ABF signals rise in earnings, John Laing anticipates Brexit slowdown

The FTSE 100 is expected to open down 87 points on Monday, after closing down 1.19% at 6,776.95 on Friday.

Stocks to watch

Associated British Foods said it expected full year earnings to be slightly ahead of last year's, with revenues from its Primark retail business up 11% and sales from the grocery and sugar arms modestly higher. Although a previous surplus has morphed into a £200m pension deficit and currency moves had a mixed effect, the 53 weeks to 17 September were mostly rosy for AB Foods, with operating profit ahead of last year and earnings per share marginally ahead.

Property developer John Laing Infrastructure Fund expects to see a slowdown in market activity due to the Brexit vote, as the company reported a rise in profit due to international expansion and project divestments. For the six months ended 30 June, profit before tax rose significantly to £72.3m from £14.5m last year, due to an increase in the company’s portfolio, positive exchange rate movements, a reduction in discount rates and profits from disposals of two projects.

The Financial Conduct Authority hiked the minimum amount of regulatory capital required of Aberdeen Asset Management, in effect raising its total regulatory requirement to roughly £475m. Following the FCA´s periodic review, the regulator decided to eliminate the benefit of insurance mitigation when modeling operational risk for Pillar 2 purposes while adding an allowance, or so-called scalar, to cover any unsighted and unquantifiable risks that might emerge. However, Aberdeen´s available capital was already comfortably above the new requirement, the fund manager said in a statement. Indeed, the fund manager had already been applying its own self-imposed scalar, equal to £100m, which it would now deduct from that imposed by the FCA.

Newspaper round-up

Weak spending and a slump in investment are likely to bring growth to a near standstill this year with weakness persisting until at least the end of 2018, according to a survey. In its first economic forecast since the EU referendum, the British Chambers of Commerce (BCC) will today cut its forecasts for gross domestic product growth from 2.2 per cent to 1.8 per cent for this year. - The Times

The weaker pound will boost exports, however, meaning the country should avoid a recession. Strong demand from consumers will keep the economy growing, while employment growth will slow but not reverse, the BCC believes. - Telegraph

Chancellor Philip Hammond could go on a major spending spree in his Autumn Statement without fear of spooking the bond markets, economists believe, because the Bank of England’s policy of easy money has given him more wiggle room. As well as slashing borrowing costs, the Monetary Policy Committee’s decision to fire up the printing presses and snap up more government bonds means the Chancellor has space to splurge, according to Magdalena Polan at Legal & General Investment Management. - Telegraph

Every privately owned home in London built before 2006 has risen in value by more than 50 per cent, while two million homes across the country have fallen in value, a study suggests. As Philip Hammond prepares a fiscal policy that promises to focus on housebuilding, research by Savills has highlighted the difficulty in implementing a nationwide housing policy. - The Times

Janet Yellen will deliver the biggest shock to markets since taking over as chair of the Federal Reserve should the central bank raise interest rates this month, according to a survey of Wall Street economists that shows more than 85 per cent expect it to hold fire. The scepticism among economists may concern the Fed’s top officials, who have spent the past month trying to persuade financial markets that an increase at their meeting on September 21 is a possibility given that the US unemployment rate is below 5 per cent and the global fallout from the Brexit vote has been muted. - Financial Times

US close

Hawkish Fedspeak pushed longer-term US bond yields further up towards their pre-Brexit levels, triggering a notable spike in a widely-followed gauge of stock market volatility as the S&P 500 was left nursing its largest weekly loss since February.

The Dow Jones Industrial Average dropped 394.46 points or 2.13% to 18,085.45 points, the S&P 500 erased 53.49 points or 2.45% to 2,127.81 points - closing beneath its 50-day moving average - and the Nasdaq Composite went into the weekend off by 133.58 points or 2.54% to 5,125.91 points.

Strikingly, the Chicago Board of Options Exchange volatility index, or VIX, surged 39.89% to the 17.50 point mark.

Markets have been given notice

Boston Fed President Eric Rosengren said on Friday that the risks to the economic outlook were increasingly "two-edged".

Later in the day, his opposite number at the Dallas Fed, Robert Kaplan, added that "long-term economic headwinds meant the Federal Reserve could afford to be "patient and deliberate in its actions".

"The likely path of rates is going to be flatter, much flatter than we’ve ever experienced historically," Kaplan said.

However, Kaplan did not see signs of overheating in the economy.

"I think the markets have gotten plenty of notice that we are looking for opportunities to remove accommodation.

"I think we are just going to have to debate this out over the next few months as to what the appropriate next steps are," Kaplan concluded.