- FTSE 100 down 145 points
- Housing shares under pressure
- Next cuts profit guidance
9.09am: Market reacts to Truss interviews
In her round of radio inteviews, the prime minister seems determined to claim the mini-budget was mainly about the energy package and blame the current turmoil on outside factors such as Russia's invasion of Ukraine.
But the market seems to be getting worse during the course of her various comments.
The FTSE 100 is now down 145.6 points or 2.08%, while the pound is now down 0.52% at US$1.0778.
Ten year gilt yields are up 16 basis points at 4.157% (yields increase as the price of bonds falls).
The 30 year is up 9 basis points at 4.02%.
This is a chart of the UK government bond market while Liz Truss has been on air- investors are worried by her comments, are selling gilts and the yields rise.
- short version: they’re not reassured by her doubling down pic.twitter.com/oML88M7c7r
— Kitty Donaldson (@kitty_donaldson) September 29, 2022
This is a terrible media round from Liz Truss. Robotic. Totally lacking in empathy. But it's also revealing the fundamental problem. The policy itself is utterly, completely and totally indefensible.— (((Dan Hodges))) (@DPJHodges) September 29, 2022
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV), said: "High government bond yields matter to millions of voters not just because it means the cost of government debt is going up, which will have to come out of available budgets. High yields have big implications for mortgage rates because they send so called swaps rates soaring which are used by lenders to price mortgage offers. The risk is still looming that if mortgage rates become increasingly unaffordable, then there could be a severe correction in the housing market, causing a fresh maelstrom of problems for struggling homeowners and a worsening outlook for house builders.’’
So it is no surprise that property related shares remain among the biggest fallers in the leading index.
Barratt Developments PLC (LON:BDEV) is now down 10.93%, Rightmove PLC (LON:RMV) is off 5.5% and Taylor Wimpey PLC (LON:TW) is 5.45% lower.
The first two have also seen their shares go ex-dividend.
8.33am: Truss breaks her long silence
Prime minister Liz Truss, who has maintained radio silence during the recent turmoil, has said she is sticking to her economic plans because it is the right thing to do.
Despite the pound reaching an historic low against the dollar, the gilt market slumping to the point where the Bank of England has to intervene, and criticism from a host of organisations including the IMF and Moody's.
Appropriately chosing radio to break her silence, she is touring local stations at the moment.
This format of back-to-back local interviews means each station needs to ratchet up its questions to get a headline. By the 0852 slot they’ll need to open with an accusation of murder. https://t.co/b9kZVXyHAN— Jim Waterson (@jimwaterson) September 29, 2022
As she speaks, the pound is down .043% at US$1.0787 while the FTSE 100 has fallen further, down 135.01 points or 1.93% at 6870.38.
Gilt yields are also edging higher again.
Victoria Scholar, head of investment at interactive investor, said: "There is a tug-of-war taking place between the Bank of England’s monetary tightening and the government’s fiscal stimulus with the former looking to bring inflation back towards 2% while the latter is looking to boost demand and economic growth as the two sides clash with each other.
"The pound is under pressure once again, down by around 1%, languishing near lows not seen since 1985, while the FTSE 100 is more than giving back yesterday’s gains. UK gilt yields are trading higher across the curve this morning with bond prices lower reversing some of yesterday’s bond market rally following the central bank intervention.”
8.22am: Housebuilders subside on rate rise fears
Housebuilders are among the fallers, with the prospect of further hefty interest rate rises leading to a slump in the market.
Barratt Developments PLC (LON:BDEV) is down 7.9% - not helped by the fact its shares have gone ex-dividend - while Taylor Wimpey PLC (LON:TW) is off 2.07%.
The downbeat news from Next PLC (LSE:NXT) has seen Primark owner Associated British Foods PLC (LON:ABF) lose 2.52%.
Also lower as they go ex-div are British American Tobacco PLC (LON:BATS), down 2.74%, and Smurfit Kappa Group plc (LSE:SKG), 2.05% lower.
8.14am: Footsie falls at the first hurdle
Leading shares are heading south at the open, confounding expectations of another increase.
