8:15am: FTSE up; house prices surprise on the upside

The FTSE 100 climed in early exchanges on better news for the beleagured UK housing market and as the US avoided a government shutdown over the weekend.

At 8:15am, London’s blue-chip index was up 14.96 points, 0.2%, at 7,623.04 while the FTSE 250 jumped 108.67, 0.6%, at 18,388.09. 

Richard Hunter, head of markets at interactive investor said: “The early indications are that US markets could open the new quarter in more positive territory, as US legislators were able to enforce a temporary measure to avoid shutdown over the weekend.”

“While the measure effectively kicks the can down the road in terms of the final decision, there could well be some shorter-term relief following the announcement,” he added.

House prices were flat, after recent falls, in September, according to lender Nationwide, although they were still 5.3% lower on an annual basis.

The EY ITEM Club said the figures “surprised to the upside” and thinks the outlook for the housing market has improved “a little.”

The economic thinktank explained interest rates look to have peaked “much lower than many had expected only a few months ago.”

“This has led investors to rein back rate expectations and a drifting down in quoted mortgage rates in recent weeks.”

“And with pay growth still strong, the ratio of house prices to earnings is continuing to fall, thus improving affordability in some respects,” it said.

Nonetheless, “these positives are likely to be overshadowed by the sheer scale of the rise in mortgage rates over the last 18 months, a weakening labour market and a gloomy narrative around the outlook for the housing market.”

The news gave housebuilders a lift with Barratt Developments PLC (LSE:BDEV) up 0.5%, Bellway PLC (LSE:BWY) up 0.5% and Taylor Wimpey up 0.4%.

Utilities Pennon Group PLC (LSE:PNN, OTC:PEGRY) and United Utilities jumped 3.3% and 1.8% respectively after they unveiled investment plans to tackle spills and leaks.

7:58am: House prices unchanged in September, says Nationwide

House prices remained under pressure in September, according to figures from Nationwide.

In its monthly house price index, the lender said average UK house prices fell by 5.3% in the year to September, or around £14,500, as high interest rates hit affordability.

That matched the 5.3% drop in August, on Nationwide’s gauge of the housing market, which was the weakest rate since July 2009, it said.

On a monthly basis, price were flat in September on a seasonally adjusted basis, Nationwide said, with the average house price now £257,808.

Annual & monthly house price growth remains unchanged on Aug, stagnating avg house prices in Sep 23 at £257,808 – down 5.3% year on year (£14,500.) Over Q3 though, all regions recorded price falls that ranged from 1.7% in Northern Ireland to 6.3% in the South West @AskNationwide pic.twitter.com/j66AvqwF1o

— Emma Fildes (@emmafildes) October 2, 2023

Robert Gardner, Nationwide’s chief economist, said falling affordability is hitting house prices: “Housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, c.30% below the monthly average prevailing in 2019 before the pandemic struck.”

“This relatively subdued picture is not surprising given the more challenging picture for housing affordability.”

7:50am: Unitied Utilities pledges to cut spills and hosepipe bans

Following Pennon comes United Utilities PLC, which unveiled plans for £13.7 billion of investment as it pledged the UK’s biggest spill reduction plan and halve hosepipe bans.

The utility firm said this would drive significant regulated capital value growth at 8.7% per annum, equating to over 50% nominal across the period.

United Utilities said gearing at 58% provides flexibility to finance the full plan with average gearing of 65% over the asset management plan (AMP), based on Ofwat’s weighted average cost of capital assumptions, and without assuming new equity.

Chief executive Louise Beardmore said: “What’s clear is that we need to improve services for customers and the environment.”

“That’s why we are proposing the largest investment in water and wastewater infrastructure in over 100 years, with £13.7 billion planned between 2025 and 2030 to build a stronger, greener and healthier North West for everyone.”

The company said its submission to Ofwat assumes that the programme is funded with equity and debt, with equity sized to maintain the current A3 rating with Moody’s /A- senior unsecured debt rating with Fitch.

Adopting Ofwat’s ‘early view’ cost of capital, UU said its business plan assumes notional equity of £1.35 billion, out of a total capital requirement of around £5.2 billion. This gives rise to average gearing across the AMP of 63%.

Alongside the investment plans, the firm said current trading is in line with expectations.

7:30am: Pennon trading in line, unveils investment package

Pennon Group PLC reported trading is in line with expectations as it unveiled a £2.8 billion investment package between 2025-20230 at South West Water.

It became the latest utility to submit business plans to Ofwat, following Severn Trent on Friday.

The package of capital investments outlined are built around addressing four key challenges; storm overflows and pollutions, water quality and water resilience, delivering Net Zero and environmental gains, whilst ensuring bills remain affordable for all.

Updating investors on trading for the six months ended September 30, Pennon said it was on track to deliver significant environmental investment plan with capex of over £400 million for 2023/24 and well positioned to continue to deliver a cumulative doubling of return on regulated equity base returns to 2023/24.

The firm said efforts to improve its environmental performance are having a positive impact, and as result Pennon anticipates a reduction in the net outcome delivery incentives penalty for 2023/24.

Given the current macro-environment the company anticipates higher regulated capital value (RCV) growth reflecting updated forward assumptions on inflation.

Factoring in this, it anticipates an opening RCV of c.£5.4 billion at the beginning of the next regulatory period (2025-30), around £200 million additional value on previous guidance which would broadly equate to a c.2.5% reduction in gearing.

Pennon expects gearing to remain within its well-established range of 55-65%.

7:00am: Flat start expected in London

The FTSE 100 is expected to open slightly lower on Monday despite welcome news that a US government shutdown was averted over the weekend.

Spread betting companies are calling London’s lead index down by around 7 points after closing up 6.23 points at 7,608.08 on Friday.

Ipek Ozkardeskaya at Swissquote Bank said: “The US government didn’t shut down yesterday, as US policymakers agreed on a short-term funding deal that will keep the lights on until November 17th.”

“But the new deal excludes any new aid package for Ukraine – which is a key demand from Democrats.”

“Therefore, the political headache in the US is not over, but the politicians bought themselves a couple of weeks to try to find a better solution,” she added.

Monday’s economic focus will be a batch of purchasing managers’ index readings from the eurozone, UK and the US.

In China, business activity rose marginally in September, according to the latest survey data from Caixin. The composite purchasing managers’ index, which measures the manufacturing and services sectors, eased to 50.9 points in September from 51.7 the month before. The services PMI fell to 50.2 from 51.8, while manufacturing fell to 50.6 from 51.0.