- FTSE 100 in positive territory recouping early falls
- Easyjet (LON:EZJ) flies high on bid speculation
- Royal Mail (LON:IDSI) owner, IDS, rises as strike action is pulled
10.51am: Centrica (LON:CNA) boosted as Citi ups price target
Shares in Centrica PLC (LSE:CNA) received a boost this morning as Citi increased its price target to 93p from 81p and reiterated its buy rating.
In a note this morning analyst Jenny Ping said the share price already reflects a punitive power generation windfall tax in the form of a revenue cap and an extension of the tax on oil and gas.
But it does not reflect the upside risk from optionality and growth potential offered by a very profitable Rough storage asset, its core cash generative retail business and the prospect for earnings clarity once there is visibility on any government intervention, she commented.
Ping thought a windfall tax would provide a “much needed clearing event for the shares.”
“Furthermore, in a rising rate environment, we prefer companies with little debt and robust balance sheets, qualities which Centrica already possesses” she said.
Last Friday the company announced it had reopened its Rough gas storage facility, increasing the UK’s storage capacity by 50% and "boosting the UK’s energy resilience.”
Mid-morning and shares in Centrica are up 4.5% at 76.50p.
10.26am: Eurozone inflation hits fresh high
Two pieces of economic news from Europe.
Annual Inflation in the Eurozone hit a fresh record high of 10.7% in October, ahead of analyst expectations of 10.3% according to official statistics from Eurostat.
This was up from 9.9% in September and reflected soaring energy costs which rose 41.9% from 40.7%, followed by food, alcohol and tobacco (13.1%, up from 11.8% in September), while industrial goods inflation picked up to 6% and services to 4.4%.
In a seperate announcement real GDP in the Eurozone rose by 0.2% quarter-on-quarter in quarter three, after a 0.8% increase in quarter two, in line with the consensus forecasts.
The year-over-year rate slowed to 2.1%, from 4.3% in Q2, also in line with the consensus.
Euro area #inflation up to 10.7% in October 2022: energy +41.9%, food, alcohol & tobacco +13.1%, other goods +6.0%, services +4.4% - flash estimate https://t.co/b9t9sOMDLM pic.twitter.com/NbsakF4eVe— EU_Eurostat (@EU_Eurostat) October 31, 2022
10.00am: Mortgage approvals fall 10% in September
UK mortgage approvals fell by 10% last month and consumer credit also declined, as people borrowed less on their credit cards amid the cost of living crisis.
Bank of England figures showed that mortgage approvals for house purchases "decreased significantly” to 66,800 in September from 74,400 in August, adding to other evidence that the housing market is slowing.
Mortgage lending was unchanged at £6.1bn.
The actual interest rate paid on newly drawn mortgages climbed by 29 basis points to 2.84%.
Consumers borrowed an additional £700m in consumer credit, down from £1.2bn in August, as credit card borrowing plunged to £100m from £700m. Other forms of credit include car dealership finance and personal loans.
9.20am: Easyjet flies on bid speculation
Shares in budget airline operator, EasyJet PLC, surged 5.2% today on reports that the group could be a takeover target for International Consolidated Airlines Group (LON:ICAG) SA (LSE:IAG).
The Times reported that British Airways-owner is eyeing a potential acquisition as part of renewed plans to consolidate the European airline industry.
AJ Bell investment director Russ Mould said the reports “make perfect sense.”
He explained that the pandemic has “created concerns about the future of business travel.”
“It’s far easier, cheaper and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane” he pointed out.
“Therefore, companies like International Consolidated Airlines need to rethink their future sources of revenue” adding “owning EasyJet would significantly boost International Consolidated Airlines’ position in the leisure market and give it access to many prized airport landing slots.”
Mould suggested “Many airlines will have been watching EasyJet’s share price collapse and weighing up their options.”
“An opportunistic takeover bid now could net them a bargain in the long term, but equally it’s a bold move to take given the gloomier economic outlook which could cause further disruption to earnings over the coming year.”
“Wizz Air (LON:WIZZ) has been linked as a potential suitor for EasyJet in the past and there is also logic behind a tie-up of those two companies” and Mould suggested that International Consolidated Airlines could face competition from other parties should it decide to make a move on the low-cost airline operator.”
