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OBR forecasts ‘ready earlier’ | Next cuts guidance
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4.30pm: Forecasts
The chair of the Treasury Select Committee Mel Stride has said that the OBR’s economic forecasts can be published by the end of October.
So he is calling for the chancellor to bring forward his planned statement from November 23 to the same time.
The FTSE 100 was down more than 160 points at one point and closed 123.8 points down at 6,881.59 as investors continued to fret over the impact of Kwasi Kwarteng’s badly-received mini-budget which he said today he has no intention of changing.
US stock indexes slipped at the open as worries of a global economic downturn from aggressive central bank rate hikes and risks of potential contagion from a turmoil in UK markets turned investors risk averse. The Dow Jones Industrial Average was down 2%.
Gilt yields are rising again despite the Bank of England pumping £65bn into the bond market, after falling prices put pressure on the UK’s pension funds. The 10-year yield is up 13 basis points at 4.15% while the 30-year is up 3 points at 3.965%.
One glimmer of optimism was a rise in the pound which is 1.2% higher at $1.1033
Housing stocks took a pounding amid fears of soaring interest rates.
Barratt Developments and Taylor Wimpey were among the biggest fallers.
Fashion and interiors retailer Next was also a loser, down 11.59% as it cut its full year price guidance (see below).
11.15am: Capricorn switches partner
Capricorn Energy said it was no longer proceeding with a planned merger with Tullow Oil and will instead be merging with Israel’s NewMed Energy.
The switch of partner follows investor opposition to its Tullow tie-up.
9.30am: Market plunges
Leading shares plunged at the open, defying expectations of an other uplift as investors continued to fret over volatility in the markets. The FTSE 100 dropped 160 points at one point and was last trading 134 points lower at 6,871.24. The pound is now down 0.52% at $1.0778.
“The great gilt calamity of 2022 continues to inflict pain on investors as pension companies took a tumble on the UK market, dragging the FTSE 100 down with them,” says Russ Mould, investment director at AJ Bell.
“Legal & General and Phoenix Group slid as investors worried about their investment exposure to gilts, following yesterday’s panic over soaring government bond yields.
“Having fallen yesterday afternoon after intervention by the Bank of England, gilts started to nudge higher again on Thursday. The 10-year gilt rose to 4.202% while the 30-year gilt hit 4.126%.
“Also dragging down the FTSE 100 on Thursday were stocks linked to the property sector. With the news full of stories about the prospect of rising interest rates and mortgage deals being pulled, it’s understandable that some investors want to cut their exposure to anything linked with the sector, for fear that we could see a sharp slump in the property market.
“That might explain why housebuilders Barratt Developments and Taylor Wimpey, and property portal Rightmove were down in the dumps on the market.
“Many investors want to see the Government do a U-turn on a plan to cut taxes and increase borrowing, hoping that would help stabilise markets and be the better option for the country. Yet there is no sign of that happening.
“The main priority is bringing inflation under control yet the Government’s actions in its mini-Budget serve to make inflation even worse, given they’ve sent the pound tumbling.
“That will make it even more expensive to buy goods and services from abroad, leading to the prospect of even greater interest rates hikes in the future. Liz Truss implies that painful decisions need to be taken, but for many people the current situation is a catastrophe already.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, 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.’’
7am: Mitchells & Butlers
Pub chain Mitchells & Butlers expects its total energy and utility costs to be almost twice as much as it paid in 2019.
7am: Next cuts profit guidance
Fashion and home interiors group Next said profit before tax for the half-year to 30 July rose 16% to £401m on full price sales up 12.4%. However, it reduced its profit guidance for the full year.
August trading was below the group’s expectations meaning Next have reduced their full price sales guidance for the second half from +1% to -1.5% versus last year.
Profit guidance for the full year is reduced from £860m to £840m.
Charlie Huggins, head of equities at Wealth Club, says: “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.
“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.”
7am: New M&G CEO
M&G, the savings and investment business, has appointed Andrea Rossi as chief executive and executive director, succeeding John Foley who is retiring. Mr Rossi has been an adviser to Boston Consulting Group and spent six years as CEO of AXA Investment Managers.
Global markets
Global equity markets staged a partial comeback, with Wall Street stocks surging around 2% as the Bank of England intervened in the bond market in an attempt to dampen investors’ fears of contagion across the financial system.
The BoE said it would temporarily buy long-dated bonds – linked most closely to workers’ pensions and home loans – in light of a surge in UK bond yields and related borrowing costs.
Sterling, which hit record lows against the dollar on Monday, was last up about 1.4% in volatile trading, while gilt prices roared higher. European government bonds also got a lift from the surge in gilts.
Wall Street’s rebound gained momentum over the day, with the S&P 500 Index up about 2% after it fell to a two year low on Tuesday. The Dow Jones Industrial Average also gained 1.9% and the Nasdaq Composite was up about 2%.
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