(Alliance News) - Stocks in London are called a touch lower on Monday, though the pound was on the up, despite the prospect of more UK political uncertainty.
The position of Prime Minister Liz Truss remains precarious, despite the appointment of a new chancellor.
All eyes will be on the market reaction on Monday morning, after the PM moved Jeremy Hunt into Number 11 and effectively ditched her economic agenda in a bid to restore credibility to her ailing administration.
The move to appoint Hunt was an effort to steady the ship, but Truss still faced calls to go.
"The big question now is whether the volatility seen in gilt markets in recent weeks settles down as we start a new week, and with the Bank of England's gilt buying programme now officially at an end," CMC Markets analyst Michael Hewson commented.
"There is no question that recent events have shattered confidence in the UK current government, and trust once foregone is usually very difficult to get back. The wider question now is what happens next with respect to any new budget, and whether new Chancellor Jeremy Hunt can stabilise the ship at a time when global interest rates are rising anyway."
In early UK corporate news, the AIM market is set to lose its largest listing, Abcam. eve Sleep has slipped into administration, while some progress has been made in Made.com's formal sales process.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 0.2% at 6,844.79
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Hang Seng: down 0.3% at 16,540.11
Nikkei 225: closed down 1.2% at 26,775.79
S&P/ASX 200: closed down 1.4% at 6,664.40
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DJIA: closed down 403.89 points, 1.3%, at 29,634.83
S&P 500: closed down 86.84 points, 2.4%, at 3,583.07
Nasdaq Composite: closed down 327.76 points, 3.1%, at 10,321.39
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EUR: down at USD0.9737 (USD0.9758)
GBP: up at USD1.1270 (USD1.1235)
USD: up at JPY148.68 (JPY148.38)
GOLD: higher at USD1,650.43 per ounce (USD1,648.48)
OIL (Brent): higher at USD92.46 a barrel (USD91.96)
(changes since previous London equities close)
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ECONOMICS
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Monday's key economic events still to come:
1100 BST Ireland goods exports and imports
1330 BST US Empire State manufacturing survey
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UK Prime Minister Truss will try to save her premiership this week, with her fate hinging on the mood of the market and her own backbench MPs. Crispin Blunt, Andrew Bridgen and Jamie Wallis all called on the PM to quit on Sunday, while other senior figures within the parliamentary party expressed deep unease with Truss's leadership but stopped short of calling for her to go. It came at the end of another extraordinary weekend in British politics, that even saw US President Joe Biden intervene to call Truss's economic vision a "mistake". With the backdrop of rumoured plots and plans to install the defeated Rishi Sunak or Ben Wallace as the new leader, Truss met with her new chancellor in Chequers to draw up a new budget for October 31. Hunt, who carried out something of a media blitz on behalf of the PM over the weekend, insisted that she was still in charge even as he diagnosed the need for a tough package of tax rises and spending cuts in order to steady the UK economy. Former leadership hopeful Penny Mordaunt also offered the PM her full support, using a piece in the Telegraph to warn that the UK "needs stability, not a soap opera".
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Experts have warned that there is no real "fat" for new UK Chancellor Hunt to cut as he seeks savings ahead of the fiscal plan later this month. The new chancellor, who stepped into the role after Kwasi Kwarteng was forced out on Friday after weeks of chaos following his mini-budget, has made little secret of the fact that taxes could rise and spending cuts may be called for to restore market confidence in the UK. But he steps into the role amid fresh warnings about a "lost decade" for public services. A new report, published by the Institute for Government and the Chartered Institute of Public Finance & Accountancy, warns that Hunt could find very little to trim from budgets that will not have further detrimental impacts on public services. The report, which warns of a "crisis" in some areas, analyses the spending, staffing, activities and performance of nine separate public services.
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The UK economy is expected to shrink by around 0.2% each quarter from October through to June next year, economists have warned. This prolonged economic decline will result in a 0.3% fall in gross domestic product for 2023 as a whole, the EY Item Club predicted in its autumn forecast. The economic forecasting group has significantly downgraded its previous summer forecast, which estimated the economy would grow by 1% in 2023. A combination of high energy prices, surging inflation, rising interest rates and global economic weakness have increased the likelihood that the UK economy will face a recession until the middle of next year. An economy enters a technical recession when its GDP falls for two or more consecutive quarters. However, the risk of a severe downturn has been reduced by the UK government's energy bills cap, EY Item Club said, meaning that it will not be as bad as previous recessions. The government intervened in early September to put a ceiling on energy bills at GBP2,500 a year for the typical household, and has since pledged to cover a proportion of rocketing electricity costs for businesses as well.
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The average price tag on a home in the UK hit a new record high of GBP371,158 in October, but there are signs that some house hunters, particularly first-time buyers, are sitting it out after seeing mortgage rates surge. Across Britain, the average asking price on a home increased by GBP3,398 month-on-month, according to Rightmove, which said shortages of property for sale are continuing to underpin prices. The website added that rapid mortgage rate increases are understandably causing some movers to pause their plans and wait to see how the next few weeks unfold. While buyer demand is still up by 20% compared with 2019 levels, it has been 15% lower in the past two weeks than in the same fortnight last year, Rightmove said.
