London close: Stocks edge up on US gains but banks hit by Barclays update

London stocks reversed earlier losses to end up on Tuesday, boosted by a solid showing on Wall Street, but banks were under the cosh after a disappointing update from Barclays.

The FTSE 100 closed 0.2% higher at 7,389.70.

Chris Beauchamp, chief market analyst at IG, said: "Equities are in bullish mode this afternoon ahead of the start of the big tech earnings bonanza this week. The mood was strengthened by figures from Verizon, which reported solid Q3 figures and raised its cash flow guidance, sending the shares up by the most in three years. We are now firmly into the strong Q4 seasonal period for stocks, providing bulls with their best hope for a sustained rally in months.

"An easing of yields will aid this outlook too, and notably it is yield stocks that are leading the way higher in London this afternoon."

Market participants were digesting the latest figures from the Office for National Statistics, which showed the unemployment rate ticked up to 4.2% in the three months to August from 4.0% in the three months to July. This was the ONS’ first month using new methodology to calculate the rate.

The ONS explained that due to increased uncertainty around the Labour Force Survey (LFS) estimates, it was publishing an alternative series of estimates of employment, unemployment, and economic inactivity as experimental statistics.

The experimental figures were derived using growth rates from pay as you earn real-time information and the claimant count for the periods from May to July 2023 onwards.

"This is to provide a more holistic view of the state of the labour market while the LFS estimates are uncertain," it said.

The data also showed that the employment rate declined by 0.3 percentage point to 75.7%, while employment fell by 82,000 following a 133,000 drop in the previous quarter (-207,000 on the old series).

ONS director of economic statistics Darren Morgan said: "Today we have produced a new metric, produced by adjusting our headline survey estimates using robust administrative data sources that we receive from other government departments. This maintains the accuracy of our key statistics.

"This new metric shows that in the latest period the employment rate was down a little, with small rises in the rates for both unemployment and those neither working nor looking for work."

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "The ONS’ experimental estimates of the labour market data continue to suggest that labour market slack is developing more quickly that the MPC expected in August’s Monetary Policy Report, adding to the evidence the Committee will keep Bank Rate at 5.25% at next month’s meeting."

Meanwhile, a survey showed that business activity in the UK services sector fell again in October.

The S&P Global/ CIPS flash services business activity index dipped to 49.2 from 49.3 in September, falling for the third month in a row. Economists were expecting the reading to be unchanged on the month.

The manufacturing output index ticked up to 45.3 in October from 44.6 a month earlier.

A reading above 50.0 indicates expansion, while a reading below signals expansion.

The composite output index - which measures activity in the manufacturing and services sectors - nudged up to 48.6 from 48.5, but remained below 50.0 for the third month running. Analysts were expecting an unchanged reading.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output.

"The overall pace of decline remains only modest, signalling a mere 0.1% quarterly rate of GDP decline, but gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months. A recession, albeit only mild at present, cannot be ruled out."

A separate survey from the Confederation of British Industry showed that manufacturers suffered the worst monthly fall in orders in October since January 2021. The CBI’s monthly industrial orders balance declined to -26 from -18 in September, missing expectations for an improvement to -16.

The survey also showed that manufacturers cut employees "marginally" in the three months to October, and for the first time since January 2021.

CBI deputy chief economist Anna Leach said: “The warning lights are flashing red in our latest manufacturing survey, with business sentiment deteriorating, output volumes falling and manufacturers becoming more cautious over their employment and investment plans."

In equity markets, Rio Tinto was the top gainer as Barclays lifted the shares to ‘overweight’ from ‘neutral’ after taking a more positive view on iron ore. Antofagasta and Anglo American also rose.

Power generator Drax shot to the top of the FTSE 250, while Plus500 followed close behind after saying it was on track to deliver revenue and EBITDA for FY 2023 in line with recently-upgraded market expectations.

