London close: Stocks weaker after another BoE intervention

London stocks closed below the waterline on Tuesday as further bond market intervention from the Bank of England dented sentiment, and as investors mulled the latest UK jobs data.

The FTSE 100 ended the session down 1.06% at 6,885.23, and the FTSE 250 was off 1.29% at 16,904.06.

Sterling was in the green, meanwhile, last trading up 1.06% on the dollar at $1.1172, and advancing 0.32% against the euro to change hands at €1.1430.

“Today’s mood on European markets has been a predominantly downbeat one, with weakness in Asia translating into a negative open, as concerns over slowing global growth and persistently higher inflation, kept up the pressure on valuations,” said CMC Markets chief market analyst Michael Hewson.

“Losses accelerated as US markets opened, with the IMF adding to the negative tone by downgrading its global growth forecast for next year to 2.7%, while admitting that its target could fall further if economic conditions continue to deteriorate.

“Its chief economist Pierre Olivier Gourinchas said the worst is yet to come, and that 2023 could be a very bad year.”

Hewson noted that the fund also warned that inflation was set to rise further and could peak sometime later this year, suggesting the need for more rate rises.

“A rise in covid cases in China also weighing on risk appetite with the usual suspects of basic resources and energy acting as the largest drag, as concerns over a possible global recession weigh on risk.

“Amongst the biggest fallers on the UK market have been the likes of Legal & General, Aviva and Prudential after the Bank of England intervened further in UK government debt markets.

“Their warnings of market dysfunction, while driving yields lower, are making investors a little more nervous about this area of the market.”

The Bank of England expanded its emergency bond-buying programme earlier, for the second time this week, saying the programme would now include index-linked bonds, which are linked to inflation.

It noted that the start of the week saw a "further significant repricing" of UK government debt, particularly index-linked gilts.

"Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability," it said.

The change was taking place with immediate effect until 14 October, alongside the Bank’s existing daily conventional gilt purchase auctions.

"These additional operations will act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity," it said.

The announcement followed another selloff in UK debt markets, particularly in the index-linked market, and came just a day after the BoE said it would double the size of its daily purchases to £10bn.

On Monday, the Bank also announced a temporary expanded collateral repo facility (TECRF), to help banks "ease liquidity pressures facing their client LDI funds through liquidity insurance operators", which will run beyond the end of this week.

In addition, it said it stood ready to support further easing of liquidity pressures facing LDI funds through its regular Indexed long term repo operations.

“It all seems rather messy and panicky - as expected the market was always going to retest the Bank’s resolve and put the Budget to the sword,” said Neil Wilson, chief market analyst at Markets.com.

“To expand your emergency intervention in the market once is unfortunate, to do so twice looks like carelessness.”

In economic news, the UK unemployment rate fell in the three months to August to its lowest level since February 1974 as more Britons dropped out of the workforce due to long-term illness.

Data released by the Office for National Statistics showed that the unemployment rate fell to 3.5% from 3.6% in the previous three months, versus expectations for it to remain unchanged.

The ONS said the number of those "economically inactive" due to long-term sickness increased to a record high.

Total pay, including bonuses, rose 6% on the year, up from 5.5% in the three months to July. Regular pay, excluding bonuses, grew 5.4%, up from 5.2%.

In real terms, however, adjusted for inflation, total pay fell 2.4% and regular pay was down 2.9%.

The data also showed that the number of workers on payrolls rose by 69,000 between August and September to a record 29.7m.

“The unemployment rate continues to fall and is now at its lowest for almost 50 years,” said David Freeman, head of labour market and household statistics at the ONS.

"However, the number of people neither working nor looking for work continues to rise, with those who say this is because they’re long-term sick reaching a record level.

"While the number of job vacancies remains high after its long period of rapid growth, it has now dropped back a little, with a number of employers telling us they’ve reduced recruitment due to a variety of economic pressures.”

Elsewhere, grocery price inflation hit yet another fresh record, according to Kantar, coming in at 13.9% over September and adding £643 to the average annual grocery bill.

Take-home grocery sales rose 4.8% in the 12 weeks ended 2 October, while grocery price inflation hit a record high since Kantar began tracking prices during the 2008 financial crash.

“The cost-of-living crisis is still hitting people hard at the checkouts and this latest data will make tough reading for many. Based on our numbers, the average household is facing a £643 jump in their annual grocery bill to £5,265 if they continue to buy the same items,” said Fraser McKevitt, head of retail and consumer insight at Kantar.

“Taking that at a basket level, that's an extra £3.04 on top of the cost of the average shopping trip last year which was £21.89.”

Looking globally, the International Monetary Fund cut its growth forecast for next year, citing the conflict in Ukraine, food and energy inflation and higher interest rates, as it warned the worst was still to come.

In its latest World Economic Outlook, the IMF said it now expected global GDP growth of 2.7% in 2023, down from a forecast of 2.9% growth in July.

