London stocks were firmly in the red by midday on Thursday, while government bond yields were rising again as investors continued to fret about the implications of last week’s mini-budget, and the Bank of England’s bond market intervention.
The FTSE 100 was 1.1% lower at 6,928.94, while sterling was off earlier lows but still weaker versus the dollar, at 1.0848, down 0.4%.
On Wednesday, markets ended a little firmer as the BoE stepped in to stabilise the gilt market after the recent selloff. The BoE expects to spend £65bn on bond-buying overall in a bid to avoid a meltdown in the pensions sector, with £5bn of buying a day until 14 October.
Victoria Scholar, head of investment at Interactive Investor, said: “Although this is a short-term plan to restore order to the tumbling UK bond market, there are concerns that it could add to the UK’s inflationary pressures, alongside sterling’s weakness and the government’s expansional fiscalism which could all exacerbate upward price pressures. In order to curtail almost double-digit inflation, the Bank of England could very well carry out a jumbo 100 basis point rate hike in November, double its already aggressive 50 basis point lift last week.
“There is a tug-of-war taking place between the Bank of England’s monetary tightening and the government’s fiscal stimulus with the former looking to bring inflation back towards 2% while the latter is looking to boost demand and economic growth as the two sides clash with each other.”
She noted that the pound is under pressure once again, and that UK gilt yields are trading higher across the curve, with bond prices lower and reversing some of Wednesday’s bond market rally following the central bank intervention.
Investors were also mulling the latest research from Zoopla, which showed that home buyers could see their buying power slashed by more than a quarter as the cost of borrowing continues to mount.
According to the latest Zoopla house price index, house price growth remained stable at 8.2% year-on-year in September, despite the rising cost of living.
But the property portal warned that higher mortgage rates were likely to reduce buying power going forward. Its analysis showed that if mortgage rates rise as expected from 2% to 5%, household buying power will be slashed by up to 28%, assuming they want to keep monthly repayments unchanged.
Zoopla said: “This will impact housing demand into 2023 unless buyers put down larger deposits, allocate more income to mortgage costs or adjust their budgets, buying smaller property or looking to cheaper areas.
“We anticipate that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the south ease, as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic.”
In equity markets, Next slid after the clothing and homeware retailer cut its sales and profits forecast on the back of the weakening economic outlook, including the recent turmoil in currency markets.
Next now expects full-price second-half sales to be down 1.5% on the previous year, compared to earlier guidance for growth of 1%, while full-year profits forecasts have been trimmed to £840m from £860m.
Synthomer tanked as it warned on profits, highlighting deteriorating macroeconomic conditions since August and reduced demand due to de-stocking.
The group, which supplies aqueous polymers, now expects full-year earnings before interest, taxes, depreciation and amortisation to be 10% to 15% below its previous expectations.
Elsewhere, Barratt Developments, British American Tobacco, Hays, Rightmove, Games Workshop and Computacenter all fell as they traded without entitlement to the dividend.
On the upside, miners rallied, with Anglo American, Glencore and Rio Tinto all trading up.
Capricorn Energy gushed higher after saying it was no longer going ahead with a planned merger with Tullow Oil and will instead be merging with Israel’s NewMed Energy.
Market Movers
FTSE 100 (UKX) 6,928.94 -1.09%
FTSE 250 (MCX) 16,978.94 -1.97%
techMARK (TASX) 4,127.58 -1.14%
FTSE 100 – Risers
BAE Systems (BA.) 825.40p 2.05%
Anglo American (AAL) 2,780.50p 1.91%
Glencore (GLEN) 489.20p 1.76%
Rio Tinto (RIO) 4,916.50p 1.29%
Unilever (ULVR) 4,099.00p 0.84%
Fresnillo (FRES) 753.80p 0.72%
Antofagasta (ANTO) 1,108.50p 0.64%
Admiral Group (ADM) 1,938.00p 0.60%
Reckitt Benckiser Group (RKT) 6,100.00p 0.53%
Haleon (HLN) 280.05p 0.48%
FTSE 100 – Fallers
Barratt Developments (BDEV) 324.20p -12.54%
Next (NXT) 4,842.00p -9.05%
Ocado Group (OCDO) 483.80p -7.39%
Taylor Wimpey (TW.) 85.34p -6.18%
Smurfit Kappa Group (CDI) (SKG) 2,554.00p -4.95%
Persimmon (PSN) 1,190.00p -4.80%
Sainsbury (J) (SBRY) 173.75p -4.72%
Rightmove (RMV) 482.50p -4.57%
Centrica (CNA) 72.14p -4.55%
Kingfisher (KGF) 214.40p -4.46%
FTSE 250 – Risers
PureTech Health (PRTC) 258.00p 7.95%
Capricorn Energy (CNE) 249.60p 4.17%
Jlen Environmental Assets Group Limited NPV (JLEN) 116.00p 3.76%
The Global Smaller Companies Trust (GSCT) 126.00p 2.44%
Diversified Energy Company (DEC) 129.30p 1.57%
Centamin (DI) (CEY) 87.56p 1.46%
Direct Line Insurance Group (DLG) 179.95p 1.27%
International Public Partnerships Ltd. (INPP) 144.80p 1.12%
GCP Infrastructure Investments Ltd (GCP) 92.00p 1.10%
Moonpig Group (MOON) 153.90p 0.92%
FTSE 250 – Fallers
Synthomer (SYNT) 85.70p -37.90%
Hays (HAS) 102.00p -8.36%
Aston Martin Lagonda Global Holdings (AML) 130.40p -8.33%
Vistry Group (VTY) 570.50p -7.31%
Mitchells & Butlers (MAB) 125.80p -6.81%
Dr. Martens (DOCS) 221.80p -6.65%
888 Holdings (DI) (888) 97.20p -6.45%
SSP Group (SSPG) 194.05p -6.30%
AJ Bell (AJB) 257.80p -6.12%
Bellway (BWY) 1,588.00p -6.01%