Shares in Wizz Air Holdings PLC (AIM:WIZZ) also rose, up 4.6%.
9.05am: FTSE 100 slips as weak Chinese data dents mood
FTSE 100 fell back in early trading with weak factory activity data in China pushing mining stocks lower and offsetting gains in the banking sector.
At 9.00am the FTSE 100 was down 13 points at 7,035 with the FTSE 250 down 35 points at 17,882.
China's factory activity shrank in October after industries were hit by strict Covid lockdowns with the PMI coming in at 49.2 points, down from September's 50.1 and below the 50-point mark separating growth from contraction.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown (LON:HRGV) said: “Concerns are growing that China’s Covid curbs are upsetting the applecart for manufacturing yet again.”
“There are reports that the production of i Phones could fall by as much as 30% next month at the mega FoxConn factory in Shenzhen after a fresh virus outbreak.”
“It comes after PMI data for October shows that relentless restrictions have been a blight on factory activity across China.”
Concerns of lower demand from the economic super power dragged mining companies lower including Glencore PLC (LON:GLEN) (down 1.9%) and Anglo American PLC (LON:AAL) (down 1.1%), whilst oil major and index heavyweight, Shell (LON:RDSa), dropped 1.74% as the oil price fell around 0.9% reflecting similar concerns.
On the upside, banking stocks rose following a report in the Sunday Times that the sector would avoid a windfall tax.
Lloyds Banking Group PLC (LON:LLOY), NatWest Group PLC (:LON:NWG) and Barclays PLC (LON:BARC) were all higher.
Shares in Royal Mail owner, International Distributions Services PLC, also enjoyed a good start to the week, rising 6.55% after Royal Mail workers dropped plans for a series of mass walkouts over the next two weeks after the company reportedly queried the legality of the action.
Around 115,000 members of the Communications Workers Union (CWU) has been planning to strike on 2, 3, 4, 8, 9 and 10 November.
8.30am: Banks rise on reports they may avoid a windfall tax
Shares in the major banks, NatWest Group PLC (LON:NWG), Lloyds Banking Group PLC (LON:LLOY) and Barclays PLC (LON:BARC) rose in early trading following a report in the Sunday Times that a windfall tax on the banking sector to plug a big hole in the government finances was unlikely.
The report stated: "The government last night quashed suggestions that it is considering a windfall tax on banks as one of the measures to plug a hole in its finances at next month’s budget."
"Two senior sources close to prime minister Rishi Sunak and chancellor Jeremy Hunt played down the idea that they were looking at ways to impose additional taxes on banks."
The news will come as a relief to the City, which had feared a raid on bumper profits derived from rises in interest rates.
8.17am: FTSE 100 little changed at the open
FTSE 100 was little changed at the open on Monday ahead of a key week of economic data and central bank announcements with interest rate decisions from the US Federal Reserve on Wednesday and the Bank of England on Thursday.
At 8.15am the FTSE 100 was up 6 points to 7.053 with the FTSE 250 up 7 points at 17,924.
"After last week’s positive finish European markets look set to start the week slightly higher, despite another set of weak Chinese services and manufacturing PMIs, which has prompted a mixed Asia session," said CMC's Michael Hewson.
China's factory activity shrank in October, official data showed, after industries were hit by strict Covid lockdowns. The purchasing managers' index came in at 49.2 points, down from September's 50.1 and below the 50-point mark separating growth from contraction.
There were also concerns of another jolt to inflationary pressures in food prices as wheat and corn futures soared on world markets after Russia pulled out of a deal to allow grain exports from Ukraine through the Black Sea, which is seen as vital for world supplies and bringing high global food costs down.
Corporate news was a little quieter in London ahead of another busy week with shares in TP Group up after it agreed a £17.53mln bid from Science Group PLC (LON:SAGS) (AIM:SAG).
Glencore PLC (LSE:GLEN) was in focus after the Financial Times reported that Tesla held talks with the commodities group as it looked to secure materials needed for the rollout of electric vehicles.
The Financial Times cited people familiar with the matter as saying that preliminary discussions about Elon Musk's electric car and battery maker buying a 10% to 20% stake in Glencore began last year.