On the downside, Barclays slid as its third-quarter headline profits beat analysts' forecasts, but the bank cut its guidance for retail banking net interest margin (NIM) for 2023. The full-year net interest margin - the difference between interest income and the amount it pays back in interest on deposits - was revised to 3.05-3.10%, from earlier guidance of 3.15-3.20%.

Other banks followed suit, with NatWest and Lloyds both down.

Credit-checking firm Experian tanked, extending its decline later in the session.

B&Q owner Kingfisher was weaker as JPMorgan Cazenove reiterated its ‘underweight’ stance on the shares and placed them on ‘negative catalyst watch’ ahead of the third-quarter trading update next month.

Bunzl lost ground as it backed full-year guidance for adjusted operating profit but reported a decline in third-quarter sales and said full-year revenue was expected to be "slightly lower" than in 2022 at constant exchange rates.

CAB Payments tumbled as the payment processing firm warned on full-year revenues, pointing to changes in market conditions in some of its key currency corridors, as well as ongoing uncertainties surrounding the Naira.

Softcat was sharply lower after full-year revenues missed analysts’ expectations, while Pets at Home was dented by a downgrade to ‘hold’ from ‘buy’ at Shore Capital.

Market Movers

FTSE 100 (UKX) 7,389.70 0.20%
FTSE 250 (MCX) 16,994.10 -0.38%
techMARK (TASX) 4,018.87 0.21%

FTSE 100 - Risers

Rio Tinto (RIO) 5,060.00p 3.47%
AstraZeneca (AZN) 10,438.00p 3.35%
United Utilities Group (UU.) 1,038.00p 2.57%
Airtel Africa (AAF) 114.70p 2.41%
Antofagasta (ANTO) 1,328.00p 2.39%
Severn Trent (SVT) 2,572.00p 2.35%
Centrica (CNA) 157.90p 2.04%
Mondi (MNDI) 1,272.00p 1.92%
SSE (SSE) 1,596.00p 1.88%
Anglo American (AAL) 2,069.00p 1.85%

FTSE 100 - Fallers

Experian (EXPN) 2,411.00p -10.27%
Barclays (BARC) 134.64p -6.53%
Bunzl (BNZL) 2,799.00p -3.95%
NATWEST GROUP (NWG) 207.80p -3.48%
St James's Place (STJ) 617.60p -3.02%
Lloyds Banking Group (LLOY) 40.58p -2.03%
Spirax-Sarco Engineering (SPX) 8,100.00p -1.96%
3i Group (III) 1,991.50p -1.85%
Diploma (DPLM) 2,828.00p -1.53%
Legal & General Group (LGEN) 205.80p -1.15%

FTSE 250 - Risers

Drax Group (DRX) 443.30p 8.20%
Plus500 Ltd (DI) (PLUS) 1,400.00p 7.12%
TUI AG Reg Shs (DI) (TUI) 419.60p 3.96%
Pennon Group (PNN) 704.00p 3.38%
Future (FUTR) 878.50p 3.05%
Watches of Switzerland Group (WOSG) 513.50p 2.70%
Wood Group (John) (WG.) 142.30p 2.52%
Primary Health Properties (PHP) 87.65p 2.51%
Fidelity China Special Situations (FCSS) 201.50p 2.28%
Carnival (CCL) 847.80p 2.05%

FTSE 250 - Fallers

CAB Payments Holdings (CABP) 60.80p -71.92%
Softcat (SCT) 1,238.00p -11.89%
Jupiter Fund Management (JUP) 73.90p -7.39%
Pets at Home Group (PETS) 291.00p -4.59%
Ceres Power Holdings (CWR) 199.90p -4.54%
Essentra (ESNT) 149.00p -4.53%
Lancashire Holdings Limited (LRE) 548.50p -4.28%
IP Group (IPO) 46.80p -4.20%
Bytes Technology Group (BYIT) 454.00p -4.10%
Mobico Group (MCG) 59.35p -3.50%