The pound fell to a record low under $1.04 as the global wave of selling over the UK currency continued. The FTSE 100 lost the 7000-point mark and was unable to sustain a modest rally in opening trade, although export stocks stayed in demand and offset the overall decline.
Sterling’s plight intensified during Asian trade, leaving London traders looking at levels last touched in the 1970s at the start of the European day, when talk in the City of a potential emergency interest rate rise from the Bank of England added to the uneasy mood.
Concern across international markets about the implications of Kwasi Kwarteng’s tax-slashing mini budget, especially for the UK’s public finances, continued to set the tone to trade. Economists have warned the impact for inflation could result in rates having to stay higher for longer.
FTSE 100 loses the 7000-point mark
City Comment: Kami-Kwasi bets it all
Pound slumps to record low under $1.04 during Asian trade
Bank of England ‘monitoring financial markets very closely’ after pound hits record low against dollar
16:45 , Simon Hunt
The Bank of England has released a statement in the wake of the pound’s dramatic fall to a historic low against the dollar, saying it is watching developments in financial markets “very closely”.
In the statement released on Monday afternoon, Governor Andrew Bailey also said the Bank would not hesitate to change interest rates “by as much as needed” to get inflation under control.
The statement was released hours after sterling hit its lowest level against the dollar since decimalisation in 1971, falling by more than 4% to just 1.03 dollars in early Asia trading before rebounding to 1.09 dollars.
FTSE 100 closes at 7,024 as Kwarteng announces more fiscal plans
16:34 , Simon Hunt
The FTSE 100 closed up 6 points at the end of a turbulent day which saw the index surrender almost 70 points to 6950.50 by late morning, a fall of almost 1%. The gains stood out as continental European bourses slipped by similar margins.
Consumer staples were among the best performers today, rising an average of 1.3%, while industrial stocks made gains of around 1.5%. Housebuilders were among the worst hit today as investors weighed the prospect of mortgages becoming more expensive, with Taylor Wimpey down 7% and Barratt Developments down 4.8%.
The pound pared back some of this morning’s drops, reaching a peak of $1.09 this afternoon after falling to a record low under $1.04 early this morning.
Chancellor Kwasi Kwarteng has announced more tax and spend measures on the way, with a “Medium Term Fiscal Plan” to be announced in late November with a promise of growth and borrowing forecasts from the Office for Budget Responsibility.
“The Fiscal Plan will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium-term,” number 11 said.
FTSE 100’s fall takes it toward notable lows for the year as Wall Street also declines
14:32 , Michael Hunter
London’s main stock market index was within reach of lows not seen in just over a year in afternoon trade, with US markets unlikely to help lift the mood as Wall Street posted opening declines.
As New York trade began, the FTSE 100 was down almost 40 points at 6978.85, a loss of 0.5%. It left it heading back to its earlyMarch closing low of 6959.48. A fall under that level would leave the index eyeing the close of 6903.91 from September 2021. New York’s S&P 500 fell 8 points in early US trade to 3,686.0.
Wall Street expected to fall as tech heavyweights come under pressure
14:21 , Michael Hunter
New York stocks were heading for an opening fall according to futures trade on Monday, with some of the biggest names in the technology sector under pressure in pre-market trade.
Apple’s shares were called lower after it said it would make the iPhone 14 in India, moving production away from China. That came as Li Auto, the Nasdaq-listed electric vehicle company cut its outlook for the third quarter due to problems in tis supply chain. Amazon was also expected to slip after it said it would offer deeper discounts to some of its loyalty club shoppers from mid October. Apple and Amazon share looked set to fall by between 0.5% and 0.6%, while Li Auto was on course for a decline of over 2%.
Overall, the S&P 500 was expected to lose 17 points to 3692.75.
The pound: how low can it go?
13:33 , Simon Hunt
There is a clear question hanging over the current valuation of the pound remain in dealing rooms from London to New York and Singapore and it is one with a series of important implications for the whole of the UK: How low can the pound go?
Monday’s low took it to $1.035 during Asian trade, a fall of almost 5%. As the European money came in, sterling managed to pare the worst of those losses, but it stayed lower on the day overall, at $1.0815, a fall of 0.4% for the session and levels not touched since the 1970s and also fuelled by a wider trend for a stronger dollar.