With continuing concerns about the economy following chancellor Kwasi Kwarteng's mini-budget last Friday (is it really not a week yet since that?) and further tensions around Ukraine, the FTSE 100 has dropped 88.11 points or 1.26% to 6917.28.
Markets were stunned yesterday by the Bank of England's intervention in the gilt market, turning from seller to buyer in an attempt to ease pressures on pension funds which faced being forced sellers to meet margin commintments.
Government long dated bonds, held by the funds, had slumped in price following the turmoil after Kwarteng's statement.
The mood has not been helped by news that the Swedish Coast Guard found another leak in undersea gas pipelines running from Russia to Europe.
A big loser is retailer Next PLC (LSE:NXT), down 7.61% as it lowered its full year profit guidance from £860mln to £840mln, still 2.1% up on 2021.
Half year revenues rose 12% while profits climbed 16% to £400.6mln. It said: "August trade was below our expectations and cost of living pressures are set to rise in the coming months. Sales in September have improved, and we may see benefits from recent government measures,"
Charlie Huggins, head of equities at Wealth Club, said: "Next is seen as a bellwether of the UK High Street and today's cut to full year guidance lays bare the challenges being faced. Asos and Boohoo’s trading performance has been nothing short of dire. Even Primark’s recent trading update called out significant margin pressures. In this context, Next’s half year results are more resilient than most.
"The fact that many retailers are struggling shouldn’t be a surprise. This is arguably the most difficult trading environment since the 2008/09 financial crisis...
"Next looks better positioned than most of its peers to weather the storm, and emerge stronger in light of its high margins, robust cash flows and strong balance sheet. But 2023 could be a very difficult year the way things are shaping up."
Meanwhile Sir Mark Carney, the former Bank of England governor, is the latest to criticise the mini-budget.
In an interview with the BBC he said: "Unfortunately having a partial budget, in these circumstances - tough global economy, tough financial market position, working at cross-purposes with the Bank - has led to quite dramatic moves in financial markets."
He added: "There was an undercutting of some of the institutions the underpin the overall approach - so not having an OBR forecast is much-commented upon and the government, I think, has accepted the need for that but that was important."
7.40am: Sterling faces tough session; Euro falls against the Dollar; USD gains on yen
The Bank of England’s dramatic intervention in the sovereign markets encouraged a modicum of support for the pound and despite shedding a few pips overnight, GBP/USD is at least in a stronger position this morning than it was at the start of the week.
Currently sitting at US$1.08, the four-hour chart shows a slight bear advantage on a spinning-top candlestick, though it could go either way in today’s trading session.
A slight bear advantage is taking hold this Thursday morning
Not that there’s a huge deal to celebrate for pound holders in the long run, but any sign of stemming the downward spiral to parity should be met with some enthusiasm.
Despite a degree of support, long-term outlook for the pound is still grim
The Euro is losing some ground against the US Dollar this morning after what turned out to be a net positive Wednesday session.
At just shy of US$0.97, the EUR/USD pair is sitting level with an early-week high.
Germany’s flash inflation figures are due this afternoon, with general consensus pointing to an uptick on soaring energy prices.
The USD remains on top against all major currencies, having added 0.8% against the Canadian dollar and 0.4% against the Japanese yen.
With little on the US economic calendar today, we can expect the Dollar’s position to stand its ground.
7.00am: FTSE 100 set to open higher
FTSE 100 is seen slightly at the open although markets are likely to remain volatile following the £65bn ntervention by the Bank of England yesterday and ongoing concerns about the strength of the UK’s finances.
Spread betting companies are calling the lead index up by around 18 points.
In the US, markets rebounded strongly with the Dow up 547 points, 1.9%, at 29,682, the Nasdaq Composite up 222 points, 2.1%, to 1,052 and the S&P 500 up 71 points, 2%, to 3,719.
The Dow snapped a six-day winning streak, thanks in part to The Home Depot Inc (NYSE:HD), which saw shares gain 5% to $282.24.
Asian markets were also higher with the Nikkei 225 up 1.0% in late trade in Tokyo and the Hang Seng 0.9% to the good.
Interim results from retailer Next PLC (LSE:NXT) before the market open will provide an indication of how UK shoppers are responding to mounting economic pressures.