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(Alliance News) - The mood in global markets remained dark early Tuesday, with poor sessions in New York and Asia set to spill over to the European open.
Interest rate hike worries continued to loom over stocks.
Upcoming inflation data from the US on Wednesday, global military tensions, and nerves ahead of the start of Wall Street earnings season are adding to investor caution.
"Risk sentiment is morose this week with the escalating tensions in Ukraine, rising Covid cases in China, mounting tensions between US and China, the selloff in US and other treasuries, the relentless appreciation in the US dollar and the drop in safe haven currencies," Swissquote analyst Ipek Ozkardeskaya commented.
"US earnings season kicks off in a dark and depressed environment. According to data from FactSet, the EPS growth of the S&P500 companies should fall by 2.6% to below 10% in the [third quarter]. Analysts have cut their profit forecasts by around USD34 billion. And if that's the case, the S&P500 will record the worse quarter since the [the third quarter] of 2020, when markets were hit by the pandemic, but at least they had the Fed on their side. Today, even the Fed is no longer here to give support."
UK figures early Tuesday showed the unemployment rate ticked down. The jobless rate edged down to 3.5% in the three months to August from 3.6% in the previous three-month period. Market consensus, according to FXStreet, had expected the rate to remain stable at 3.6%.
Total pay, which includes bonuses, grew 6.0% annually over the three-month period, ticking up from 5.5% in the three months to July. Regular pay, excluding bonuses, rose 5.4%, accelerating from 5.2% growth. Pay failed to keep up pace with inflation, however.
In real terms - meaning adjusted for inflation - total pay fell by 2.4% and regular pay fell by 2.9%.
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 0.4% at 6,321.11
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Hang Seng: down 1.7% at 16,930.24
Nikkei 225: closed down 2.6% at 26,401.25
S&P/ASX 200: closed down 0.3% at 6,645.00
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DJIA: closed down 93.91 points, 0.3%, at 29,202.88.
S&P 500: closed down 27.27 points, 0.8%, at 3,612.39
Nasdaq Composite: closed down 110.30 points, 1.0%, at 10,542.10
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EUR: flat at USD0.9699 (USD0.9700)
GBP: lower at USD1.1025 (USD1.1038)
USD: unchanged at JPY145.72
GOLD: higher at USD1,669.71 per ounce (USD1,668.45)
OIL (Brent): lower at USD96.02 a barrel (USD96.99)
(changes since previous London equities close)
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ECONOMICS
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Tuesday's key economic events still to come:
1345 BST European Central Bank board member Philip Lane speaks
1630 BST US Fed Philadelphia President Patrick Harker speaks
1700 BST US Economic Club of New York event with Federal Reserve Bank of Cleveland President Loretta Mester
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The Bank of England once again intervened in a bid to calm volatile bond markets, which are now a "material" threat to the UK's "financial stability". The BoE said early Tuesday it has widened the scope of its bond buying programme, due to end this week, to include purchases of index-linked gilts. The central bank said the measure is a "further backstop" as it bids to restore orderly market conditions. "The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing 'fire sale' dynamics pose a material risk to UK financial stability," Threadneedle Street warned. On Monday, it doubled the size of its soon-to-end bond-buying programme to GBP10 billion.
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UK Chancellor Kwasi Kwarteng will have to find spending cuts of more than GBP60 billion if he is to meet his target to get the public finances back under control, a leading economic think tank has warned. The Institute for Fiscal Studies said it was not possible to deliver cuts on that scale through efficiency savings and "trimming the fat" and that it would require major cuts to public services. At the same time analysts said failure to come up with a credible plan that convinces the markets the government is committed to reducing its debt mountain could result in a worse crisis than 1976, when the Labour government was forced to seek a bailout from the International Monetary Fund. They warned that rising interest rates as the Bank of England seeks to curb spiralling inflation were likely to result in a "bruising" increase in unemployment.
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UK Prime Minister Liz Truss and Kwarteng are facing calls to reverse course yet further on their mini-budget, as MPs return to Parliament after a torrid party conference season for the government. Parliament returns on Tuesday, after a remarkable recess punctuated by Tory infighting and market turmoil in the wake of the chancellor's financial plan. As MPs flock back to Westminster, Labour is calling on Kwarteng to come before the Commons, urging the government to turn its back on the mini-budget. With treasury questions pencilled in on Tuesday afternoon in the Commons, it is likely that Kwarteng could make an early appearance at the dispatch box to take questions from MPs about his fiscal plans.
