FTSE 100 drops in afternoon trading, concerns over health of the Queen By Proactive Investors (2022)

FTSE 100 drops in afternoon trading, concerns over health of the Queen By Proactive Investors (1)© Reuters. FTSE 100 drops in afternoon trading, concerns over health of the Queen

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  • FTSE 100 slightly lower, down 17 points
  • Truss announces energy price guarantee
  • Concerns for the health of the Queen

The FTSE 100 headed to the close in negative territory with a slightly sombre mood as news filtered through of concerns regarding the health of the Queen.

In an unusual move Buckingham Palace released a statement which said “Following further evaluation this morning, the Queen's doctors are concerned for Her Majesty's health and have recommended she remain under medical supervision,"

The news came through as Liz Truss was announcing her plans to deal with the UK energy crisis with a two year energy price cap announced.

MPs could be seen swapping messages as the news broke and The Speaker sent his best wishes to the monarch.

Equity markets in London looked set to end the day in negative territory, conceding early gains, as Fed chairman, Jerome Powell, reiterated his commitment to tackling inflation.

At 3.35pm the FTSE 100 was trading 25 points lower at 7,212 with the broader FTSE 250 also lower, down 57 points at 18,754.

3.15pm: Lifting of fracking ban is welcomed by Union Jack Oil

News that the UK government was lifting its moratorium on the production of UK shale gas was welcomed by Union Jack Oil plc (LON:UJO) .

The government said this will enable developers to seek planning permission where there is local support, which could get gas flowing in as soon as six months.

Union Jack Oil said the announcement could “have a material and positive benefit when applied to progressing the company's ongoing development, appraisal and exploration activities across its various UK onshore licence interests.”

The news is expected to “positively change both the technical and commercial dynamics in respect of certain of Union Jack's licence interests going forward” it added.

Shares in the company rose 7.14%.

2.40pm: Powell reiterates commitment to tackle inflation sending markets lower

The FTSE 100 fell sharply as US markets opened lower as the prospect of further rises in global interest rates took centre stage.

The 75bps rate increase by the European Central was followed by comments from the Federal Reserve Governor, Jerome Powell that he will do what it takes to fight inflation.

At 2.40pm the FTSE 100 was trading 55 points lower at 7,183.

In the US, markets conceded some of yesterday’s hefty gains at the open with The Dow Jones Industrial Average down 227 points, or 0.72%, the S&P 500 down 0.77% and the Nasdaq Composite down 0.92%.

The strength of the US jobless market was again in evidence with initial jobless claims for the week ended September 3 down by 6,000 to 222,000, coming below the consensus analyst expectation of 235,000.

Pantheon Macroeconomics chief economist Ian Shepherdson said this data was another nail in the coffin of the recession story.

“The bottom line here is that nothing in this data suggests the economy is softening further, still less that it is in recession,” he said.

2.20pm: Peel Hunt upgrades Genus (LON:GNS)

Shares in animal genetics company, Genus, soared 15.5% today as analysts upgraded forecasts following today’s full year results.

Full year pre-tax profits fell 16% to £71.5mln on revenues of £593.4mln, up 3% on the previous year, reflecting challenging market conditions in its PIC China business.

Excluding PIC, group adjusted pre-tax profit rose 25% at constant currency and revenues were up 7%, the group said.

Broker Peel Hunt upgraded its rating on the company to buy from hold and increased its profit forecasts by around 5% to £80mln to reflect a strong underlying performance, improved visibility in China and currency benefit.

It said the shares have materially de-rated and there is effectively nothing in the valuation for the significant potential in gene editing, which is on-track for commercialisation in full year 2024.

2.00pm: ECB rate rise as expected

Rob Clarry, investment strategist at Evelyn Partners said the decision by The European Central Bank (ECB) to increase rates by 75 bps at their September meeting was consistent with market expectations and comes as no surprise in what has been a dramatic couple of weeks for the Eurozone.

