- FTSE 100 makes solid early progress, up nearly 30 points
- Retail sales growth slows down in August - BRC
- Berkeley Group advances after "resilient" results
Trading in London got off to a positive start on Tuesday, supported by gains in other European bourses, with both the FTSE 100 and 250 making healthy early progress.
At 9.00am the lead index was trading 28.22 points higher at 7,315.65 while the broader FTSE 250 surged 261.67 points (1.4%) to 18,891.35.
Reports that the incoming Truss Government is to unveil a broad package of support to households and businesses provided support with analysts estimating the package could cost £100bn.
Holger Schmieding at Berenberg said the key idea according to some reports would be to freeze the energy price cap for the average household at the current annual £1,971 instead of raising the cap to £3,549 on 1 October as the energy regulator Ofgem had announced on August 26.
Such a price freeze would make a major difference to inflation, he estimated.
“UK inflation could be c3ppt lower in quarter four 2022 and some 4ppt lower in quarter one 2023 than otherwise, he said.
He concluded that “If households have more money to spend on non-energy goods and services, the UK recession could also be somewhat shallower than we currently project.”
So far, the UK has offered less support to households than most other European countries but Schmieding said “if Truss goes ahead with the reported idea, the UK would go super-European, intervening more than many EU governments.”
8.40am: Berkeley Group tops FTSE 100 risers
Berkeley Group Holdings PLC (LON:BKGH) (LSE:BKG) topped the FTSE 100 risers with shares rising 4.47% after the housebuilder said it was on target to meet its full year profit target.
Forward sales rates are expected to be “marginally” ahead of last year’s £2.17bn, with the group seeing a “good level” of demand.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said: “Berkeley Group has put in a resilient showing, despite soaring cost inflation which is marring the entire sector.”
“The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder’s fatter bills.”
“This is a dynamic being seen almost across the board, but the longevity of the pattern is a question mark for Berkeley” she cautioned.
8.05am: FTSE 100 makes steady early progress
FTSE 100 hovered around opening levels in early trading, posting small gains, following mixed showings in Asia overnight and with the ongoing energy crisis in focus.
At 8.05am the lead index was trading 10.19 points higher at 7.297.62.
There was plenty of corporate news to digest in London.
DS Smith PLC (LSE:SMDS) said today trading was in line with expectations driven by pricing momentum and good cost control and despite an expected decline in corrugated box volumes in quarter one.
The company said virtually all input costs, including energy, have increased significantly with energy cost increases substantially mitigated by efficiency initiatives and by long-term hedging programme.
Miles Roberts, Group Chief Executive, said: "We have started the financial year very strongly, despite the current macro-economic conditions.”
DS Smith also announced that chief financial officer, Adrian Marsh, is stepping down.
Berkeley Group Holdings PLC (LSE:BKG) is on track to meet full-year profit guidance, the housebuilder said on Tuesday, despite a "volatile" operating environment.
The group said it had continued to trade well during the first four months of the current financial year and remained on track to meet guidance for pre-tax profits of £600mln for the current year, and £625mln in the year to April 30, 2024.
7.45am: Retail sales growth slows in August - BRC
The latest figures from the British Retail Consortium showed that year on year growth in total sales values dropped to 1.0% in August, from 2.3% in July.
Helen Dickinson OBE, chief executive, BRC commented: “Retail sales growth slowed in August compared to the previous month as consumers reined in spending amidst the spiralling cost-of-living.”
“While inflation in retail prices is lower than general inflation at over 10%, this still represents a significant drop in sales volumes.”
“For the first time in recent months, clothing sales were sluggish as summer events ended, and parents held back on back-to-school spending.”
“White goods and homeware remained hardest hit, but products such as air fryers and knitwear did get a boost as thrifty consumers prepare for soaring energy bills.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said “the drop in the year-over-year growth rate of total sales in August is a bad result, given that sales were falling a year ago from their post-lockdown highs.”
He noted that the official measure of retail sales volumes, excluding petrol, fell by 0.3% month-to-month in August 2021 and he estimated that the BRC’s figures are consistent with around a 2% month-to-month drop in the official measure of retail sales volumes in August.
Looking ahead, Tombs said “the outlook for retail sales, like much of the rest of the economy, now hinges on the scope of support measures to help households with higher energy bills announced by the new PM in the coming days.”
7.30am: Government expected to unveil plans to deal with the energy crisis on Thursday
The Government is expected to allow energy suppliers to take out government-backed loans in order to subsidise bills providing support to many households and businesses.
The BBC has reported the "deficit reduction scheme" is expected to form the centre piece of the government's attempt to tackle the high cost of energy for consumers.
Energy bosses have insisted for some time that a government-backed superfund from which they could borrow to subsidise bills "is the only game in town".
Under such a plan, the government would guarantee loans to energy companies that would be used to freeze or at least lower bills this winter and beyond. These loans would be repaid from bills over the next 10-20 years.
Smaller firms are expected to be offered similar help to that of households, although the BBC said it understands the details of how businesses will be helped may not be ironed out in time to be included in Thursday's energy announcement.
The BBC reported that bigger companies may be offered bespoke tax breaks to help them through the period of high prices.
Alex Veitch of the British Chambers of Commerce said: "It is encouraging that the government is seriously considering the support it can give to businesses during these very difficult times.”
7.15am: Pound in focus after Truss appointment
With Liz Truss set to be officially appointed as Prime Minister today, Michael Hewson chief market analyst at CMC Markets UK, said “the next focus will be on the fiscal response to protect consumers as well as businesses from the sharp rise in energy prices that is coming our way in October.”
Hewson noted that “the pound managed to recover off its intraday lows yesterday in the aftermath of yesterday’s news, however the key test will be on how markets view the government's next steps when it comes to dealing with the current crisis.”
“Opinion appears mixed on whether all of the bad news is currently priced in to the pound, however it does appear to have squeezed quite a bit higher after the lows of yesterday.”
“While some short-term borrowing is unavoidable given the current challenges, the main focus will be on what steps the government intends to take to keep energy prices down and deal with the UK’s longer term energy security” Hewson said.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said the appointment of Truss means the risks
“remain tilted to the downside for the pound sterling, as investors are worried about the policies that Liz Truss will put in place, and their economic implications. Parity is still in radar for the pound bears.”
6.55am: FTSE 100 expected to open slightly lower
FTSE 100 is expected to make a subdued start to trading with US markets closed yesterday and as investors continue to digest the appointment of the new UK Prime Minister, Liz Truss.
Spread betting companies are calling the lead index down by around 10 points.
Asian markets were mixed with attention focussed on the Reserve Bank of Australia, who went ahead with another 50bps rate hike, the fourth meeting in a row that rates have been increased.
The bank went on to say that further rate rises would be needed in the months ahead, and that they remained committed to returning inflation to 2%-3% over the medium term.
In London, trading updates are due from Berkeley Group Holdings PLC, Ashtead (LON:AHT) and DS Smith amongst others.