They continued in March this year, when Glencore chief executive Gary Nagle visited Tesla's factory in Fremont, California as part of a roadshow for the mining company's annual results.
However, it was understood that the discussions ended with no deal reached.
The impact of the infamous mini-budget has hit the housing market, according to Zoopla, with demand for new homes from first-time buyers in the UK down by a third.
The company suggested that "mortgage rates of 4% to 5% are likely to be the new norm."
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Buyers have fled the horrors of the housing market in their droves since the mini-budget, thanks to alarming interest rates and predictions that property prices are set to plunge.”
“But this doesn’t necessarily mean sellers are safe to sell up and sit it out in the hope of a cut price deal next year either.”
7.55am: Euro hit by high inflation data as Sterling stabilises against the US dollar
The euro responded poorly to a slew of higher-than-expected inflation data emerging from Germany, France and Italy last Friday.
Italy in particular surged, with the harmonised HICP rate rising 3.4 percentage points to 12.6% year on year.
EUR/USD dove sharply and continued to move south over the weekend, hitting US$0.994 come Monday morning.
EUR/GBP was similarly bearish, falling to seven-week lows of 85.8p, as Europe’s scary mix of high inflation and softer economic data started to bite.
EU-wide inflation data is due at 11am and is expected to show record highs of 10.4%; anything higher could cause added drag on the euro.
Sterling has stabilised somewhat against the US dollar, even as the US Dollar Index (DXY) entered the week unexpectedly high at 110.94.
At US$1.158, the GBP/USD pair is around 2.5% higher week on week.
Cable’s relative stability can be seen on the one-hour chart
The US Federal Reserve’s interest rate decision on Wednesday will undoubtedly set the tone in the forex markets this week.
Given FOMC’s joint agreement in October that hiking rates is necessary to “prevent the far greater economic pain associated with entrenched high inflation, including the even tighter policy and more severe restraint on economic activity that would then be needed to restore price stability,” the hawks seem firmly in charge.
Anything softer could allow the pound to add pips.
7.25am: First-time buyers swerve the housing market
Demand for new homes from first-time buyers has slumped by a third since the former chancellor, Kwasi Kwarteng’s infamous mini-budget, according to a report from property company Zoopla.
As mortgage rates soared to highs of 6%, it put the biggest squeeze on new buyers since the late 1980s with Zoopla suggesting that "mortgage rates of 4% to 5% are likely to be the new norm."
Zoopla said there have been big drops in new buyer interest in the South East where demand was 40% lower and the West Midlands –38% lower.
Zoopla reporting a 33% drop in new buyer enquiries since the mini budget pic.twitter.com/3BfC8GJmQ2— Neal Hudson (@resi_analyst) October 31, 2022
Falls were less pronounced but still significant in Scotland (down 24%) and the North East of England (down 20%).
"New buyer demand has dropped quickly in the face of higher borrowing costs, it's like the Christmas slowdown has come a month early," said Zoopla executive director Richard Donnell.
"We don't expect to see any impact on pricing levels between now and December and this will only start to materialise in early 2023. It takes several months for pricing to adjust in the face of weaker demand."
'Homeowners wanting to sell in 2023 will need to be realistic on price and may have to forgo some of the pandemic price gains to achieve a sale in 2023,' says Zoopla's research director, Richard Donnell.
7.00am: FTSE seen slightly higher
FTSE 100 expected to open slightly firmer on Monday as investors look ahead to a busy week of central bank interest rate announcements with the Bank of England and US Federal Reserve set to make their latest moves.
Spread betting companies are calling the lead index up by around 7 points.
London should take some enthusiasm from a strong performance in the US on Friday where stocks ended the week in a buoyant mood.
The Dow closed Friday up 828 points, 2.6%, at 32,861, the Nasdaq Composite added 310 points, 2.9%, to 11, 102 and the S&P 500 jumped 94 points, 2.5%, to 3,901.
In the UK, the latest mortgage and credit card lending data is expected to show further weakness in September
Mortgage approvals are expected to slow to 63.7k, from 74.3k in August, ahead of the next increase in the energy price cap in October.
Net lending on mortgages is expected to slow to £5.2bn from £6.1bn.
EU gross domestic product and consumer inflation figures are also due today.
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