“But having been late to the interest rate hiking party, the ECB is now making up for lost time” Clarry said, adding “the ECB has acted firmly as it looks to avoid expectations of higher inflation from becoming entrenched.”

Clarry noted that another crucial reason is to try and halt the Euro’s slide against the US dollar given that this has put further upward pressure on inflation.

“Fundamentally, it appears that the ECB is taking a similar stance to the Bank of England and the Federal Reserve: tackling inflation at the expense of economic growth” he said.

He did highlight positives for the economic outlook in the eurozone highlighting that good progress has been made in replenishing gas stocks ahead of winter while a consensus is emerging around the bloc that governments need to support households by subsidising energy bills with measures announced in Germany, Portugal and the Netherlands which should prop up consumer spending.

1.40pm: ECB raises interest rates with more increases to follow

The European Central Bank (ECB) has lifted interest rates across the eurozone by a record amount, as policymakers try to curb inflation, and said further increases would follow.

The ECB’s governing council has voted to raise all three key interest rates by 75 basis points, or 0.75% percentage points – a bigger hike than ever before.

This pushes the ECB’s ‘main refinancing rate’ to 1.25%, up from 0.5%, while the ‘marginal lending rate’ paid by banks borrowing from the ECB goes up to 1.25%.

The ECB said: “The governing council took today’s decision, and expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.”

Inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024, while the ECB also cut its GDP forecast for 2023 to 0.9% from 2.1%.

12.45pm: Restaurant Group swings back to profit

The owner of Wagamama announced a return to profitability at the half-year stage with an adjusted pre-tax profit of £10.2mln compared to a loss of £19.9mln last year on total sales of £423.4mln, up from £216.8mln.

Restaurant Group PLC (LON:RTN) chief executive Andy Hornby said: "We have made good progress in the past six months, delivering a robust financial performance in a challenging market, with continued like for like sales outperformance.”

"Whilst the uncertain consumer environment presents challenges for the hospitality sector, the group is well positioned to further develop our brands to deliver long-term growth for all stakeholders underpinned by our strong balance sheet" he said.

Broker Peel Hunt said it will reduce profit forecasts by £3mln to reflect a slowdown over the summer due to the heatwave and rail strikes.

It also reduced its price target to 80p from 90p,

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But Peel Hunt remained positive on the company: ““We would follow the directors’ lead in buying shares at the current level.“

12.15pm: Truss unveils energy support package

Prime minister Liz Truss has announced the government will introduce an ‘energy price guarantee’ which means the typical households will pay no more than £2,500 per year for each of the next two years.

This will supercede the Ofgem price cap, which was due to rise to £3,549 per year for dual fuel for an average British household next month, but is still much higher than its current level of £1,971, set in April, and the range of £1,042 to £1,277 since it was introduced in 2019.

The costs of the scheme will be set out by chancellor Kwasi Kwarteng later this month she said and she once again ruled out introducing a fresh windfall tax to pay for the new energy guarantee.

Support for businesses was also pledged for the next six months in what was called “equivalent support” to that for households with a review in three months.

Truss said the intervention would reduce by as much as 5 percentage points reducing the cost of servicing Government debt.

The Prime Minister also announced a raft of measures intended to increase domestic energy supply, including lifting the moratorium on fracking, new licensing for oil and gas exploration and a review of the UK’s 2050 Net Zero target to ensure it is “pro business and pro growth”.

11.45am: US markets seen slightly lower

FTSE 100 held narrow gains approaching midday as PM, Liz Truss, began to unveil the UK's energy support package and with the ECB rate call due later..

At 11.45am the lead index was trading 15.61 points higher at 7,253.44.

US stocks were expected to open slightly lower on Thursday, unable to sustain the rebound seen yesterday, as the prospect of aggressive interest rate hikes weighs on investors' minds.