Chief economist Pierre-Olivier Gourinchas said "the three largest economies, the United States, China and the euro area will continue to stall".

"Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic," he said.

"In short, the worst is yet to come, and for many people, 2023 will feel like a recession."

For 2022, the IMF kept its global growth forecast at 3.2%.

As far as the UK was concerned, the IMF now expected growth to slow in 2023 to 0.3% from 3.6% this year, down from a previous forecast of 0.5% growth.

It said the fiscal package announced by chancellor Kwasi Kwarteng last month was expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation.

Finally on data, small business confidence across the pond edged higher last month, as expectations for sales improved on the back of falling gas prices.

The US National Federation of Independent Business' small business activity index improved to 92.1 in September, from a reading of 91.8 for August.

Economists had pencilled in a reading of 91.6.

Buoying the headline index was a nine point jump in a sub-index linked to sales expectations.

On London’s equity markets, Aviva was down 4.17%, Legal & General Group lost 5.18% and Prudential fell 3.88% after the BoE warned over dysfunction in the government debt market.

PureTech Health slid 6.13% after it said that it and US-based Nektar Therapeutics had terminated merger talks only four days after they announced a potential tie-up.

Irish convenience food group Greencore lost 2.89% after it said full-year adjusted operating profit and earnings per share were set to be at the lower end of the expected range, partly due to the impact of rail strikes.

Ferrexpo tumbled 4.02% after the iron ore pellet maker said it had suspended operations in Ukraine after Monday’s Russian missile strikes on the country damaged electrical power infrastructure.

Banks also fell, with Barclays down 2.15%, Lloyds Banking Group off 1.65% and NatWest Group losing 2.64%.

The moves came after the Guardian reported the boss of Santander UK as saying the bank was putting aside more money for potential defaults linked to the cost-of-living crisis, after seeing a pickup in customers falling behind on mortgage and loan payments.

Mike Regnier told the newspaper that he was keeping a close eye on the "strain and pressure" facing customers as a result of the cost-of living-crisis, which has made it harder for some households to keep up with rising food and energy bills and financial commitments such as home loans.

In broker note action, British Gas owner Centrica was boosted 0.46% by an upgrade to ‘buy’ at Citi, while Drax reversed earlier gains to fall 1.5% even after an upgrade to ‘neutral’ by the same outfit.

Both stocks fell sharply on Monday following reports UK ministers were pressing ahead with a renewable energy windfall tax.

B&Q owner Kingfisher was in the red by 0.57%, meanwhile, after a downgrade to ‘sell’ at Numis.

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

Market Movers

FTSE 100 (UKX) 6,885.23 -1.06%
FTSE 250 (MCX) 16,904.06 -1.29%
techMARK (TASX) 4,105.20 -0.48%

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Haleon (HLN) 275.60p 1.64%
Sainsbury (J) (SBRY) 175.25p 1.30%
Imperial Brands (IMB) 2,027.00p 1.05%
Unilever (ULVR) 3,945.50p 0.91%
Rolls-Royce Holdings (RR.) 69.49p 0.87%
Compass Group (CPG) 1,808.50p 0.86%
GSK (GSK) 1,357.20p 0.83%
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Endeavour Mining (EDV) 1,577.00p 0.51%

FTSE 100 - Fallers

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Legal & General Group (LGEN) 212.30p -5.18%
Hargreaves Lansdown (HL.) 826.60p -4.94%
Harbour Energy (HBR) 423.40p -4.38%
Aviva (AV.) 383.70p -4.17%
Standard Chartered (STAN) 547.60p -3.90%
Prudential (PRU) 886.20p -3.88%
St James's Place (STJ) 960.60p -3.73%
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Intermediate Capital Group (ICP) 1,018.00p -3.46%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 93.48p 4.68%
TUI AG Reg Shs (DI) (TUI) 111.90p 3.37%
Wizz Air Holdings (WIZZ) 1,422.50p 2.87%
Lancashire Holdings Limited (LRE) 493.80p 1.81%
Pets at Home Group (PETS) 265.40p 1.76%
Marks & Spencer Group (MKS) 98.20p 1.76%
Savills (SVS) 800.50p 1.76%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 302.50p 1.68%
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FTSE 250 - Fallers

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International Public Partnerships Ltd. (INPP) 136.00p -6.85%
Shaftesbury (SHB) 337.40p -6.28%
PureTech Health (PRTC) 215.50p -6.13%
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Capital & Counties Properties (CAPC) 98.50p -6.00%
TI Fluid Systems (TIFS) 117.00p -5.95%
Vietnam Enterprise Investments (DI) (VEIL) 563.00p -5.70%
Wood Group (John) (WG.) 118.25p -5.44%
Moneysupermarket.com Group (MONY) 183.70p -5.36%