London close: FTSE 100 manages positive finish on dire day for pound

London stocks were mixed at the close on Monday, with sterling clawing back from a record post-decimalisation low against the dollar amid concerns the swathe of tax cuts announced by chancellor Kwasi Kwarteng last week would do little to boost growth, and instead add to inflation.

The FTSE 100 - which counts many global, dollar-earning firms among its constituents - broke into positive territory in late trading, closing up 0.03% at 7,020.95, while the more domestic-focussed FTSE 250 fell 1.39% to 17,722.83.

Sterling was up from its earlier lows during Asian hours, but was still well below its recent levels, trading down 1.94% against the dollar at $1.0648, and slipping 1.011% on the euro to change hands at €1.1091.

The pound was being battered by concerns that the debt-reliant ‘mini-budget’ announced on Friday would pile further pressure on an already-heavily indebted economy.

At the same time, UK gilt yields surged, with the 10-year moving past 4%.

“The pound has been on a rollercoaster ride today, with sterling-dollar experiencing the highest one-day volatility since the height of the Covid crisis in March 2020,” said IG senior market analyst Joshua Mahony.

“With Truss and Kwarteng in the job for less than a month, the past week has been a swift reminder that they have very little room for mistakes when seeking to implement a whole raft of fiscal policies.”

Mahony said that while Rishi Sunak managed to guide the UK through the Covid crisis thanks to “novel policies” such as the furlough scheme, Kwarteng seemed willing to ramp up debt to the benefit of the 1%.

“The strength of the pound may be a reaction to the anticipated emergency rate hike from the Bank of England, but the risk here is that markets begin to realise the UK’s reserves make defending the pound increasingly difficult.”

In economic news, house prices continued to push higher in September according to fresh industry data, despite the cost-of-living crisis and interest rates at 14-year highs.

According to the latest Rightmove house price index, the average asking price of a property coming to market was £367,760 in September, up 0.7% on August and 8.7% year-on-year.

The increase was largely in line with the average September rise of 0.6% seen over the last 10 years.

Last week, the Bank of England upped interest rates for the seventh consecutive time, leaving the cost of borrowing at its highest since 2008.

According to Rightmove, the average monthly mortgage payment for first-time buyers putting down a 10% deposit has now reached £1,057 per month, or 40% of an average gross salary, for the first time since November 2012.

Inflation also remains at near-40 year highs at 9.9%.

“The end of the summer break and the start of the new school term is usually a time when we see renewed focus from buyers, as those with plans to move see an autumn window of opportunity ahead,” said Tim Bannister, director of property science at Rightmove.

“Price growth this month in the middle and high-end sectors highlights that even when finances are more stretched, many of the reasons for looking to move up the ladder remain.”

Across the channel, meanwhile, came warnings that Germany was on the brink of recession, after business sentiment slumped to levels not seen since the start of the pandemic.

The closely-watched Ifo business climate index fell to 84.3 points in September from 88.6 in August and 99.2 a year ago.

It was the lowest reading since May 2020, and well below consensus expectations for 87.0.

Both the current situation and expectations indices also fell, with the former easing to 94.5 from 97.5 in August, and the latter coming in at 75.2, compared to 80.5 a month earlier.

“Sentiment in the German economy has deteriorated considerably,” said Clemens Fuest, president of Ifo Institute.

“The German economy is slipping into recession.”

On London’s equity markets, housebuilders were among the worst performers amid concerns the BoE would need to ramp up interest rates, increasing borrowing costs further.

Taylor Wimpey slid 7.09%, Persimmon lost 6.63%, Berkeley Group was 4.85% lower, Barratt Developments shrunk 5.12%, Bellway tumbled 8.08%, and Vistry Group fell 7.83%.

“The mini-budget was very helpful for the housebuilders in boosting consumer cash flows, reducing stamp duty and cutting their taxes,” said analysts at Liberum.

“But, the bond market’s reaction to the announcement in general has created another step up in interest rates.”

Retailers were also weak, with Next down 1.68%, B&M off 2.17%, and Marks and Spencer losing 3.33%.

“Retailers and other businesses who buy their inventory from abroad face a loss of earnings,” saud Steve Clayton, fund manager at HL Select.

“They can try to pass the higher cost of imported goods on to consumers, or they can try to cut their operating costs.

“But the speed with which sterling has fallen is going to prove a huge challenge.”

Virgin Money UK was 6.47% weaker after Berenberg re-established coverage of the shares at ‘hold’ from ‘under review’, saying the bank would struggle to re-rate given potential revenue headwinds and a sector-lagging return on tangible equity.

Outside the FTSE 350, Pendragon shares surged 19.82% after the car dealership got a £400m takeover offer from its largest shareholder, Hedin Group.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Abigail Townsend.

Market Movers

FTSE 100 (UKX) 7,020.95 0.03%
FTSE 250 (MCX) 17,722.83 -1.39%
techMARK (TASX) 4,191.05 0.36%

FTSE 100 - Risers

Hargreaves Lansdown (HL.) 871.20p 4.19%
Fresnillo (FRES) 714.20p 3.48%
Entain (ENT) 1,120.00p 3.42%
Sage Group (SGE) 713.20p 3.36%
3i Group (III) 1,117.00p 3.26%
Haleon (HLN) 286.35p 3.21%
Smiths Group (SMIN) 1,535.50p 3.05%
Spirax-Sarco Engineering (SPX) 10,105.00p 3.05%
Reckitt Benckiser Group (RKT) 6,172.00p 2.87%
Ashtead Group (AHT) 3,935.00p 2.77%

FTSE 100 - Fallers

Taylor Wimpey (TW.) 95.84p -7.09%
Persimmon (PSN) 1,260.50p -6.63%
Barratt Developments (BDEV) 385.20p -5.12%
Berkeley Group Holdings (The) (BKG) 3,315.00p -4.85%
SEGRO (SGRO) 737.60p -4.06%
Land Securities Group (LAND) 514.20p -4.03%
Rightmove (RMV) 548.60p -3.99%
United Utilities Group (UU.) 942.20p -3.90%
Severn Trent (SVT) 2,436.00p -3.89%
NATWEST GROUP (NWG) 233.70p -3.59%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 160.00p 11.34%
Playtech (PTEC) 418.80p 7.16%
Darktrace (DARK) 323.10p 6.07%
ASOS (ASC) 625.00p 3.99%
Weir Group (WEIR) 1,485.00p 2.84%
Polymetal International (POLY) 190.05p 2.84%
Johnson Matthey (JMAT) 1,855.00p 2.09%
Pagegroup (PAGE) 383.40p 2.08%
Softcat (SCT) 1,186.00p 2.07%
Carnival (CCL) 723.40p 2.03%

FTSE 250 - Fallers

Bellway (BWY) 1,763.00p -8.08%
Vistry Group (VTY) 653.50p -7.83%
Redrow (RDW) 430.20p -7.72%
Crest Nicholson Holdings (CRST) 194.00p -7.27%
Bluefield Solar Income Fund Limited (BSIF) 129.00p -7.19%
Biffa (BIFF) 317.80p -7.08%
Helios Towers (HTWS) 112.50p -7.02%
Countryside Partnerships (CSP) 217.00p -6.55%
Virgin Money UK (VMUK) 132.30p -6.47%
Urban Logistics Reit (SHED) 135.00p -6.25%