Some calm has returned to the markets at the end of a tumultuous week, despite the political uncertainty in the UK, where the Conservative party has to pick a new leader who will become the country’s fifth prime minister in six years. Liz Truss quit as PM yesterday after just six weeks in office following her mini-budget debacle.
The pound has pared losses versus the dollar, and is now down 0.6% against both the dollar and the euro, at $1.1168 and €1.1404.
The FTSE 100 index has turned positive and is trading 17 points higher at 6,962, a gain of 0.25%. Germany’s Dax is nearly 1% lower, while the French and Italian markets have fallen 1.5% and 0.6% respectively.
They pared some losses after Wall Street turned positive.
Crude oil prices are pushing higher, with both Brent crude and US light crude up more than 1%, at $93.52 a barrel and $85.48 a barrel respectively.
UK government bond prices have fallen, pushing their yields (or interest rates) higher again, although they remain well below the 5% hit after the mini-budget. The 30-year yield has risen to 4.01% while the 20-year is yielding 4.2%.
Our main news today:
Jeremy Hunt, the UK chancellor, said he would do “whatever necessary” to bring down national debt as the latest official figures showed government borrowing jumped in September and debt interest payments hit a record high.
Retail sales in Great Britain fell more steeply than expected in September as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
The Office for National Statistics said retail sales dropped by 1.4% in September, against a forecast of a 0.5% fall by City economists, and marks the first month that volumes have fallen below pre-pandemic levels.
The number of homes sold in the UK in September fell by nearly 40% as transaction levels returned to normal following the big spike caused by the Covid stamp duty holiday, with experts suggesting the real “house sales horror story” is still to come.
The chaos affecting international air travel in the summer has been firmly stowed away, according to UK aviation firms, with a smooth getaway expected in the busiest weekend before Christmas.
The City watchdog could fine Barclays up to £50m for failing to disclose a deal struck with Qatar at the height of the financial crisis, reviving a controversial episode that failed to gain traction in UK courts.
The provisional fine – which Barclays is in the process of appealing against – relates to the £322m the bank paid to Qatar in 2008, allegedly in exchange for the gas-rich Gulf state investing £4bn, helping save the lender from a UK government bailout.
Wall Street opened slightly lower, but the Nasdaq didn’t fall as much as feared after disappointing results from Snap. It has slipped 0.4%, while the Dow Jones is now up 0.6% and the S&P 500 has gained 0.5%.
The UK’s new prime minister will decide whether to proceed with a fiscal plan scheduled for 31 October, a Downing Street spokeswoman said today.
We are working in preparation for the 31st. But obviously, the decision on proceeding with that, and with that timetable, would be for the new prime minister.
The public finances worsened more than expected last month, heaping more pressure on the new chancellor, Jeremy Hunt, ahead of the fiscal plan. He said he would do “whatever necessary” to get national debt down.
Futures point to lower Wall Street open after Snap warning
Stock market futures are pointing to a lower open on Wall Street in just over half an hour, after Snap’s forecast of flat revenues over the busy holiday quarter spooked the market.
The company behind the photo messaging app Snapchat lost more than a quarter of its market value after it posted its slowest quarterly revenue growth in five years because advertisers cut spending. Shares in other tech and social media companies such as Alphabet, Twitter, Facebook owner Meta and Pinterest also fell. They are all due to report quarterly results in the coming days.
The tech-heavy Nasdaq is expected to fall 1.2% at the open.
The pound has lost 1.37% to $1.1080 amid heightened political uncertainty after Liz Truss quit as prime minister yesterday, while general dollar strength is another factor. Sterling is down 0.6% versus the euro at €1.1404.
The sell-off on European stock markets has gathered pace.
UK’s FTSE 100 down 79 points, or 1.1%, at 6,865
Germany’s Dax down 174 points, or 1.4% at 12,593
France’s CAC down 114 points, or 1.9, at 5,972
Italy’s FTSE MiB down 424 points, or 2%, at 21,277
Crude oil prices have ventured into positive territory, with Brent crude up 28 cents at $92.65 a barrel.
