London close: Stocks weaker as Kyiv comes under fresh fire
London stocks closed weaker on Monday as tensions in Ukraine escalated further, and amid concerns the US Federal Reserve would maintain its hawkish stance after a better-than-expected jobs report last week.
The FTSE 100 ended the session down 0.45% at 6,959.31, and the FTSE 250 was off 1.31% at 17,125.29.
Sterling was in a mixed state, last trading 0.32% weaker against the dollar at $1.1050, while it strengthened 0.05% on the euro to change hands at €1.1392.
“European stocks did better this morning, thanks perhaps in large part to the weaker pound and euro,” said IG chief market analyst Chris Beauchamp.
“But the fresh outrages in Kyiv are another reminder that European markets face an even tougher winter than those in the US, despite the massive support being provided by governments.
“The bounce is already fizzling out, with more pain for European stocks ahead this quarter.”
The Bank of England earlier announced fresh measures to support the UK’s financial markets after the government’s controversial mini-budget sparked turmoil in the pensions industry.
Chancellor Kwasi Kwarteng announced £45bn of borrowing-funded tax cuts at the end of September, but provided no economic forecasts or spending plans.
His statement caused the pound to plunge while yields on government debt rose.
The BoE was forced to step in and buy gilts in a "temporary and targeted intervention", after it emerged that some pension funds were at risk of collapse, because of rising collateral calls on liability-driven investments (LDIs).
On Monday, the central bank reaffirmed that the scheme would end on 14 October, but said it was introducing three measures "to support an orderly end".
In particular, it said it was doubling the daily maximum auction size, to £10bn, until the end of the scheme.
“The Bank might be concerned about what happens when it stops - the market should be aware that the central bank is prepared to step in, but yields are creeping up,” said Neil Wilson, chief market analyst at Markets.com.
“The 10-year gilt moved from 3.75% to 4.25%, while the 30-year has risen from around 3.8% at last week’s lows to 4.4%.
“The Bank made it clear it will be the market marker of last resort, but we are not home and dry just yet.”
Chancellor Kwasi Kwarteng meanwhile bowed to pressure and brought forward publication of the government’s spending plans earlier in the day.
The chancellor was due to publish his medium-term fiscal plan on 23 November, nearly two months after his controversial mini-budget caused the pound to plummet and bond yields to rise.
Downing Street initially insisted the medium-term fiscal plan and the Office for Budget Responsibility’s forecasts would not be brought forward, despite the ensuing market chaos.
But in a letter to Mel Stride, the chair of the Treasury Select Committee, dated 10 October, Kwarteng confirmed both the fiscal plan and OBR forecasts would now be published on 31 October.
"I have previously written to inform you that an economic and fiscal forecast will be published alongside the medium-term fiscal plan on 23 November," he wrote.
"I have decided to bring this date forward to 31 October."
Elsewhere, Fitch Ratings downgraded its UK growth forecast for next year, as it warned a deeper-than-expected recession was now likely.
The ratings agency - which last week downgraded its credit outlook on the UK to ‘negative’ from ‘stable’, citing the mini-budget - now expected UK GDP to shrink 1% in 2023, having forecast a 0.2% contraction in September.
It cited "extreme volatility" in UK financial markets and the prospect of sharply higher interest rates.
The ratings agency noted the sharp selloff in government bonds and sterling following the mini-budget on 23 September, "as sizable unexpected and unfunded tax cuts - coming on the back of a large-scale energy price subsidy - signalled sharp increases in government borrowing".
Fitch said it now expected much more rapid interest rate rises from the Bank of England as it tries to offset the impact of looser fiscal policy and a weaker currency on inflation, "buttress investor confidence in sterling assets and demonstrate its independence in the face of increased financial market concerns about fiscal dominance".
On the economic front, UK retail footfall contracted week-on-week in the seven days ended 9 October, with rising energy prices seemingly impacting retail appetite.
Compared to the previous week, there were declines in footfall in all but three UK geographies, with the decline being more than 2% in three areas and an average drop of 1.6% across all seven areas.
Footfall dropped 0.9% in retail parks, according to retail experts Springboard, while shopping centre footfall contracted 1.8%.
High street footfall, on the other hand, increased by 1% week-on-week.
“It may be a little premature to draw definitive conclusions; however, the comprehensive drop in footfall across nearly all parts of the UK may well be an initial indicator of the impact on consumers of higher energy costs that came into effect on 1 October,” said Diane Wehrle, insights director at Springboard.
“This is a clear contrast to the week before last when footfall rose universally across all areas of the UK.”
Finally on data and looking east, services activity in China shrank in September for the first time in four months, as Covid restrictions took their toll.
The Caixin services purchasing managers’ index fell to 49.3 from 55.0 in August, coming in well below consensus expectations of 54.4.
