Proactive Investors -
- FTSE 100 rises 12 points
- Pound drops on comments from Bank of England governor
- Tesco (LON:TSCO) first-half profits jump
Oil elevated, other commodities too
Libya says it is resuming oil production today, though oil prices only wobbled slightly on the news.
Libya's largest oil field will resume output on Thursday, the country's oil minister said in a statement.
Brent crude oil is up almost 2% at $75.33 as the fighting between Israel and its neighbours continues.
Analyst at Saxo say: "While multiple geopolitical price spikes this past year deflated almost as soon as they emerged, the recent escalation poses a threat to supply, primarily arising from the risk of an Israeli counterattack on Iran’s nuclear and energy infrastructure, and for now, this threat to supply will counter a resumption of Libyan production and general sluggish demand."
Gold has levelled off slightly below last week’s record high, which the Saxo team said potentially highlights "a market where short-term focused traders have started to book some profit following gold’s strong September rally".
They also note that copper rose for a second day amid continued optimism over China’s demand prospects and the recent US rate cut, while iron ore holds onto most of last week's 20%-plus rally.
Elsehere in commodities, wheat prices trade a three-month high after a major Russian farming area declared a drought emergency, "underscoring parched conditions that are hampering winter sowing".
News for Chagossians
The UK has agreed to give up sovereignty of the Chagos Islands to Mauritius, in return for the lease on a UK-US military base on Diego Garcia.
Sovereignty of the island group in the Indian Ocean, currently a British Indian Ocean Territory, comes in exchange for an initial 99-year lease for the UK over Diego Garcia.
Mauritius wants to resettle the islands, after the UK forcibly relocated islanders many years ago.
Foreign Secretary David Lammy said the agreement secured a "vital military base for the future".
Wall Street heading lower
US stocks are likely to head lower, according to futures markets.
S&P 500 futures are down 0.3%, while those for the Nasdaq 100 are pointing to a 0.4% drop, while Dow Jones futures are down 0.35%.
In Europe, London's FTSE 100 and the IBEX 35 in Madrid are the only two major benchmarks in the green, with the DAX and CAC 40 down 0.5% and 0.7%, while the Euro Stoxx 600 has decreased 0.54%.
Sterling work on the pound
Some thoughts on the pound from Rabobank currency analyst Jane Foley.
She notes how sentiment towards the pound has improved vastly since 2022, based on CTFC net positions (see graph below) and sterling being the best-performing G10 currency this year and the second-best performer last year.
"Many of the trials and tribulations of the pound in the past eight or so years have been political in nature. It follows that some of the improvements in sentiment since the start of last year have been related to a more stable political backdrop," Foley says.
"However, the perception that the BoE may cut interest rates more cautiously than the Fed and potentially the ECB have been a source of support for the pound.
"This view has been deeply shaken by comments made by BoE Governor Bailey in an interview with the Guardian newspaper."
She said that while Bailey’s comments provided the trigger for the sell-off in the pound this morning, "the aggressiveness of the move likely took its cue from a couple of additional factors".
One of these is the recent "go big or go home" attitude towards monetary stimulus, with the US Fed and the Chinese authorities opting for significant monetary boosts in the past couple of weeks, with the BoC and the Riksbank both mooting the idea of potentially cutting rates in 50bps increments, and expectations of a similar move for the RBNZ next week also growing and the ECB also appears more likely to cut rates by 25bps moves this year, rather than once.
"Since overseas rate cuts can have an FX impact, technically there could be an incentive for the BoE to follow suit," says Foley.
Inflation risks in the UK are still a source of concern, though as Bailey caveats his 'activist' comment with.
Headline inflation is projected to rise from 2.2% to around 2.6% on average in the fourth quarter, but as it is driven largely by energy and base effects, it is unlikely to prevent a BoE cut in November but could be enough to keep a December rate cut off the table.
"This backdrop suggests that this morning’s GBP sell-off may be overdone," says Foley.
FTSE in the green
London's blue chips are a bit more full of beans as we move towards midday.
The Footsie is up 28 points or 0.3% to 8,319, while the mid-cap FTSE 250 is close to erasing its earlier losses, down just six points at 20,777.
Housebuilding companies are topping the FTSE 350 leaders, on the back of new sector data, with Tesco also up there after its half-year results earlier.
As expected, say analysts at Jefferies, Tesco's H1 results "show a business thriving in a changing UK landscape", with the stock up over 25% in the year to date to reflect "a newfound appreciation" for the group's merits.
"A 7% EBIT beat today should be the focus, instead of an upgrade to guide perhaps a little more circumspect than anticipated."
Power company SSE PLC (LON:SSE) is another blue-chip riser on the back of a trading update that was very misleadingly entitled 'notice of closed period'.
The renewable energy specialist said it expects to report half-year adjusted earnings per share of more than 45p, with its first-half energy performance 44% higher than the previous year but in line with expectations, reflecting weather conditions as well as capacity increases.
SSE also confirmed the six-month delay to the commissioning date of the Dogger Bank wind farm, reiterating a message from last week that commissioning has now been delayed into the second half of 2025.
What the UK data suggests about interest rates
A deeper look at the PMI and BoE DMP surveys earlier, from Rob Wood, chief UK economist at Pantheon Macroeconomics.
He feels the PMI suggested the services sector was in a wait and see mode before the Budget later this month.
The Bank of England's MPC "will take comfort" from easing output price inflation in the month but "will be wary of rising input costs feeding through at a later date".
Overall, he said the survey signalled a dip in growth in September related to uncertainty ahead of the October 30 Budget, "but forward-looking parts of the survey suggest growth will rebound later in the year", and the price balances pointed to gradually easing price pressures.
"We think these factors support the MPC taking a gradual approach to reducing Bank Rate."
But, with Bailey's "more aggressive" comments on cutting interest rates to the Guardian, if inflation news "continued to be good", Wood says the risks to his call that the MPC will cut rates in November and then wait until February to change borrowing costs again are now "skewed towards the MPC moving in back-to-back meetings".
Wood said the BoE's decision maker panel survey "gives the MPC enough reason to keep cutting interest rates", though it does not green-light faster cuts, with wage growth and price rises proving stubborn.
"The MPC can hold on to easing recruitment difficulties and slowing settlements, but will likely need to see that feed through to wage growth in future DMP surveys before feeling confident enought to ease rates in back-to-back meetings."