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UK retail sales grew last month on the back of price rises while sales volumes continued to shrink. The latest BRC-KPMG retail sales monitor for September showed that price inflation offset a decrease in transactions by shoppers over the month. It came as separate spending data from Barclaycard reported an increase in sales, but highlighted growth slowed further as consumer spending was further strangled by cost-of-living concerns. The BRC-KPMG report revealed that total retail sales increased by 2.2% in September, rising slightly from 1% growth in August.
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BROKER RATING CHANGES
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Numis cuts Kingfisher to 'sell' ('reduce') - price target 150 (215) pence
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Numis raises Next to 'buy' ('add') - price target 6,800 (7,000) pence
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Jefferies reinitiates Ceres Power with 'hold' - price target 365 pence
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Jefferies reinitiates ITM Power with 'buy' - price target 185 pence
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COMPANIES - FTSE 250
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Ferrexpo said production at its operations have been "temporarily suspended" as the Ukraine iron ore pellets producer continues to find itself caught up in the Russia-Ukraine war. Following Russian air strikes in Ukraine on Monday, Ferrexpo said state-owned electrical infrastructure close to its operations have been damaged. "Limited power supply is available at the group's operations, which is being prioritised for critical equipment required for essential services and local communities. Consequently, production has been temporarily suspended at the group's operations," Ferrexpo explained. It did, however, add that it has enough stockpiles to meet expected sales volumes, though it noted this is "subject to logistics corridors remaining available to the group". None of its workforce were injured as a result of the strikes.
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PureTech said takeover talks with San Francisco-based biopharmaceutical company Nektar Therapeutics have been terminated. PureTech on Friday had announced that it was in discussions to be acquired by Nektar. The talks were not advanced, PureTech said. "These discussions were early in nature and the required announcement created the impression that discussions were more advanced than they were. Given the early stage of the discussions and the potential for an extended period of uncertainty, these discussions were terminated," the company explained.
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Plus500 expects annual earnings ahead of market expectations, despite a slight decline in third-quarter revenue. The online trading platform said third-quarter revenue dipped 8.0% to USD194.5 million from USD211.4 million. Earnings before interest, tax, depreciation and amortisation fell by 21% year-on-year to USD101.8 million from USD128.6 million. "The board remains confident about the group's prospects for FY 2022 and beyond, as a result of the significant operational progress and financial momentum achieved by Plus500 over recent years," it said. "The board anticipates that revenue and Ebitda for FY 2022 will be ahead of current market expectations and continues to expect that Plus500 will deliver sustainable growth over the medium to long term." For the first nine months of 2022, revenue is up 27% yearly to USD705.9 million, with its Ebitda rising 29% to USD407.1 million.
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OTHER COMPANIES
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Newspaper publisher Reach said third-quarter revenue declined, with its performance in September hurt by the death of Queen Elizabeth II. Revenue in the third quarter of 2022 fell 1.9% year-on-year. Revenue had declined in 0.5% between July and August, but slid 4.1% in September alone. The Daily Mirror owner said its September performance was "distorted by impact of the passing of HM The Queen". The period benefited from increased newspaper circulation, but advertising revenue was reduced by blackouts for national mourning.
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Pub chain Marston's said customer demand is "encouraging" despite a cost of living crisis. In the financial year ended October 1, like-for-like sales were down 1% from pre-virus levels. "This reflects the impact of trading restrictions in December and January as a result of Omicron and the corresponding impact on consumer sentiment in H1," it said. "Like-for-like sales were encouraging and continued to improve in the 10 weeks from 24 July to 1 October: being 3% up vs FY2019 and 4% up on last year. Growth continues to be predominantly driven by drink sales. Food sales in this period were weaker principally due to the hot weather." The company said electricity costs in the final 10 weeks of the financial year were higher than expected, though it affirmed its gas price is fixed until March 2025.
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By Eric Cunha; ericcunha@alliancenews.com
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