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BROKER RATING CHANGES
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Morgan Stanley raises Standard Chartered to 'overweight' (equal-weight)
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Morgan Stanley cuts Lloyds Banking to 'equal-weight' (overweight) - price target 58 (63) pence
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Barclays cuts International Distributions Services to 'equal weight' (overweight) - price target 250 (320) pence
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COMPANIES - FTSE 100
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Hargreaves Lansdown lifted its margin guidance after a respectable start to the year that saw the fund supermarket add 17,000 net new clients. In addition, the company said Chris Hill will step down as chief executive after a six-year spell at the helm. He will remain in the post until a successor is found and will allow time for a handover up to November 2023. A search for a new CEO is underway. In the financial first quarter ended September 30, revenue climbed 15% year-on-year to GBP162.9 million from GBP142.2 million. Hargreaves reported GBP700 million of net new business and 17,000 new net client adds, slowing slightly from 23,000 a year earlier. Assets under administration slipped to GBP122.7 million from GBP123.8 million at the end of June, amid a GBP1.8 billion hit from market movements. Looking ahead, Hargreaves now expects a revenue margin of 49 to 52 basis points for the full-year, its guidance lifted from 44-47 basis points.
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Vodafone will team with French telecommunications company - and BT shareholder - Altice for a fibre-to-the-home venture in Germany. The six-year pact will deploy the broadband to seven million homes. The venture - dubbed FibreCo - will be jointly owned by the duo. Its creation is to be completed in the first half of 2023. Vodafone expects up to EUR1.2 billion worth of cash proceeds from Altice in connection to the deal, including EUR120 million at closing, EUR487 million in deferred payments as the fibre rollout progresses, and EUR595 million in earn-outs. "Over the roll-out period, FibreCo intends to invest up to EUR7 billion, of which 70% is expected to be financed by debt that will be non-recourse to Vodafone and Altice. Vodafone's share of equity contributions is expected to be lower than the cash proceeds realised over time," Vodafone said. Back in December, Patrick Drahi's Altice lifted its stake in Vodafone's industry peer BT to 18% from 12%, though it ruled out mounting a takeover offer.
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COMPANIES - FTSE 250
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Asos said it is in talks to amend covenants in a credit facility, a move the online retailer believes will offer it better "financial flexibility" amid the current economic uncertainty. Asos said it is in the "final stages" of sealing an amendment to future financial covenants in its revolving credit facility. The RCF matures in July 2024. "This action will give Asos significantly increased financial flexibility, against the uncertain economic backdrop. Asos retains a strong liquidity position and this is a prudent step in the current environment," the company said. Sky News over the weekend had reported that Asos's biggest lenders called on advisers, after the retailer had approached the banks to ask for changes to borrowing arrangements. Sky News also noted that one major credit insurer for Asos's suppliers has reduced its support. This could force Asos to pay for products upfront.
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OTHER COMPANIES
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Cambridge-based life science research software firm Abcam has proposed delisting from AIM in London and retaining a sole listing on Nasdaq in New York. Should the proposal be backed by shareholders at a general meeting called for November 11, its final day of AIM trading will be on December 13. "Delisting from AIM would remove certain complexities and duplication that comes with administering two listing regimes. For example, by simplifying shareholder communications and compliance with regulatory requirements and by reducing associated costs and demand for internal resources," Abcam said. "The board expects that a Nasdaq-only listing structure will continue to attract the appropriate investor base and investment style, maximizing the company's ability to access deeper pools of capital, reflecting the company's global presence and aligning more closely with its peers in the global life science tools industry." Nasdaq is home to many life sciences and biotechnology firms. Abcam is by market capitalisation currently the largest AIM constituent, with a market capitalisation of GBP3.08 billion.
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Mattress maker eve Sleep has appointed administrators after talks to sell the company broke down. "The likely outcome to creditors of the company is currently unknown and it is not expected that the appointment of the joint administrators will enable there to be any return to the shareholders of eve," the company said. It has appointed Matthew Ingram and James Saunders, both of Kroll Advisory, as joint administrators. Chief Executive Cheryl Calverley said: "It is heartbreaking to have to acknowledge that the best way to preserve value for creditors, those partners and suppliers that have helped us on this journey, is to now terminate the formal sale process and appoint administrators. Having seen the year start so brightly, with the efforts of the team over the past three years in rebuilding eve into a business fit for profitable growth coming to fruition, the frustration at the unprecedented downturn in the market over February and March was felt all the more keenly." eve Sleep said a number of "indicative offers were received", but talks were unsuccessful.
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Sofa seller Made.com has received a "number of non-binding indicative proposals" during its formal sale process. It has invited a number of possible bidders to progress towards firm offers by the end of this month, after due diligence. "The proposals provide a range of different transaction structures, including possible offers for the issued and to be issued share capital of the company," Made said. It added that the suitors are aware of the need of "interim financing" at the time off firm offers being made.
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By Eric Cunha; ericcunha@alliancenews.com
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