Futures for the Dow Jones Industrial Average were trading down 0.02% pre-market, while those for the broader S&P 500 index were down 0.03%, and futures for the tech-laden Nasdaq-100 were 0.05% lower.

However, sporadic bargain hunting is still likely, given the gloomy outlook in global markets.

Ipek Ozkardeskaya senior analyst at Swissquote Bank noted that while US equities had a strong rebound yesterday, the latest comments from Federal Reserve members have remained hawkish.

“The Fed’s Vice Chair Lael Brainard repeated that the rates will be hiked to restrictive levels, and they will stay there for ‘some time’. This means there will be no cut to be anticipated just yet,” she said, adding that another Fed member, Loretta Mester, noted that the US benchmark rate will go above 4% in early 2023.

The Fed has been hiking interest rates steadily and aggressively through the year as it tries to rein in inflation which remains around four-decade highs. Many fear that higher rates will choke off economic growth.

“The Fed Chair (Jerome) Powell is due to speak today as well, and he will also repeat that there will be no easing to be anticipated just yet,” said Ozkardeskaya. “And they will keep repeating this until the market gets it right: there is no policy easing, and lowering rates in horizon for the Fed."

Powell’s speech is scheduled for 9.10am ET. On the data front, US initial weekly jobless claims numbers, due at 8.30am ET, will be closely watched.

Elsewhere, the White House noted the resilience of the US economy after the US trade deficit narrowed to $70.7 billion in July from $80.9 billion in June and an all-time high of $106.9 billion in March.

11.15am: AB Foods plunges after profits warning

Shares in Associated British Foods (LON:ABF) topped the FTSE 100 fallers, down 8%, after the group issued a profits warning today.

“Higher input costs, a decision not to push prices too far and lower consumer confidence are all going to weigh on Primark’s profits in the year to September 2023 and as a result, Associated British Foods is putting out a profit warning,” said AJ Bell investment director, Russ Mould.

Mould noted Primark now expects margins to be lower than 8%, well below the 10%-plus figure which has been the norm, and a big step down from the 11.6% achieved in the first half of this financial year.

Sales are still expected to rise due to already announced price increases and new store openings but Mould said “The retailer now expects the cost-of-living crisis and the huge knock to both consumers’ confidence and disposable income to limit volume growth.”

Unfavourable currency movements are a further complication, as Primark buys mainly in dollars and the greenback is rampant against the pound right now.

But management wants to limit further price rises to maintain its value credentials.

Mould said “This does, however, mean it will be much harder for the business to cope with the input cost increases it is seeing….and goes some way to explain the expected dip in the 2023 full-year profit margin to below 8%.”

Mould said in addition to inflation and higher input costs “the issues of supply chains and working conditions for staff in factories are not going away.”

10.40am: Darktrace slids as bid talks end

Shares in Darktrace PLC (LON:DARK) slid over 30% after news that Thoma Bravo had pulled out of talks aimed at making a bid for cybersecurity company.

Michael Hewson chief market analyst at CMC Markets UK said: “For the London market the news will be a mixed blessing as it will mean that we get to keep a tech success story, however on the flip side the shares have slipped sharply as the debate continues about its business model.”

“On the one hand it has been touted as an award-winning pioneer in the cyber-security space, a sector that is more important than ever in these testing times and the Russian invasion of Ukraine” Hewson said adding “On the flip side there are questions about its links with Autonomy owner Mike Lynch with some investors questioning how deep these links go.”

“There have also been questions about the amount of money the company spends on R&D, which it is being argued is too low for such an important sector” he said.

With the shares already well below their post IPO peaks of last year there is a sizeable split amongst investors as to whether the company can live up to expectations, Hewson added.

10.00am: UK recruitment continues to grow but at a slower pace

Recruitment activity in the UK labour market continued to increase in August albeit at a slower pace a survey showed today.

The KPMG and REC UK Report on Jobs showed that permanent placements were little-changed from July's 17-month low, while temp billings growth was the weakest seen for 18 months.

