London close: Stocks mixed as Sunak picks out his cabinet

London stocks were mixed by the end of trading on Tuesday as initial enthusiasm over Rishi Sunak’s selection as prime minister continued to waver, while HSBC was under pressure after results.

The FTSE 100 ended the session down 0.07% at 7,013.48, while the FTSE 250 was 2.85% firmer at 17,831.63.

Sterling was firmly in positive territory, meanwhile, last trading up 1.73% on the dollar at $1.1473, and strengthening 0.86% against the euro to change hands at €1.1520.

“It’s been a broadly positive day for markets in Europe, with the exception of the FTSE 100, which has lagged due to weakness in banks and basic resources,” said CMC Markets chief market analyst Michael Hewson.

“HSBC shares have dropped sharply after reporting third quarter revenue of $11.6bn, while profits after tax came in at $2.56bn.

“This was significantly lower than the numbers in the second quarter, with profit attributable to shareholders dropping to $1.9bn from $5.77bn.”

Hewson said part of the reason for the lower profits was an increase in provisions for non-performing loans of $1.1bn, doubling the amount set aside for the year-to-date to $2.2bn.

“On the plus side, the bank’s net interest margin rose in the third quarter to 1.57% from 1.35%, helping to push net interest income to beat expectations, reflecting the higher interest rate environment.

“While this welcome news for net interest margin, it isn’t so great if you’re a saver as you won’t have noticed the difference.”

Michael Hewson noted that with mortgage rates above 6%, while ISA and other savings rates languished at or below 1%, banks should be making decent profits.

“Never mind talk of windfall taxes, politicians would be better served by calling out the banks for the paltry returns they are offering savers.”

Political developments were once again hogging the headlines, after new UK prime minister Rishi Sunak warned of spending cuts, saying the country was in an “economic crisis” and pledging to correct the financial “mistakes” made during the disastrous 45-day reign of his predecessor, Liz Truss.

In a speech outside 10 Downing Street after being formally appointed by King Charles as Britain's fifth prime minister in six years, Sunak warned there would be “difficult decisions to come” as the nation faced a £40bn hole in its finances.

He moved quickly to appoint a new cabinet - a task made easier by the departure of unpopular business secretary Jacob Rees-Mogg, who was widely tipped for the axe.

Chancellor Jeremy Hunt, appointed by Truss to replace Kwasi Karteng, was reappointed.

Other Trussites soon followed suit, with several jumping before they were pushed, including education secretary Kit Malthouse, ‘levelling-up’ minister Simon Clarke, justice secretary Brandon Lewis, work and pensions secretary Chloe Smith and Ranil Jayawardene, who was seen as a makeweight at the environment department.

Foreign secretary James Cleverly and defence secretary Ben Wallace were also retained, while Dominic Raab returned as justice secretary - a post he held last year - and was also re-appointed as deputy prime minister.

Sunak moved to distance himself from the calamitous Truss, whose neoliberal economic policy and plans for unfunded tax cuts hammered financial markets, and the discredited Boris Johnson, thrown out by his own party for mismanagement and scandal.

He said his government would show “integrity, professionalism and accountability”, a stark change in comparison with the previous Tory administrations.

While praising Truss, he said "mistakes were made".

"I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come," he said.

"The government I lead will not leave the next generation - your children and grandchildren - with a debt to settle that we were too weak to pay ourselves."

In economic news, output from UK factories slipped slightly over the past three months, even as business sentiment dropped at the fastest rate since the start of the pandemic.

According to the Confederation of British Industry's industrial trends survey, the gauge of manufacturing output was roughly unchanged at -4%, meaning production fell at a similar pace as in the quarter to September.

However, the balance of firms declaring themselves to be more pessimistic fell at its quickest clip since April 2020, from -21% for July to -48% in August.

"It's a tough time for manufacturers,” said CBI lead economist Alpesh Paleja.

“Price pressures remain acute, availability of materials is still a big issue - and it is 49 years since manufacturing firms were this worried about being able to find workers with the skills they need.

"It's really no surprise that sentiment has deteriorated further."

On the continent, business sentiment remained "gloomy" in Germany in October, according to a survey from the Ifo Institute.

The business climate index dipped to 84.3 from a revised 84.4 in September, coming in above consensus expectations for a reading of 83.3.

Meanwhile, the expectations index ticked up to 75.6 in October from 75.3 the month before, and the current situation index printed at 94.1, down from 94.5.

The manufacturing gauge fell to -15.9 in October from -14.3 in September, while the services sector index improved to -8.6 from -8.9.

Ifo’s index for trade came in at -31.9 versus -32.3 and the index for construction was -24.0 in October, down from -21.9 a month earlier.

"The German economy is facing a difficult winter," said Ifo president Clemens Fuest.

Across the pond, US house price growth eased in August amid higher interest rates, according to the latest S&P CoreLogic Case-Shiller national home price index.

The index covering all nine US census divisions rose 13% on the year, down from 15.6% growth in July.

The 10-city composite index saw an annual increase of 12.1% in August, down from 4.9% a month earlier.

Meanwhile, the 20-city index pushed up 13.1%, down from 16% in July.