“The current pandemic situation is still severe and complex, and the negative impact of Covid controls on the economy is still pronounced,” said Wang Zhe, senior economist at Caixin Insight.
“Policy implementation should focus on promoting employment, granting subsidies, as well as boosting demand and market confidence by sending policy signals.”
On London’s equity markets, Centrica was down 2.68% and Drax Group lost 4.91% after reports that ministers were pushing ahead with plans to cap prices at renewable energy generators, after talks failed to persuade them to voluntarily fix contracts well below the current wholesale rates.
According to the Times, a cap to stop renewable electricity generators cashing in on soaring power prices could rake in up to £14bn a year for the Treasury.
RS Group - formerly Electrocomponents - was knocked 1.79% lower by a downgrade to ‘neutral’ at JPMorgan.
On the upside, paper and packaging group DS Smith surged 12.12% after saying its performance for the full year was set to be ahead of expectations.
Peers Smurfit Kappa and Mondi also racked up healthy gains, of 6.73% and 4.17% respectively.
Unite Group rallied 2.07% after the student accommodation provider said full-year earnings were on track to come in at the top end of expectations as student numbers continued to grow.
Sirius Real Estate finished ahead 1.74% after the company said like-for-like annualised rent rolls had risen 2.4% in the six months ended 30 September to €115.2m.
It said year-to-date trading and FFO was in line with consensus and management expectations for the full year as total annualised rent rolls increased to €167.9m, up from €167.1m six months earlier, despite disposals of its Magdeburg asset in Germany and its Camberwell site in the UK.
Airlines clawed back their earlier losses amid the tensions in Ukraine, with British Airways and Iberia parent IAG closing up 0.51% and easyJet ascending 0.54%.
Moneysupermarket jumped 7.48% after an upgrade to ‘outperform’ from ‘sector perform’ by RBC Capital Markets.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti, Iain Gilbert and Abigail Townsend.
Market Movers
FTSE 100 (UKX) 6,959.31 -0.45%
FTSE 250 (MCX) 17,125.29 -1.31%
techMARK (TASX) 4,128.02 -0.78%
FTSE 100 - Risers
Smith (DS) (SMDS) 271.10p 12.12%
Smurfit Kappa Group (CDI) (SKG) 2,617.00p 6.73%
Mondi (MNDI) 1,410.00p 4.17%
Kingfisher (KGF) 212.20p 3.21%
M&G (MNG) 170.55p 2.86%
Coca-Cola HBC AG (CDI) (CCH) 1,959.00p 2.78%
Croda International (CRDA) 6,718.00p 2.72%
Tesco (TSCO) 206.10p 2.69%
B&M European Value Retail S.A. (DI) (BME) 315.00p 2.61%
Associated British Foods (ABF) 1,275.00p 2.08%
FTSE 100 - Fallers
Haleon (HLN) 271.15p -2.92%
Centrica (CNA) 69.04p -2.68%
Rolls-Royce Holdings (RR.) 68.89p -2.42%
SEGRO (SGRO) 720.00p -2.41%
Diageo (DGE) 3,646.00p -2.34%
Severn Trent (SVT) 2,267.00p -2.28%
Rentokil Initial (RTO) 465.30p -2.13%
AstraZeneca (AZN) 9,826.00p -2.03%
Scottish Mortgage Inv Trust (SMT) 744.40p -1.92%
United Utilities Group (UU.) 847.20p -1.92%
FTSE 250 - Risers
Moneysupermarket.com Group (MONY) 195.90p 7.48%
Marks & Spencer Group (MKS) 96.50p 2.81%
ITV (ITV) 59.82p 2.01%
Abrdn (ABDN) 135.50p 1.88%
Sirius Real Estate Ltd. (SRE) 70.10p 1.74%
Bank of Georgia Group (BGEO) 1,976.00p 1.65%
Clarkson (CKN) 2,695.00p 1.51%
Grafton Group Ut (CDI) (GFTU) 670.00p 1.21%
Howden Joinery Group (HWDN) 503.00p 1.21%
Travis Perkins (TPK) 779.40p 1.09%
FTSE 250 - Fallers
Syncona Limited NPV (SYNC) 162.60p -10.46%
Molten Ventures (GROW) 271.80p -8.91%
Greencoat UK Wind (UKW) 138.30p -8.41%
NextEnergy Solar Fund Limited Red (NESF) 101.00p -7.85%
Bluefield Solar Income Fund Limited (BSIF) 124.50p -7.43%
Abrdn Private Equity Opportunities Trust (APEO) 374.00p -7.20%
Aston Martin Lagonda Global Holdings (AML) 90.12p -6.38%
The Renewables Infrastructure Group Limited (TRIG) 120.40p -6.08%
Foresight Solar Fund Limited (FSFL) 108.00p -5.92%
IP Group (IPO) 56.10p -5.56%