UK short-term government borrowing cost hits highest since the financial crisis
12:32 , Michael Hunter
Investors are demanding the biggest return on shor-term loans to the UK government since the great financial crisis, as International markets continue to pass harsh judgement on the government’s overhauled tax and spending plans.
Chancellor Kwasi Kwarteng’s gamble that the biggest package of tax cuts since the 1970s will kickstart growth has already sent the pound to levels last seen then. The prospect of increased issuance of government debt to bridge the fall in income from the cuts has sent the yields on UK Gilts sharply higher, while City experts measure the longer-term implications for the investment case in British assets.
Two-year Gilt yields rose to 4.52%, up by 0.53% on the session. Short-dated debt is often sensitive to the outlook for monetary policy. As well as tracking the wider doubts on the implications of the mini budget, talk of a potential emergency rate hike from the Bank of England, which is not scheduled to hold a Monetary Policy Meeting until November, was also reverberating across dealing rooms around the world.
The last time two-year Gilts yielded over 4.5%, the UK government of Gordon Brown was leading the global response to the financial crisis by using government money to nationalise or part-nationalise major banks, measures that were at first uncosted.
FTSE 100 loses the 7000-point mark as falls for domestic UK stocks offset strength among dollar earners
11:34 , Michael Hunter
The main London stock index fell under the 7000-point mark again, losing momentum from a modest opening rally, as pressure on housebuilders and other domestic UK companies offset gains for big-name exporters.
The FTSE 100 surrendered almost 70 points to 6950.50, a fall of almost 1%.
Housebuilders made the biggest falls, on concern that the Bank of England would have to take more aggressive action on UK interest rates, with the tumble to record lows for the pound stoking talk of an emergency hike.
Persimmon made the biggest single fall on the top-tier UK index, down 105p to 1270p, a fall of almost 8%. Taylor Wimpey was down 7p to 96p, a decline of nearly 7%. Berkeley, the London-focused house builder, lost 190p to 3297p, off by 7%. The Monetary Policy Committee’s next scheduled meeting is in November. Bigger rate rises for longer periods are likely to limit the number of people who can agree mortgages to buy the homes FTSE 100 developers produce.
Exporters made the day’s best gains. Engineering group Melrose Industries added 3p to 103p, up nearly 3%. Smiths Group rose by the same margin to 1530p, up 41p. Rolls-Royce, whose Trent Engines earn revenue in skies around the world, was up 1.3p to 73p, 1.3% higher.
Boohoo becomes Britain’s most-shorted stock
11:33 , Simon Hunt
Boohoo has become the most shorted company in the UK in the latest blow for the firm as it deals with a downturn in sales and a greenwashing investigation by the Competition and Markets Authority.
Disclosed short positions in the online fashion retailer reached 9.47% today, up over 2% on last month according to market insight firm Research Tree. Boohoo shares have fallen 67% since the start of the year.
Boohoo has begun cancelling orders from suppliers amid falling demand for clothes, the Sunday Times reported yesterday. “As is the case across a retail sector navigating uncertain demand, we are constantly reviewing our requirements,” a spokesperson said.
Boohoo sales slowed 8% to £446 million in the three months to May, led by a 28% drop in sales to US customers. Boohoo’s ‘Ready for the Future’ range is being assessed by the CMA on whether its environmentally sustainable claims are inflated.
Unilever chief Jope to quit in latest FTSE departure
11:07 , Simon Hunt
The boss of Britain’s biggest consumer goods company Unilever has announced plans to quit his job, making him the 19th FTSE 100 to announce their departure this year.
Unilever, which makes Marmite, Ben & Jerry’s ice cream and Lynx deodorant said CEO Alan Jope would leave at the end of 2023 and a search to find his successor was underway.
Jope joins the boss of Shell Ben van Beurden and Whitbread boss Alison Brittain all of whom recently announced they were quitting running some of Britain’s biggest companies.
Jope said: “As I approach my fifth year as CEO, and after more than 35 years in Unilever, I believe now is the right time for the board to begin the formal search for my successor.
