London close: Stocks finish firmer amid Russia, Fed concerns

by | Sep 21, 2022

London stocks managed a positive finish on Wednesday, underpinned by strength in the housebuilding sector, as investors braced for another big rate hike by the US Federal Reserve.
The FTSE 100 ended the session up 0.63% at 7,237.64, and the FTSE 250 was ahead 1.01% at 18,714.67.

Sterling was in a mixed state, last trading down 0.48% on the dollar at $1.1326, while it gained 0.44% against the euro to change hands at €1.1464.

“European markets initially started the day on the back foot after Russian President Vladimir Putin announced he would be taking steps to mobilise 300,000 reservists after recent losses, as well as reminding everyone that Russia did have the option of using nuclear weapons if its territorial integrity came under threat,” said CMC Markets chief market analyst Michael Hewson.

“As an exercise in upping the ante it’s a notable intervention, but it’s also a reminder of how badly the war is going for Russia, and the current gains being made by Ukrainian forces at Russia’s expense.

“Let’s face it – if the war was going well for Russia, the subject of nuclear weapons wouldn’t even be on the table.”

Hewson said the early losses on the day did not last as markets slowly clawed their way back into the black.

“Investors looked to the Federal Reserve, and the prospect of a 75-basis point rate hike, while also acknowledging that this isn’t the first time Putin has played the nuclear card, and probably won’t be the last either.”

Stealing headlines earlier was the news that business energy bills would be discounted for six months, in response to surging wholesale energy prices.

Under the Government Energy Bill Relief Scheme, electricity and gas bills for all non-domestic customers – including charities and public sector organisations – would be automatically discounted, in line with support already announced for households.

“I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we’re taking immediate action to support them over winter,” said prime minister Liz Truss.

The scheme would apply to fixed contracts agreed on or after 1 April this year, as well as variable and flexible tariffs, and cover energy used between 1 October and 31 March next year.

An overall cost for the subsidy was not announced, as it would depend on what happens to wholesale market prices during winter.

“The package will ease worries about otherwise viable businesses shutting up shop, and small companies especially will benefit from the discounted rate,” said Matthew Fell, chief policy director at the Confederation of British Industry.

“Businesses will also want to know more about the exit strategy and what happens when the six month cap runs out.”

In economic news, manufacturers were bracing for a tough winter according to a closely-watched industry survey, after output softened.

According to the latest CBI Accenture industrial trends survey, output in the three months to September continued to fall, with a balance of -4% – a marginal improvement on August’s rate of -7%.

Output was down in eight of the 17 sub-sectors, with the biggest fall seen in food, drink and tobacco.

Much of the decline was offset by strong growth in motor vehicles and transport equipment, however.

Order books were also stronger than expected, with a balance of -2%, up from -7% in August and ahead of analyst forecasts for around -11%.

“It is clear that the downturn, which originated in consumer-facing services, has spread to manufacturing,” said Anna Leach, deputy chief economist at the CBI.

“When adding an uncertain demand environment to ongoing input and labour shortages, and a cost of doing business crisis, the outlook looks increasingly challenging for the sector.”

Elsewhere, public borrowing far outstripped forecasts in August according to official data, as the cost of servicing debt surged.

Public sector net borrowing excluding public sector banks (PSNB ex) was £11.8bn last month, the Office for National Statistics said.

That was £2.6bn less than August 2021, but £6.5bn more than August 2019, pre-pandemic, when the UK borrowed £5.3bn.

It was also well above consensus, for around £8.8bn, and outstripped the £6bn forecast by the Office for Budget Responsibility in May.

“Large favourable revisions to the historical data meant that over the first five months of the fiscal year, borrowing of £58.2bn was just £0.2bn above the OBR’s forecast,” said Martin Beck, chief economist advisor to the EY Item Club.

“Such a small overshoot represents a decent outcome, given spending has been boosted by the first cost of living payments for those receiving means tested benefits.”

Across the pond, existing home sales in the US were little changed last month, contrary to forecasts.

According to the National Association of Realtors, in seasonally adjusted terms, existing home sales dipped by 0.4% month-on-month to reach an annualised pace of 4.8m.

Economists had pencilled in a decline to 4.7m.

“The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” said NAR chief economist, Lawrence Yun.

“The softness in home sales reflects this year’s escalating mortgage rates.

“Nonetheless, homeowners are doing well with near non-existent distressed property sales and home prices still higher than a year ago.”

On London’s equity markets, defence firm BAE Systems shot up 4.3% after Putin announced the partial mobilisation of forces in Russia.

