London close: Stocks tumble on growing recession fears
London stocks closed well below the waterline on Thursday, while government bond yields were rising again as investors continued to fret about the implications of last week’s mini-budget, and the Bank of England’s bond market intervention.
The FTSE 100 ended the session down 1.77% at 6,881.59, and the FTSE 250 was off 3.06% at 16,790.40.
Sterling was managing some strength against its major trading pairs, and was last up 1.52% on the dollar at $1.1054, and 0.98% firmer against the euro at €1.1296.
“Stock markets are being clobbered as fears of further interest rate hikes are prompting traders to cut and run,” said Equiti Capital market analyst David Madden.
“James Bullard of the Federal Reserve said there is a higher risk of a recession and that interest rates will probably remain higher for longer, which would be the worst of both worlds.
“Typically, central banks lower rates when economies are cooling, but we are in a unique scenario where inflation is rising, and growth is dropping.”
Markets had managed a firmer finish on Wednesday, after the BoE stepped in to stabilise the gilt market following the recent selloff.
The Bank said it was expecting to spend £65bn on bond-buying overall, in a bid to avoid a meltdown in the pensions sector, with £5bn of buying each day until 14 October.
Earlier, the former governor of the Bank of England accused the government of "undercutting" some of the UK’s key economic institutions following its controversial mini-budget.
“There was an undercutting of some of the institutions that underpin the overall approach,” said Mark Carney - governor from 2013 to 2020 - in comments to the BBC.
“So not having an Office of Budget Responsibility forecast is much commented upon and the government, I think, has accepted the need for that, but that was important."
He also said the government was working at "cross-purposes" with the central bank by focusing on tax cuts during a period of high inflation.
"Unfortunately having a partial budget in these circumstances - tough global economy, tough financial market position, working at cross purposes with the Bank - has led to quite dramatic moves in financial markets," he said.
In economic news, investors were mulling the latest research from Zoopla, which showed that home buyers could see their buying power slashed by more than a quarter as the cost of borrowing continued to mount.
According to the latest Zoopla house price index, house price growth remained stable at 8.2% year-on-year in September, despite the rising cost of living.
But the property portal warned that higher mortgage rates were likely to reduce buying power going forward.
Its analysis showed that if mortgage rates rose as expected from 2% to 5%, household buying power would be slashed by up to 28%, assuming they wanted to keep monthly repayments unchanged.
“This will impact housing demand into 2023 unless buyers put down larger deposits, allocate more income to mortgage costs or adjust their budgets, buying smaller property or looking to cheaper areas,” the company said.
“We anticipate that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the south east, as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic.”
On the continent, eurozone economic sentiment deteriorated further in September, but employment expectations remained relatively robust.
The European Commission’s economic sentiment indicator for the eurozone declined by 3.6 points to 93.7, coming in below consensus expectations for a reading of 95.0, while the ESI for the EU fell 3.5 points to 92.6.
It showed a fall in confidence across the board - in industry, services, retail and among consumers.
Across the pond, the number of Americans filing for unemployment benefits fell last week to its lowest level in five months, according to figures from the Labor Department.
Jobless claims declined to 193,000 from a revised 209,000 the week before, hitting the lowest level since late April and beating consensus expectations of 215,000.
The previous week’s figure was revised down by 4,000.
Meanwhile, the four-week moving average fell by 8,750 from the previous week to 207,000, as the prior week’s level was revised down by 1,000 to 215,750.
On London’s equity markets, Next slid 12.3% after the clothing and homeware retailer cut its sales and profits forecast on the back of the weakening economic outlook, including the recent turmoil in currency markets.
Next was now expecting full-price second-half sales to be down 1.5% on the previous year, compared to earlier guidance for growth of 1%, while full-year profits forecasts were trimmed to £840m from £860m.
Synthomer tanked 34.75% after it warned on profits, highlighting deteriorating macroeconomic conditions since August and reduced demand due to de-stocking.
The group, which supplies aqueous polymers, said it now expected full-year earnings before interest, taxes, depreciation and amortisation to be 10% to 15% below its previous expectations.
Elsewhere, Barratt Developments was down 6.26%, British American Tobacco lost 2.04%, Hays slipped 0.84%, Rightmove slid 7.11%, Games Workshop Group tumbled 8.59%, and Computacenter was 2.49% weaker as they traded without entitlement to the dividend.
On the upside, miners rallied, with Anglo American up 1.15%, Glencore ahead 1.25%, and Rio Tinto ahead 0.82%.
Capricorn Energy gushed 2.5% higher after saying it was no longer going ahead with a planned merger with Tullow Oil, and would instead be merging with Israel’s NewMed Energy.
Direct Line Insurance Group was boosted 2.17% by an upgrade to ‘hold’ at HSBC.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Abigail Townsend and Alexander Bueso.
Market Movers
FTSE 100 (UKX) 6,881.59 -1.77%
FTSE 250 (MCX) 16,790.40 -3.06%
techMARK (TASX) 4,103.16 -1.72%
FTSE 100 - Risers
Rolls-Royce Holdings (RR.) 68.26p 2.34%
BAE Systems (BA.) 825.00p 2.00%
Glencore (GLEN) 486.75p 1.25%
Anglo American (AAL) 2,760.00p 1.15%
Reckitt Benckiser Group (RKT) 6,124.00p 0.92%
Rio Tinto (RIO) 4,894.00p 0.82%
Haleon (HLN) 280.05p 0.48%
Rentokil Initial (RTO) 473.90p 0.45%
Unilever (ULVR) 4,080.50p 0.38%
Admiral Group (ADM) 1,931.50p 0.26%
FTSE 100 - Fallers
Barratt Developments (BDEV) 323.40p -12.76%
Next (NXT) 4,674.00p -12.21%
Ocado Group (OCDO) 469.30p -10.16%
Auto Trader Group (AUTO) 495.10p -8.48%
Rightmove (RMV) 466.60p -7.71%
Smurfit Kappa Group (CDI) (SKG) 2,509.00p -6.62%
Frasers Group (FRAS) 671.50p -6.52%
Taylor Wimpey (TW.) 85.08p -6.46%
Whitbread (WTB) 2,285.00p -6.35%
Persimmon (PSN) 1,175.00p -6.00%
FTSE 250 - Risers
HICL Infrastructure (HICL) 160.00p 3.23%
PureTech Health (PRTC) 246.00p 2.93%
Diversified Energy Company (DEC) 130.80p 2.75%
GCP Infrastructure Investments Ltd (GCP) 93.40p 2.64%
Foresight Solar Fund Limited (FSFL) 111.40p 2.58%
Capricorn Energy (CNE) 245.60p 2.50%
Bluefield Solar Income Fund Limited (BSIF) 129.00p 2.38%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 79.00p 2.20%
Direct Line Insurance Group (DLG) 181.55p 2.17%
International Public Partnerships Ltd. (INPP) 146.00p 1.96%
FTSE 250 - Fallers
Synthomer (SYNT) 90.05p -34.75%
Mitchells & Butlers (MAB) 115.10p -14.74%
Aston Martin Lagonda Global Holdings (AML) 125.45p -11.81%
Pets at Home Group (PETS) 257.80p -10.49%
Vistry Group (VTY) 557.00p -9.50%
Hammerson (HMSO) 17.23p -9.16%
Hays (HAS) 101.20p -9.07%
Games Workshop Group (GAW) 5,690.00p -9.03%
888 Holdings (DI) (888) 94.65p -8.90%
Watches of Switzerland Group (WOSG) 654.00p -8.79%