It comes after the founders of Ben & Jerry’s accused Unilever of breaking the terms of their deal with the pair by selling ice-cream in the Israeli-occupied West Bank.
City Comment: Kami-Kwasi bets it all
10:17 , Simon English
For my money, what’s left of it, the optic of last week has to be this one: hedge fund managers cheering Friday’s budget measures, while betting like fury on the pound getting smashed. Which it did.
We read that the hedgies and other formerly disgruntled Tory donors are anteing up with party donations in support of policies that should make them richer.
And shorting the pound in case the policies don’t work. Well, they are hedge funds.
This must be at least mildly awkward for Kwasi Kwarteng, already getting called Kami-Kwasi.
On the falls in the pound, the chancellor says he can’t discuss market movements.
Of course he can. He means, they are presently such an embarrassment, he’d rather not.
What was striking to me last week was the arch Tories distancing themselves from the budget and the wider philosophy behind it.
I asked one City Tory: what have your lot gone and done now? “They are no longer my lot,” came the reply.
The Sunday Times had an unnamed Tory MP saying of the budget, “everyone who isn’t mad hates it”.
Kwarteng insists his tax cuts are not a gamble, but surely knows that they are.
Let’s take them on that level.
It might work. It might provide enough of a temporary boom to see a recession is averted. At that point, maybe the pound recovers. And maybe the bond markets are no meaner to us than to everyone else.
They get away with it. Champers all round.
In that spirit, a nag called Seven for a Pound is in the 4.20pm at Newcastle this afternoon. The horse had to change its name from Ten For A Pound to reflect inflation. It has won twice in 29 outings. Worth a shot I hear.
FTSE 100 ticks higher with multinationals in demand as weak pound flatters dollar earners
08:11 , Michael Hunter
London’s FTSE 100 ticked higher in opening trade in London, with companies earning foreign currency rallying, on the prospect of the weaker pound flattering their profits when converted from revenue in dollars and euros.
The main London stock index gained 11 points to 7029.85, a rise of 0.2%, which stood out as continental European bourses slipped by similar margins.
Multinationals took up prominent slots on the leaderboard, with global consumer goods giant Unilever at the top, up over 3% at 4154p. GSK, the vaccine maker, was 2.4% stronger at 1345p. Diageo, the worldwide exporter of premium drinks brands gained 1.5% to 3833p. The biggest losses came for companies more exposed to the domestic UK economy. Housebuilders made the biggest single losses, on concern that the potential inflationary impact of the government’s tax cuts making bigger rate rises from the Bank of England more likely, making mortages more expensive. Persimmon fell 5.5% to 1299p and was the biggest single faller. Taylor Wimpey was down 2.8% at 100p.
London-listed companies with costs in dollars also stood out. IAG, the parent of British Airways, fell 3% to 100p.
FTSE 100 expected to open higher
07:51 , Michael Hunter
Opening calls for the FTSE 100 expected the top tier of the London stock market to make gains, with its multinational companies earning revenue in dollars and booking profit in sterling set to benefit from the weaker pound.
According to IG Index, the FTSE 100 was on course for an opening rise of almost 17 points, or 0.2%. Continental European stock markets were expected to fall by about the same margin.
Pound slumps to record low under $1.04
07:27 , Michael Hunter
London traders logged on to find the pound has touched its lowest level against the dollar since the 1970s -- down by almost 5% during Asian trade to a low under $1.04, as international markets continued to dump the UK currency after the government’s mini-budget.
Concern about the impact of the biggest package of tax cuts in a generation on the UK’s public finances continued to set the tone to trade after government borrowing costs spiked higher after the measures were outlined by Kwasi Kwarteng, the chancellor, on Friday.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “The pound has been on a fast downwards track of a rollercoaster, plunging to record lows yet again this morning, as confidence in the government’s economic management continues to evaporate.
“But comments by Chancellor Kwasi Kwarteng that he will go even further with historic tax cuts, which are already being criticised as reckless, have added to the anxiety. The worry is that not only will borrowing balloon to eye watering levels, but that the fires of inflation will be fanned further by this tax giveaway, which offers higher earners the bigger tax break.”