully priced in a rate cut from the BoE at the November 7 meeting, and has a 61% chance of another cut in December, up from 47% not long ago.
She says the market is now expecting six rates from the BoE by the end of next year, up from just over five rate cuts earlier this week.
"The market has used Bailey’s comments as a green light to price in more monetary loosening. GBP/USD has already sold off sharply this week, so further downside could be limited in the short term, however, Bailey has made it harder for the pound to recover. For that to happen, we may need to see both upside surprises to UK price data and an easing of tensions in the Middle East."
European benchmarks in the red, London the least worst
The fall in London's benchmark brings it in line with other European blue-chip indices, which all started the session lower and have mostly continued to fall.
France's CAC-40 and Germany's DAX are down 1.1% and 0.9%, respectively, while in Milan the FTSE MIB has dropped 0.9%, while in Madrid the IBEX 35 has dropped 0.4%.
A dip of four points for London's FTSE puts it out in front again this week.
Housebuilders and retailers are the main driving forces this morning, on the back of the Zoopla report and Tesco's interim results.
Persimmon (LON:PSN), Barratt, Vistry and Taylor Wimpey (LON:TW) make up four of the top five, all up between 1.9% and 3%, with Tesco up 2% in the middle.
Sainsbury 's (LON:SBRY) and Marks & Spencer are among the top risers, while oil heavyweights Shell (LON:SHEL) and BP (LON:BP) are up 0.7% and 0.3% respectively.
FTSE in the red
The FTSE has dropped into the red, down seven points at just under 8,284.
Miners seem to be a key drag, with Glencore (LON:GLEN) and Rio Tinto (LON:RIO) both down around 1%. Some banks and financials are also lower.
Mirroring the fall seen in the Hang Seng index, London's China-related stocks are also lower this morning, including Prudential (LON:PRU) and Burberry, though not HSBC (LON:HSBA).
Bottom of the fallers is Phoenix Group, which is among a group of stocks that has gone ex-dividend today, along with Centrica (LON:CNA), Weir (LON:WEIR), Smith & Nephew, Hargreaves Lansdown (LON:HRGV) and F&C Investment Trust.
Looking at the Middle East situation, there are reports from the Israeli military that it struck a municipality building in southern Lebanon, killing at least 15 Hezbollah members.
Market commentary
Markets have "remained on edge" over the past 24 hours, says Deutsche Bank (ETR:DBKGn) strategist Jim Reid.
While there has not yet been any fresh escalation since the strikes earlier in the week, Israeli PM Netanyahu has said they intend to retaliate, warning that Iran "will pay" for its actions, though US President Biden urged Israel not to attack nuclear facilities.
"So there doesn't seem to be a desire from the US at the moment for a sizeable escalation," says Reid.
The financial market reaction has been seen in a further rise in oil prices, with Brent crude yesterday on track for its biggest two-day gain of 2024 so far, before 3.5% gains to above $76 a barrel at the highs were mostly pared back.
This morning Brent is up 1.3% this morning at $74.85.
"Whilst investors awaited any geopolitical news, the other main story yesterday was a substantial bond selloff," says Reid, noting that it was primarily driven by the higher than expected US ADP jobs data.
"So that was an important sign of strength in the US labour market, particularly ahead of tomorrow’s all-important jobs report."
This, and cautious Fed speaker comments on inflation, led investors to dial back the chance of aggressive rate cuts over the coming months, with the amount of cuts priced by the end of next year down 4.4 basis points on the day to 188bps.