(Alliance News) - Hopes that the Bank of England will extend emergency gilt buying and avoid a bond market cliff-edge were given a boost early Wednesday.
The Financial Times reported the BoE has "privately signalled" to bankers that it could extend the emergency programme past Friday, a self-imposed deadline. The FT cited "people briefed on the discussions".
The BoE on Tuesday had affirmed that its emergency gilt buying will end on Friday. The move came despite bond market volatility that has put pensions and the UK's "financial stability" at risk. The BoE last month announced plans to buy up long-dated gilts amid market turmoil following poorly received UK fiscal plans.
Governor Andrew Bailey in Washington said on Tuesday: "My message to the [pension] funds involved – you've got three days left now. You have got to get this done. "Part of the essence of a financial stability intervention is that it is clearly temporary."
Early Wednesday, figures showed the UK economy declined in August, as consumer-facing sectors struggled.
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 up 0.3% at 6,903.43
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Hang Seng: down 0.3% at 16,782.24
Nikkei 225: closed flat at 26,396.83
S&P/ASX 200: closed flat at 6,647.50
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DJIA: closed up 36.31 points, 0.1%, at 29,239.19
S&P 500: closed down 23.55 points, 0.7%, at 3,588.84
Nasdaq Composite: closed down 115.91 points, 1.1%, at 10,426.19
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EUR: higher at USD0.9729 (USD0.9719)
GBP: down at USD1.1004 (USD1.1097)
USD: higher at JPY146.14 (JPY145.70)
GOLD: up at USD1,674.25 per ounce (USD1,671.20)
OIL (Brent): up at USD94.83 a barrel (USD94.62)
(changes since previous London equities close)
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ECONOMICS
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Wednesday's key economic events still to come:
1000 BST eurozone industrial production
1235 BST Bank of England Chief Economist Huw Pill speaks
1330 BST US producer price index
1900 BST US Federal Reserve meeting minutes
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The UK economy registered a surprise decline in August, during what was a poor month for the consumer-facing sector, according to the Office for National Statistics. The UK economy shrank by 0.3% in August from July, following a downwardly revised 0.1% climb in July from June. Month-on-month growth in July was initially forecast at 0.2%. August's gross domestic product was expected to have remained unchanged from July. "There has been a continued slowing in the underlying three-month on three-month growth, where GDP also fell by 0.3% in the three months to August compared with the three months to May 2022," the ONS noted. In August alone, output in consumer-facing services fell 1.8%, having risen 0.7% in July.
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UK Prime Minister Liz Truss faces members of Parliament on Wednesday for the first time since Chancellor Kwasi Kwarteng's GBP43 billion mini-budget tax giveaway unleashed chaos in the financial markets. Tories have returned to Westminster in a restive mood following the break for the party conferences, with their ratings tanking in opinion polls and economists questioning whether Kwarteng's plans are sustainable. Kwarteng had to endure a further dose of criticism from the International Monetary Fund which warned his package of unfunded tax cuts was making it harder for the bank to get soaring inflation rates under control. With the Institute for Fiscal Studies warning he will have to find GBP60 billion in public spending cuts if he persists with his tax plans, Tory MPs fear the government's reputation on the economy is suffering grievous damage among voters and markets alike. After ministers refused to commit to uprating benefits in line with earnings – as Rishi Sunak had promised when he was chancellor – there are concerns also among Conservatives that it is the least well off who will end up paying the highest price.
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Homeowner anxiety about house values has cancelled out any reassurance from the government's freeze on energy bills to drag down consumer confidence for another month, a survey suggests. The overall YouGov/Centre for Economics & Business Research index fell by 1.1 points in September – its lowest level since January 2013 with the exception of April and May 2020. Homeowners' confidence in their property's value saw the steepest fall since the early days of the pandemic, dropping 5.6 points to 124.8 to bring down the headline figure. Consumer perceptions of their personal finances over the past 30 days saw a slight decline from 57.2 to 56.5, although outlook for the next 12 months saw an improvement of 1.3 points to 43.1 following the freeze of energy bills at GBP2,500 a year for a typical household.
