London close: Stocks fall amid bond market rollercoaster

London stocks finished in the red on Wednesday, with the pound firmly above the waterline after the Bank of England reiterated that its emergency bond-buying programme will end on Friday as expected.

The FTSE 100 ended the session down 0.86% at 6,826.15, and the FTSE 250 was off 1.73% at 16,611.16.

Sterling was in positive territory, last trading up 1% on the dollar at $1.1078, and advancing 1.04% against the euro to €1.1418.

“Recession fears and the ongoing turmoil in the UK gilt market have hit indices in Europe, while in the US indices are holding their ground but not able to do much else,” said IG chief market analyst Chris Beauchamp.

“This market remains on edge for further bad news, and there is plenty of opportunity over the next two days for either US CPI or bank earnings to give investors a nasty shock.

“Today’s PPI data hasn’t helped much, as it signals that price rises continue to feed through to the broader US economy.”

The Bank of England earlier quashed reports that its £65bn bond-buying scheme could be extended beyond Friday, sending gilt yields higher.

It had announced on Monday that the scheme, launched in the aftermath of the government’s controversial mini-budget, would come to an end on Friday.

The BoE said it wanted to ensure an orderly end, and would double the daily maximum auction size to £10bn to enable that.

But governor Andrew Bailey later unnerved markets by bluntly reiterating late on Tuesday: "We’ve announced we will be out by the end of this week. My message to the [pension] funds is you’ve got three days left."

With yields already edging higher, however, reports began to emerge that despite Bailey’s comments, the scheme could yet be extended.

According to the Financial Times, citing bankers briefed by the BoE, officials were considering a more flexible approach that could see the scheme extended into next week.

But in a statement issued late Wednesday morning, the central bank dismissed the reports.

"As the Bank has made clear from the outset, the temporary and targeted purchase of gilts will end on 14 October," it said.

"The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels."

Following that, the Pensions Regulator urged trustees to work closely with investment managers to review liquidity positions ahead of the looming deadline.

The government body said trustees should discuss current liquidity positions with advisors, including "topping up or increasingly collateral where appropriate", as well as reviewing current funding positions "in light of market changes".

They should also consider the extent of their liability hedging positions, it added, while governance and decision-making requirements should be reviewed, to ensure trustees have "robust procedures" in place.

“As the BoE recently stated, insuring schemes against all extreme market outcomes might not be a reasonable expectation but it is important that lessons are learned from these recent events,” the watchdog said.

“We will continue to monitor the situation closely this week, and following 14 October, working closely with our regulatory partners in the BoE, the Financial Conduct Authority and the government.”

Back to the BoE, it said earlier that the UK economic outlook had deteriorated materially, insisting that "lessons must be learned" from the recent turmoil engulfing bond markets.

Publishing its latest Financial Stability Report, the central bank’s financial policy committee said that since its last report in July, inflationary pressures had intensified while financial conditions had tightened globally, resulting in a “further material deterioration” in the UK’s economic outlook.

The report acknowledged that the government’s Energy Price Guarantee, announced in early September, was likely to reduce peak near-term consumer price inflation and support demand.

Average household energy bills have been capped at £2,500 from 1 October for two years under the scheme.

“On the other hand, rapid increases in financing costs for mortgages and other borrowing will increasingly stretch UK household and business finances in coming months,” the Bank also warned.

Elsewhere in data, the UK economy unexpectedly contracted in August for the first time in two months, raising the risk of a recession.

According to figures released on Wednesday by the Office for National Statistics, GDP fell 0.3% following 0.1% growth in July, and versus expectations of flat reading.

July’s growth was revised down from an initial estimate of 0.2%.

The data showed that the UK economy was now 0.5% above its pre-coronavirus level in the fourth quarter of 2019.

Manufacturing production fell 1.6%, while output in the services sector dipped 0.1% and was now 0.2% below pre-Covid levels.

“The economy shrank in August with both production and services falling back, and with a small downward revision to July's growth the economy contracted in the last three months as a whole,” said ONS chief economist Grant Fitzner.

On the continent, eurozone industrial production rose more than expected in August, according to figures from Eurostat, with industrial output growing 1.5% on the month following a 2.3% decline in July, coming in ahead of consensus expectations for a 0.6% increase.

The production of capital goods rose by 2.8%, durable consumer goods by 0.9% and non-durable consumer goods by 0.7%, while the production of intermediate goods and energy fell 0.5% and 2.1%, respectively.

Germany slashed its growth forecast for next year, meanwhile, and hiked its inflation expectations, as energy prices continued to head higher on the back of Russia’s ongoing invasion of Ukraine.

Economy minister Robert Habeck took the wraps off Berlin’s official autumn economic forecasts, predicting a 0.4% contraction for the EU’s largest economy in 2023, with inflation reaching 7%.