Finally on data, Americans' views on the economy, jobs and inflation all soured more than expected in October, according to a closely-followed survey.

The Conference Board's consumer confidence index retreated from a reading of 107.8 for September to 102.5 in October.

Economists had pencilled in a reading of 105.0.

On London’s equity markets, HSBC tumbled 6.83% even after its third-quarter profits beat expectations, as investors reacted to shock news that chief financial officer Ewen Stevenson would step down at the end of the year.

He was set to be succeeded by Georges Elhedery, co-head of global banking and markets at the bank.

“Stevenson had a good track record in his previous job helping to rehabilitate NatWest - formerly Royal Bank of Scotland - and shareholders will be disappointed not to have his steady hand at the tiller during the current turmoil.” said AJ Bell financial analyst Danni Hewson.

“Stevenson’s departure may also make HSBC more vulnerable to pressure from its largest shareholder Ping An to break up the bank.

“HSBC’s fortunes are increasingly tied to China and the rest of Asia so Xi Jinping’s power grab, which has created concern in international markets, particularly if it means a continuation of hard-line zero-Covid policies, is not helpful for sentiment towards the bank.”

HSBC reported a pre-tax profit of $3.15bn for the three months to 30 September, down from $5.4bn last year, but above the $2.45bn consensus of analyst estimates compiled by the bank.

Standard Chartered was also on the back foot, falling 1.28% ahead of the release of third-quarter results on Wednesday.

On the upside, retailers rose following a well-received update from e-commerce group THG, with Next up 3.07%, B&M European Value Retail ahead 4.77%, and Asos surging 13.82%.

Premier Inn owner Whitbread reversed earlier losses to close up 0.42%, after swinging to an interim profit.

Genuit also recovered from losses earlier in the session, rising 2.43% despite saying profit for the year would be at the lower end of analyst expectations, as market turmoil hit trading at the end of the third quarter.

Urban Logistics REIT gained 11.55% after the warehouse expert said it had collected 99% of rent in the six months to 30 September.

The company added that it had secured 12 new lettings in the period covering 470,000 square feet of space, generating £4m in additional rental income.

In broker note action, Hargreaves Lansdown was in the black by 4.89% after an upgrade to ‘buy’ from ‘hold’ at Canaccord Genuity.

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

Market Movers

FTSE 100 (UKX) 7,013.48 -0.01%
FTSE 250 (MCX) 17,831.63 2.85%
techMARK (TASX) 4,197.01 1.14%

FTSE 100 - Risers

SEGRO (SGRO) 798.00p 7.09%
Land Securities Group (LAND) 568.80p 5.92%
Flutter Entertainment (CDI) (FLTR) 11,375.00p 5.57%
Ocado Group (OCDO) 504.80p 5.30%
Hargreaves Lansdown (HL.) 777.00p 4.89%
B&M European Value Retail S.A. (DI) (BME) 320.40p 4.77%
Scottish Mortgage Inv Trust (SMT) 766.40p 4.36%
Taylor Wimpey (TW.) 95.08p 4.25%
Sage Group (SGE) 746.20p 4.10%
British Land Company (BLND) 363.10p 3.74%

FTSE 100 - Fallers

HSBC Holdings (HSBA) 443.05p -6.83%
Shell (SHEL) 2,289.50p -2.37%
Standard Chartered (STAN) 554.40p -1.28%
Compass Group (CPG) 1,819.50p -1.19%
Harbour Energy (HBR) 371.00p -1.07%
Anglo American (AAL) 2,658.50p -1.04%
BP (BP.) 465.60p -0.94%
BAE Systems (BA.) 805.40p -0.93%
Vodafone Group (VOD) 98.67p -0.91%
Smith & Nephew (SN.) 1,001.50p -0.84%

FTSE 250 - Risers

Molten Ventures (GROW) 295.00p 17.81%
ASOS (ASC) 589.00p 13.82%
Urban Logistics Reit (SHED) 140.00p 11.55%
Jupiter Fund Management (JUP) 104.40p 10.95%
Warehouse Reit (WHR) 124.40p 9.51%
AJ Bell (AJB) 322.40p 7.90%
Hipgnosis Songs Fund Limited NPV (SONG) 90.90p 7.83%
Dr. Martens (DOCS) 231.20p 7.43%
Home Reit (HOME) 87.40p 6.97%
Blackrock Throgmorton Trust (THRG) 554.00p 6.95%

FTSE 250 - Fallers

W.A.G Payment Solutions (WPS) 83.20p -2.33%
Energean (ENOG) 1,316.00p -2.15%
Ferrexpo (FXPO) 107.50p -1.74%
NB Private Equity Partners Ltd. (NBPE) 1,575.00p -1.25%
Ibstock (IBST) 153.00p -1.10%
Mitchells & Butlers (MAB) 104.20p -0.67%
Babcock International Group (BAB) 268.60p -0.67%
Johnson Matthey (JMAT) 1,939.00p -0.56%
Playtech (PTEC) 523.50p -0.19%
Hikma Pharmaceuticals (HIK) 1,190.50p -0.04%