The recent slowdown in hiring reflected greater economic uncertainty, rising costs and candidate shortages, according to recruiters.

Vacancy growth fell to an 18-month low while total candidate numbers fell at a slightly softer, but still rapid pace, which combined with the increased cost of living led to further sharp increases in starting pay for both permanent and temporary staff.

Commenting on the latest survey results, Neil Carberry, Chief Executive of the REC, said:

“August was another month of growing placements across temporary and permanent roles.”

“While the post-pandemic jobs rush is now abating, there were no real signs of a slowdown in employer demand.”

“Indeed, reports from REC members suggest that any lowering of confidence in the market is driven primarily by candidates playing it safe, with the effect of further tightening the market.”

“So it’s no surprise that pay rates continue to rise, especially considering increasing inflation.”

9.30am: Homebuyer enquires fall in August - RICS

Homebuyer enquiries fell at the sharpest rate since the early stages of the pandemic last month, according to a report released today.

The survey from the Royal Institute of Chartered Surveyors (RICS) showed that enquiries, sales and new instructions all dropped at faster rates in August than in the previous month.

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Gabriella Dickens, senior UK economist at Pantheon Macroeconomics said the survey provided “further solid evidence that the recent staggering rise in mortgage rates is weighing on housing market activity. “

New buyer enquiries showed a fourth consecutive month of negative readings falling to -39% from -26%, the weakest return for the buyer demand gauge since April 2020.

Agreed sales showed a net balance reading of -22%, a fall from the -13% seen last month while sales predictions for the three months ahead also slipped further into negative territory.

The data also revealed that average stock levels on estate agents’ books declined to an all-time low of 34 homes per branch.

“This lack of supply has been a crucial factor in underpinning growth in house prices,” RICS said.

A net balance of 53% of respondents reported an increase in house prices during August, down from 62% in July, but comfortably above the long run average of 13%.

Looking ahead, Dickens said “the brightening of the near-term outlook for households’ real disposable incomes, now that the government is set to limit energy prices for consumers and businesses, is a positive development for the housing market.”

This would mean housing demand would be stronger than otherwise, she said.

But she also pointed out “mortgage rates still have a lot further to rise over the coming months.“

8.55am: FTSE higher, Ocado boosted by upgrade

The strong showing in the US continued to underpin the FTSE 100 in early trading although a profits warning from Associated British Foods PLC (LSE:ABF) saw its share plunge.

By 8.50am the lead index was trading 28.59 points higher at 7,266.42 with the broader FTSE 250 index up 49.71 at 18,861.19.

Victoria Scholar, head of investment, interactive investor said “European markets have opened higher ahead of the ECB’s rate decision with expectations for a potential 50 or even more aggressive 75 basis point increase."

"The FTSE 100 is trading up by almost 0.5% but Associated British Foods has slumped to the bottom of the UK index after a profit warning, dragging other retailers like Next and B&M down too."

"Stateside, Wall Street enjoyed a strong rebound with the Nasdaq up more than 2% while the Nikkei in Japan also outperformed.”

Ocado Group PLC (LON:OCDO) received a boost today as Barclays (LON:BARC) upgraded its rating on the company seeing the risks as more evenly balanced now.

Moving its rating to equal weight from underweight Barclays said “with retail sales set to improve, balance sheet concerns reduced for the time being and customer fulfilment centre deal flow expectations tempered, we think the balance of upside and downside risks is now more evenly poised.”

Barclays has a 775p per share valuation on Ocado.

Shares were trading 1.1% higher.

8.15am: FTSE 100 opens higher, AB Foods drops on profits warning

Trading in London made a bright start following strong gains in the US overnight with investors awaiting the unveiling of the UK energy support package and the European Central Bank (ECB) interest rate decision later in the day.

