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- FTSE 100 down 104 points at 7,504
- BAE Systems climbs after £3.95 billion contract win
- House prices flatline in September, says Nationwide
4:40pm: FTSE falls as US bonds sell-off resumes
The FTSE 100 fell heavily in late trading as US markets fell back in early exchanges.
London’s lead index closed down 97.36 points, 1.3%, at 7,510.72 while the FTSE 250 fell 302.13 points, 1.7%, at 17,977.29.
Michael Hewson at CMC Markets UK sid: “It’s been a disappointing start to the new quarter and the week for European markets with broad weakness across the board with the agreement of a deal to avert a US government shutdown serving to push US yields higher, along with the US dollar.”
“The calculus here appears to be that this deal, while averting a crisis of confidence in US governance, shifts attention back to the resilience of the US economy, and the prospect of further rate hikes from the Federal Reserve.”
IHG was the top riser as Jefferies recommended buying the stock while a £4 billion order win and an upgrade to buy from Berenberg lifted BAE Systems.
Heading south was NatWest after a Morgan Stanley (NYSE:MS) downgrade.
3:55pm: Pendragon sweetens terms of Lithia Motors deal
Late in the day and the battle for control of Pendragon PLC has taken another twist after it sweetened the terms of its deal with Lithia Motors.
Lithia has agreed to pay £367 million for Pendragon’s UK motor business and leasing business, a 42% increase from the original £250 million plan.
Shareholders are expected to receive a 24.5p cash dividend, a 49% increase, as part of the deal taking the implied total initial value to around 35.4p per share.
The Nottingham-based car dealership said the transaction structure provides substantial upside for Pendragon shareholders through enhanced growth prospects for Pinewood as a standalone, pure-play SaaS business and through the strategic partnership.
The deal has the backing of 28% of Pendragon shareholders and has been backed by the board.
Since Pendragon initially unveiled its deal with Lithia it has been the subject of takeover interest.
Bid proposals worth 32p per share have been forthcoming from a AutoNation and a joint proposal from Hedin Mobility and PAG International.
Shares in Pendragon rose 4.8% to 34.89p.
3:12pm: Thames Water customers to pay price of funding investment
Thames Water customers could face a £174/year increase in bills as the troubled utility looks to cut spills and leaks.
The firm, which secured a £750 million lifeline from shareholders in August, plans to invest £18.7 billion including £4.7 billion investment in its network.
Thames said it would prioritise “storm overflows, bathing water status and reducing leaks and pollutions,” as part of the cash splurge but it looks like customers will be footing the bill.
While Thames said it has “choices” about exactly how “we recover the costs of providing life’s essential service over the next period,” both involved customers forking out more cash.
Option one was a ‘rise and flat’ bill profile during 2025-2030, where the average monthly bill will rise by £14.55.
Alternatively, Thanes said it could introduce lower bill increases at the start of the next price control period, but this would mean steeper rises over time.
The firm is looking to reduce storm overflows by 28%, blockages caused by sewer misuse by 15% and the total number of pollution incidents by 30%.
Thames said it was assuming no dividends would be paid to external shareholders during asset management period 8 which starts in 2025.
2:43pm: Mixed picture on Wall Street
It’s been a mixed start across the pond with tech stocks higher and blue chips failing to fire, so far.
Shortly after the opening bell, the Dow Jones Industrial Average was down 18.13, 0.1%, at 33,489.37, the S&P 500 was little changed at 4,289.49 while the Nasdaq Composite rose 42.96 points, 0.3%, at 13,262.28.
Shares of electric vehicle maker Tesla fell 2.5% after reporting a drop in total production and delivery volumes for the third quarter, but industry rival Rivian Automotive fared betterm up 1.2% after reporting better-than-expected electric vehicle deliveries in the previous quarter.
Birkenstock plans to price its shares between $44 and $49 each in its upcoming initial public offering (IPO) in New York, seeking a valuation of up to $9.2 billion, as it presses ahead with plans for its market debut.
About 32.26 million shares will be sold in the IPO by the German sandal maker and its selling stockholders to raise $1.58 billion, according to a filing with the US Securities and Exchange Commission (SEC).
2:15pm: Rolls-Royce on mini-nuke shortlist
Rolls-Royce Holdings PLC (LSE:RR.) and France’s EDF are on a shortlist of nuclear energy companies in the running to win government support for their small modular reactor designs.
Six companies will progress to the next round of the competition, which will see them bid for contracts to build demonstrator power plants.
The winning bidders, with an unconfirmed number of contracts available, will be announced in the spring, the Government said on Monday.
They would be expected to deploy the first so-called mini-nukes in the 2030s.