Finally, UK government bonds are selling off again, especially longer-dated ones, pushing up their yields – which means higher borrowing costs for the government. The 30-year bond yield has advanced 13 basis points to 4.03% while the 20-year bond is yielding 4.3%, up 15 bps. Two-year gilt yields have edged up to 3.8% while the 10-year is yielding 4.08%.
Official figures showed today that government borrowing rose to £20bn last month, the second-highest September figure on record. Jeremy Hunt, the chancellor, pledged that he will do “whatever necessary” to bring down the nation’s debt, which has reached 98% as a share of GDP, the highest level since the 1960s.
Retail sales in Britain fell more steeply than expected in September, by 1.4%, as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
Elon Musk told prospective investors that he plans to eliminate nearly 75% of Twitter’s staff as part of his deal to take over the social media company, the Washington Post reported on Thursday.
Job cuts are expected in the coming months no matter who owns the company, according to the report, which cited interviews and documents.
TikTok has denied it is used to “target” US citizens following a report that its Chinese parent planned to track the location of people via the video-sharing app.
A report by Forbes on Thursday claimed that, in at least two cases, a China-based team at ByteDance, the platform’s owner, planned to collect TikTok data about the location of a US citizen.
Average private rents in Britain have soared to record highs, with severe shortages of properties resulting in more tenants paying above the asking price and stretched budgets forcing more people to downsize to studio flats, data shows.
The average advertised rent in Greater London is 16.1% higher than a year ago, which is the highest rate of growth of any region on record, according to the property website Rightmove.
However, the site also revealed that some cities and towns have faced even bigger annual rises, piling yet more pressure on households already facing severe strain.
The DIY chain Wickes has said its energy costs could rise by £7.5m next year and warned of growing uncertainty regarding consumer confidence.
The home improvement retailer said that total sales grew by 2.6% in the third quarter, strengthening in September after wilting during the heatwaves in July and August.
Zara is to help its UK shoppers resell, repair or donate clothing bought from the Spanish fashion chain in an effort to reduce its environmental impact.
The Pre-owned service, which launches on 3 November and will be Zara’s first step into resale or repair, will enable shoppers to book repairs and donate unwanted items online or via a store, and post now-unwanted Zara purchases online for sale.
A charter airline hired to remove people seeking refuge in the UK to Rwanda has pulled out of the scheme after pressure from campaigners.
A plane operated by Privilege Style first attempted to fly asylum seekers to the east African country in June but was grounded by an 11th hour ruling by the European court of human rights.
Almost 100m highly polluting cars could appear on Europe’s roads over the next decade after the European Commission moved to disown its own experts efficiency recommendations in a leaked proposal seen by the Guardian.
Here’s our full story on the sharp drop in British retail sales:
Retail sales in Great Britain fell more steeply than expected in September as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
The Office for National Statistics said retail sales dropped by 1.4% in September, against a forecast of a 0.5% fall by City economists, and marks the first month that volumes have fallen below pre-pandemic levels.
According to the latest figures, food store sales fell 1.8% as increasingly budget-conscious consumers cut spending amid concerns over price rises and the cost of living. The figures come as households across the country come under pressure from inflation hitting its highest level for 40 years on the back of soaring food prices.
“This is a disappointing but unsurprising latest instalment in the saga of the cost of living crisis,” said Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown. “Food sales were especially affected, as customers make do without extra trolley treats or more expensive dining habits.”
Spending on bigger ticket items continued to fall, with household goods stores, such as furniture retailers, recording a 1.5% decline in sales volumes in September. Other non-food stores, such as jewellery retailers, reported a 0.7% fall in sales in September, while there was a 0.6% drop in sales for department stores.
As the cost of living crisis worsens, here’s a handy guide to how to help food banks.
Give basics (and tin openers), food that doesn’t need cooking and add some snacks. Here’s what charities need to meet the demand for emergency food parcels, writes the Guardian’s feature writer Emine Saner.
Matthew Upton, director of policy at Citizens Advice, has tweeted:
While the next weeks news dives back into leadership debates, worth taking a refresh on the problems that are actually dominating ppls lives. Here's an overview of how cost of living problems have spiralled, particularly in recent months. Then if we dive into a few snapshots 🧵 pic.twitter.com/XgNqfB5hs0
HMRC cautioned that the recent sharp rises in mortgage rates, following Liz Truss and Kwasi Kwarteng’s disastrous mini-budget of unfunded tax cuts on 23 September, which was largely reversed on Monday, have not fed through to the figures yet.