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Renewable energy generators and nuclear power plants could have their revenues capped under a new UK government plan to ensure they are not benefiting from record-high energy prices. Without releasing much detail, the government said it would try to break the link between high gas prices and the amount made by electricity producers. The government said the price of gas decides the price of electricity, so as gas prices soared over the last year, many of Britain's wind farms and solar farms were paid a lot more than normal for their products, even though their costs had not increased very much. The government said it planned to introduce a "cost-plus revenue limit", but provided little detail about how this would work. It also did not say whether cheaper gas generators and coal power plants, which also benefited from the current set up, would be impacted by the new rules. Generator Drax Group early Wednesday said it would work with the government on the plan before the measures are put in place in 2023.
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BROKER RATING CHANGES
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Jefferies cuts Tullow Oil to 'hold' ('buy') - price target 48 (77) pence
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Goldman Sachs starts Tritax Big Box with 'neutral' - price target 140 pence
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Berenberg cuts Restaurant Group to 'hold' from 'buy' - price target 35 (65) pence
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Panmure cuts Fuller, Smith & turner to 'sell' from 'hold' - price target 360 (650) pence
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COMPANIES - FTSE 100
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Barratt Developments said it is still seeing strong demand, though private reservations are down from a year earlier, as the housebuilding sector fights rising interest rates and falling consumer confidence. It is on track to deliver an adjusted pretax profit in line with consensus for the financial year ending June 30, 2023, however. The adjusted pretax profit consensus stands at GBP972.5 million, which would represent a 7.8% decline from GBP1.05 billion in financial 2022. Total forward sales as of October 9 stood at 13,314 homes, down from 15,393 a year earlier. Barratt blamed this on a "slower reservation rate".
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COMPANIES - FTSE 250
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Cybersecurity firm Darktrace backed annual guidance, but said it is closely watching foreign exchange movements, which may hit top-line growth. In the first quarter ended September 30, revenue rose 37% annually to USD126.3 million. It added 320 net new customers, taking its base to 7,757, up 29% year-on-year. Darktrace said the dollar is "unusually strong" relative to its other reporting currencies. It noted key foreign exchange rates have recovered from lows recently, however. "On this basis, Darktrace is maintaining its expectation for FY 2023 year-over-year revenue growth of between 30% and 33%, though it will continue to monitor FX rates, and their potential impacts on revenue, for downside movement relative to rates at this reporting date," the company said.
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Defence technology firm QinetiQ backed annual guidance, despite a "challenging macro-economic environment". The firm said it delivered a "strong" performance in the first half ended September 30. First half order intake rose 18% year-on-year to GBP800 million. It hailed recent contract wins in its Europe, Middle East & Africa Services arm, including a GBP32 million three-year deal for a combat air system programme with the UK Ministry of Defence. "Against an uncertain and evolving economic backdrop, I am delighted that we have delivered strong and consistent operational performance in the first half of the year," Chief Executive Officer Steve Wadey said. "Our strategy to perform and grow continues to build momentum across the group, demonstrated by excellent order intake, good organic revenue growth, profit in-line with our expectations and three strategic transactions in the first half of the year."
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Recruiter PageGroup affirmed yearly guidance after a "strong" third-quarter, but noted most of its regions have seen a small number of jobs being pulled due to a loss of confidence. Gross profit in the third-quarter of 2022 rose 14% to GBP270.5 million from GBP228.1 million a year earlier. PageGroup, however, drew attention to a 26% gross profit fall in China due Covid curbs. "We also saw a slight softening in client confidence across the majority of our regions. This led to a small number of jobs being withdrawn and a slowdown in time to hire in a number of our markets towards the end of the quarter," CEO Steve Ingham warned. It expects annual operating profit in line with GBP204 million market consensus.
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OTHER COMPANIES
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Hostelworld said revenue topped pre-virus levels in September, and the online travel agent now expects to end the year in a "stronger cash position than originally expected". Gross merchandise value, net of cancellations, also topped 2019 levels in September, Hostelworld said. "While recognising that wider macro-economic conditions are challenging and highly volatile, I remain very encouraged by the growth outlook for our business, underpinned by our highly differentiated Social strategy, data driven marketing allocation and disciplined cost control," CEO Gary Morrison said. Hostelworld now expects to report "modestly positive" earnings before interest, tax, depreciation and amortisation for 2022.
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By Eric Cunha; ericcunha@alliancenews.com
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