“Russian president Vladimir Putin is mobilising more troops for Ukraine and said the West wants to destroy Russia ahead of announced referendum plans on Ukraine joining Russia in the coming days,” said Victoria Scholar, head of investment at Interactive Investor.

“His speech sent the Russian rouble lower and oil prices sharply higher amid escalating tensions after a partially successful counterattack by Ukraine.”

Housebuilders jumped amid reports that Friday’s mini-Budget could include plans to cut stamp duty.

Persimmon was up 4.71%, Taylor Wimpey added 3.78%, Berkeley Group rose 1.37%, Barratt Developments gained 3.48%, Redrow was 4.3% higher, Bellway advanced 3.5%, Vistry Group grew 2.01%, and Crest Nicholson managed gains of 0.37%.

Aveva Group rose 1.77% after the software firm agreed to be bought by France’s Schneider Electric in a £9.5bn deal.

JD Sports Fashion reversed earlier gains to close 0.77% higher, after saying it had agreed a truce with former CEO Peter Cowgill.

The agreement included a non-compete and consultancy deal that would see him receive £5.5m in addition to his salary package up to his departure in May, and a 12-month notice period.

On the downside, Flutter Entertainment was knocked 1.89% lower by a downgrade to ‘neutral’ at Citi.

Games Workshop tumbled 9.35% after it reported a year-on-year fall in pre-tax profit for the three months to 28 August, in line with expectations.

British Airways and Iberia parent IAG descended 3.27%, and InterContinental Hotels lost 3.36% amid worries about the potential escalation of the Ukraine war.

Budget airlines were also in the red, with Wizz Air down 4.08% and easyJet off 3.32%, while cruise operator Carnival was 6.84% below the waterline in London trading.

Reporting by Josh White at Additional reporting by Frank Prenesti, Abigail Townsend and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,237.64 0.63%
FTSE 250 (MCX) 18,714.67 1.01%
techMARK (TASX) 4,239.76 1.00%

FTSE 100 – Risers

Hargreaves Lansdown (HL.) 891.60p 5.69%
Persimmon (PSN) 1,400.00p 4.71%
BAE Systems (BA.) 805.00p 4.30%
Schroders (SDR) 444.95p 3.97%
Taylor Wimpey (TW.) 106.95p 3.78%
3i Group (III) 1,138.50p 3.59%
Halma (HLMA) 2,108.00p 3.59%
Barratt Developments (BDEV) 418.90p 3.48%
Ashtead Group (AHT) 4,213.00p 2.98%
Spirax-Sarco Engineering (SPX) 10,360.00p 2.93%

FTSE 100 – Fallers

Ocado Group (OCDO) 575.00p -5.18%
InterContinental Hotels Group (IHG) 4,489.00p -3.36%
International Consolidated Airlines Group SA (CDI) (IAG) 104.80p -3.27%
Whitbread (WTB) 2,560.00p -2.29%
Rolls-Royce Holdings (RR.) 74.32p -1.98%
NATWEST GROUP (NWG) 264.10p -1.93%
Flutter Entertainment (CDI) (FLTR) 10,115.00p -1.89%
Barclays (BARC) 167.80p -1.83%
HSBC Holdings (HSBA) 524.90p -1.72%
BT Group (BT.A) 135.05p -1.39%

FTSE 250 – Risers

Wood Group (John) (WG.) 138.65p 7.19%
AJ Bell (AJB) 287.60p 6.76%
Volution Group (FAN) 320.00p 6.47%
HarbourVest Global Private Equity Limited A Shs (HVPE) 2,255.00p 5.37%
Drax Group (DRX) 716.00p 4.75%
Liontrust Asset Management (LIO) 849.00p 4.43%
Redrow (RDW) 499.20p 4.30%
IP Group (IPO) 68.90p 4.08%
CMC Markets (CMCX) 230.50p 4.06%
National Express Group (NEX) 198.90p 3.97%

FTSE 250 – Fallers

Aston Martin Lagonda Global Holdings (AML) 165.10p -10.10%
Games Workshop Group (GAW) 6,400.00p -9.35%
Carnival (CCL) 765.80p -6.84%
PureTech Health (PRTC) 220.50p -5.77%
Wizz Air Holdings (WIZZ) 1,962.50p -4.08%
TUI AG Reg Shs (DI) (TUI) 134.20p -3.35%
Bridgepoint Group (Reg S) (BPT) 237.40p -3.34%
easyJet (EZJ) 340.90p -3.32%
Johnson Matthey (JMAT) 1,905.00p -3.05%
Hammerson (HMSO) 20.76p -1.80%

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