At 8.10 the FTSE 100 was trading up 25.32 points at 7,262.05 with the broader FTSE 250 up 88.51 points at 18,899.99.

Shares in Associated British Foods PLC (LSE:ABF) fell sharply after the group warned that adjusted operating profits and adjusted earnings per share will be lower in the next financial year despite expectations for strong sales growth in the year ahead.

“As a result of the timing of the recent movements in currency and energy prices, and the commercial decision to limit further price increases next year, we now expect Primark's profit margin for next year to be lower than the operating profit margin of 8.0% expected for the second half of this financial year” AB Foods said.

The company said Primark has already been managing the challenges of supply chain disruption, inflation in raw material and energy costs and in labour rates, alongside the higher purchasing costs which have resulted from the strengthening of the US dollar over this financial year against sterling and the euro.

To mitigate these pressures, in addition to the price increases mentioned above, there are also plans to improve store labour efficiency and deliver lower operating costs, it added.

7.45am: Thoma Bravo pulls out of Darktrace talks

Investment firm Thoma Bravo has pulled out of the running to bid for Darktrace PLC (LSE:DARK).

The two companies said last month that talks were at a preliminary stage but the US private equity firm has decided not to push ahead with an offer for the cybersecurity group.

Darktrace also unveiled results today and said it was “very confident in the company's future prospects .”

The Cambridge based firm said annual recurring revenue (ARR) rose 7.9% year on year driven by both new and existing customer activity, with the average ARR of new contracts increasing by more than 13%.

7.15am: ECB rate call later today

The European Central Bank is set to make its latest call on interest rates today with commentators divided as to whether it will increase rates by 50bps or 75bps.

Michael Hewson chief market analyst at CMC Markets UK said “Up until a couple of weeks ago it had seemed certain that we would see the European Central Bank raise rates by 50bps this week, pushing the headline rate into positive territory for the first time since 2014.”

But he added “The last few days has seen this narrative shift after several governing council hawks got a lot louder in their pronouncements for much more aggressive rate moves, arguing the case for a 75bps rate move, after headline inflation pushed up to 9.1% at the beginning of the month.”

“It is clear that there are a wide range of views on the governing council about whether to hike by 50bps or 75bps today, with some talk that President Lagarde is leaning towards the smaller of the two options of 50bps.”

“An overly aggressive move today does present huge risks for the ECB, given that the latest staff projections are likely to see growth downgrades, and upgrades to inflation targets” Hewson cautioned adding “It also runs the risk of pushing yields sharply higher, particularly those of Italy which saw the 10-year yield briefly push above 4% earlier this week.“

“On the other hand, if the ECB were to go down the more cautious 50bps route the euro could drop back down towards its recent lows, unless the ECB signalled that it was prepared to go in 50bps increments in subsequent months if inflation remained high.”

6.55am: FTSE 100 set to make cautious early progress

Equity markets in London are set to make cautious early progress following strong gains in the US overnight although investors will be awaiting the unveiling of the UK energy support package and the European Central Bank (ECB) interest rate decision later in the day.

Spread betting companies are calling the lead index up by around 20 points.

The ECB will announce its interest rate decision later today and the bank is set to carry out just its second interest rate hike in over 10 years.

Markets are somewhat divided about whether the ECB will announce another 50 basis point hike, or dig deeper with a 75bp lift.

US markets closed sharply higher on Wednesday as oil prices fell cooling concerns about continued high inflation.

At the close the Dow Jones Industrial Average was up 1.40% or by 436.35 points at 31,581.65, the S&P 500 was up 1.83% or 71.69 points at 3,979.87 while the Nasdaq Composite was up 2.14%, or 246.99 points at 11,791.90.

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It is calculated continuously on every trading day—from 8:00 a.m. at the market opening until the 4:30 p.m. LSE close. A FTSE 100 decline means the value of the largest UK listed companies has decreased. When the FTSE hits a new high, it means the total worth of all the indexed companies has increased.

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