Its pick for the current year, meanwhile, was for GDP growth of 1.4%, underpinned by a post-pandemic rebound earlier in 2022, while inflation was estimated at 8%.

Across the pond, wholesale prices in the US slowed a tad last month even as energy and food price gains rebounded.

According to the Department of Labor, the headline rate of so-called final demand price rises increased at a month-on-month pace of 0.4%, compared to the 0.2% pencilled in by economists.

In annual terms, final demand price increases slowed to 8.5% from 8.7%, against expectations for an 8.4% print.

Finally, in energy data, OPEC sharply downgraded its forecasts for global economic growth and crude oil demand.

In its first report since the controversial decision to cut production by two million barrels a day, OPEC cut global gross domestic product forecasts to 2.7% from 3.1% this year and to 2.5% from 3.1% for 2023, blaming soaring inflation, interest rates and geopolitical turmoil.

Oil demand growth forecasts were cut by 460,000 barrels a day to 2.64 million barrels a day for 2022.

For next year, OPEC reduced the figure by 360,000 barrels a day to 2.34 million barrels.

On London’s equity markets, JD Sports Fashion tumbled 9.54% after it said chief financial officer Neil Greenhalgh was planning to step down next year.

Barratt Developments slid 5.25% after it said new home sales were falling as higher costs and fewer mortgages amid the cost-of-living crisis were deterring customers.

"The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market," the housebuilder said.

Its peers were also in the red, with Taylor Wimpey down 2.19%, Persimmon losing 5.73%, and Berkeley Group 2.64% lower.

Banks were also under pressure, with Lloyds Banking Group, Barclays and NatWest Group down a respective 5.65%, 3.08% and 4.15%.

Synthomer plunged 7.47% after the chemicals company said it had suspended dividend payments until the end of 2023, including the payment due this November.

Elsewhere, Tullow Oil gushed 5.21% lower after a downgrade to ‘hold’ at Jefferies.

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

Market Movers

FTSE 100 (UKX) 6,826.15 -0.86%
FTSE 250 (MCX) 16,611.16 -1.73%
techMARK (TASX) 4,058.85 -1.13%

FTSE 100 - Risers

Rentokil Initial (RTO) 486.00p 2.64%
British American Tobacco (BATS) 3,320.00p 1.25%
AstraZeneca (AZN) 9,935.00p 1.12%
Diageo (DGE) 3,697.50p 0.98%
Pershing Square Holdings Ltd NPV (PSH) 2,650.00p 0.57%
Coca-Cola HBC AG (CDI) (CCH) 1,964.00p 0.56%
Flutter Entertainment (CDI) (FLTR) 10,030.00p 0.44%
Croda International (CRDA) 6,542.00p 0.40%
Glencore (GLEN) 486.10p 0.39%
Burberry Group (BRBY) 1,871.00p 0.29%

FTSE 100 - Fallers

JD Sports Fashion (JD.) 89.20p -10.32%
Persimmon (PSN) 1,138.50p -6.18%
Lloyds Banking Group (LLOY) 39.09p -5.80%
Harbour Energy (HBR) 400.90p -5.31%
B&M European Value Retail S.A. (DI) (BME) 296.90p -5.17%
Ocado Group (OCDO) 393.10p -5.16%
Barratt Developments (BDEV) 325.40p -5.13%
Hargreaves Lansdown (HL.) 787.60p -4.72%
Rolls-Royce Holdings (RR.) 66.24p -4.68%
St James's Place (STJ) 920.00p -4.23%

FTSE 250 - Risers

Carnival (CCL) 540.40p 6.21%
Indivior (INDV) 1,456.40p 3.60%
Vietnam Enterprise Investments (DI) (VEIL) 582.00p 3.37%
BBGI Global Infrastructure S.A. NPV (DI) (BBGI) 152.20p 2.15%
Polymetal International (POLY) 208.00p 1.95%
Baltic Classifieds Group (BCG) 144.60p 1.83%
Greencoat UK Wind (UKW) 138.00p 1.77%
TUI AG Reg Shs (DI) (TUI) 113.80p 1.61%
3i Infrastructure (3IN) 297.00p 1.54%
Pagegroup (PAGE) 375.20p 1.46%

FTSE 250 - Fallers

Wood Group (John) (WG.) 104.50p -11.63%
Paragon Banking Group (PAG) 366.00p -9.05%
Future (FUTR) 1,145.00p -8.33%
Synthomer (SYNT) 89.10p -7.83%
OSB Group (OSB) 375.40p -7.81%
Ibstock (IBST) 149.10p -7.33%
Mitchells & Butlers (MAB) 102.00p -6.76%
Tullow Oil (TLW) 38.96p -6.62%
Crest Nicholson Holdings (CRST) 173.70p -6.57%
Marshalls (MSLH) 228.40p -6.55%