Current monthly transactions remain at levels similar to late 2019, before the coronavirus pandemic.
Recent increases in mortgage rates are unlikely to have had any impact yet on these statistics, as the publication reports transactions that have completed at the end of the property purchasing process, which may be weeks or months after a mortgage offer is in place.
China's yuan falls to lowest since 2008 despite state bank support; sterling down 1%
China’s yuan has fallen to its weakest level against the dollar since the global financial crisis of 2008, despite efforts by major state-owned banks to stabilise the market.
The yuan finished the domestic trading session 0.46% lower on the day at 7.2494 per dollar, the weakest closing price since mid-January, 2008.
Sources told Reuters that state banks sold dollars in the onshore currency market to prevent the spot price from weakening past the 7.25 per dollar level.
The dollar has generally strengthened today as US Federal Reserve officials show no signs of changing their aggressive stance on interest rate hikes. Sterling has dropped more than 1% versus the dollar to $1.1117, and is 0.5% lower against the euro at €1.1414, amid heightened political uncertainty.
Given the unprecedented events involving British politics in recent weeks, investors are hoping for less volatility and more stability in both the government and on the markets.
UK markets on Friday were calm as the nation sat tight, in anticipation of the third Prime Minister of the year being appointed at some point over the next week.
Even though there is some sense of peace in the markets now, this could all change next week when we have a clearer idea of who is in the running for Number 10 and how each candidate might reshape the country’s policies to avoid economic shocks.
Turning to today’s corporate results, Mould says:
Heading up corporate news in the UK was Intercontinental Hotels. Its average rate per available room has shot up by 28% as demand returns to the travel sector. The thorn in its side is China where tough restrictions around Covid have disrupted trading once again, enough to spook investors and send the share price down 3%.
Sales growth has ground to a halt for DIY products seller Wickes. While the company seemingly takes a positive view, saying that sales have stabilised after weakness in previous quarters, the company still faces the fact that the DIY boom seen during the pandemic has lost momentum.
Government bond yields rise again; German 10-year hits 11-year high
Compared to the moves we’ve seen in markets in recent days and weeks, an eerie calm has descended. The FTSE 100 index is down 0.7% at 6,892. Government borrowing costs fell sharply this week after Jeremy Hunt reversed almost all the unfunded tax cuts in the mini-budget that caused Liz Truss’s downfall.
The yield, or interest rate, on the 30-year UK government bond (known as gilt) has fallen back from above 5% after the mini-budget. Following the worsening in the UK’s public finances, bonds have sold off this morning, and the 30-year yield has risen again, to 4.065%, up 15 basis points. The 20-year yield has added 9 bps to 4.2%, while the 10-year yield has climbed 8 bps to 3.9% and the two-year yield increased to 3.68%.
Yields rise when bond prices fall, and increasing yields show that investors want a larger return for holding the debt.
In Germany, the 10-year bond yield hit a new 11-year peak today, driven up by concerns over rising interest rates, with the European Central Bank expected to hike borrowing costs again sharply next week. The 10-year Bund, as German government bonds are known, rose as high as 2.49%, the highest level since August 2011.
The slide in sterling has accelerated, a day after Liz Truss quit as prime minister in a tumultuous week that saw her sack her chancellor Kwasi Kwarteng and appoint Jeremy Hunt instead. Hunt lost no time and on Monday ripped up the pair’s mini-budget of unfunded tax cuts that sent the pound crashing and borrowing costs soaring.
The pound has dropped 0.76% to $1.1148 this morning, a one-week low.
The leadership race could see the return of Boris Johnson, who was forced to stand down as prime minister in July after a cabinet revolt, in what would be an extraordinary comeback. He and the former chancellor Rishi Sunak are leading in the Conservative party contest to become the fifth British premier in six years.
Sunak, a former Goldman Sachs analyst, is the bookies’ favourite, followed by Johnson. In third place is Penny Mordaunt, a former defence secretary who is popular with the wider Conservative party.