Rolls-Royce, the British engineer that has been developing designs based on the reactors it makes for nuclear-powered submarines, and NuScale Power, a US start-up that has had designs approved by US regulators, are among those vying for the contracts.
The remaining bidders are France’s EDF, GE-Hitachi Nuclear Energy, Holtec Britain and Westinghouse.
1.35pm: Here’s a recap of the top risers and fallers on the junior market today
Thruvison Group plc tumbled 17% as the security screening firm warned an expected order from US Customs and Border Protection (CBP) has not materialised due to the budget wrangles in the United States.
XP Power Ltd (LSE:XPP) crashed 45% following the release of the electronic component manufacturer’s latest trading update.
Futura Medical PLC (AIM:FUM, OTC:FAMDF), a pharmaceutical company specialising in sexual health products, has witnessed a 3% increase in its share price after securing a pivotal patent from the European Patent Office for MED3000, its erectile dysfunction (ED) gel.
IMC Exploration Group PLC (LSE:IMC) shares jumped by 40% as the prospectus for its proposed reverse takeover of MVI Ireland was approved by the FCA and published.
Orcadian Energy PLC (AIM:ORCA) shares climbed over 8% on Monday after the North Sea firm announced results of its latest fundraising round and hinted to news on prospective licences.
1:03pm: Eurozone manufacturing sector remains in the doldrums
A raft of manufacturing PMIs releases out today, and the news was no better in the eirozone.
The latest poll of purchasing managers across the euro area found that the eurozone manufacturing economy continued to contract at a sharp rate at the end of the third quarter.
The latest HCOB PMI data found considerable weakness across the sector, with new orders continuing to shrink at one of the fastest paces since the survey began in 1997.
#Eurozone manufacturers continued to report a sharp contraction in September, the @HCOB_economics #PMI signalled (43.4), as new orders shrank at one of the fastest rates since the survey began in 1997. Read more: https://t.co/JZvQoE3Kgb pic.twitter.com/e3Mj1DJuGV
— S&P Global PMI™ (@SPGlobalPMI) October 2, 2023
Firms cut back on job numbers, bought fewer components and less raw materials, and also ran down their inventories, even though input costs fell sharply yet again.
This pulled the HCOB eurozone manufacturing PMI down to 43.4, from August’s 43.5, which shows a sharper contraction.
Germany’s factory sector suffered a faster drop in activity, with output there falling at the fastest rate in almost three-and-a-half years.
12:36pm: Confidence in Moonpig “undimmed,” says Jefferies
Moonpig shares are a firm feature, rising 3.9% to 169.60p after positive comments from Jefferies.
The bank reiterated a buy rating after the online greeting card retailer’s recent solid AGM statement and after it hosted an upbeat ‘fireside chat.”
“Our confidence in the investment story is undimmed,” the broker said.
“Innovation is extending the group’s product advantage, market share continues to grow, and we see clear underpins to support an acceleration in top-line trajectory into double-digits from H2’24,” it said.
“The shares have had a good recent run, but we see more to go for given the proven resilience and medium term growth potential,” Jefferies added.
It has a 240p price target.
12:05pm: Modest gains expected on Wall Street
The market in London has stabilised ahead of the open in the US, down 26 points at 7,582.
US stocks are expected to make cautious progress on Monday after policymakers came to a temporary agreement that staved off a government shutdown.
In pre-market trading, futures for the Dow Jones Industrial Average were flat, while those for the S&P 500 rose 0.1%, and contracts for the Nasdaq 100 futures were up 0.2%.
Federal Reserve chair Jerome Powell is due to speak at a roundtable discussion alongside Philadelphia Fed President Patrick Harker.
Investors will be keen to hear any comments on interest rates and the state of the US economy after New York Fed boss John Williams suggested Friday interest rates should stay high for some time.
Today’s econ0mic data sees The Institute for Supply Management’s manufacturing index which is forecast to have edged up 0.3 percentage points to a reading of 47.9 from August, remaining in contractionary territory.
Another key focus for the week will updates on the health of the labour market.
JOLTS job opening figures, ADP private payrolls data and weekly jobless claims number all come before the employment report on Friday as investors assess whether the Federal Reserve’s interest rate increases are feeding slowing the so-far resilient jobs market.
11:25am: Citi upgrades Antofagasta to buy
Antofagasta has been pushed by investment bank Citi today, helping shares rise 2.2%.
The broker has upgraded its rating on the miner to buy.
It said the “investment case is driven as much by recovery in copper production adding 26% to the 2023 forecast Ebitda over 2 years, as it is by copper price.”
The broker pointed out the 4% annualized miss versus guidance made the market sceptical of sharp recovery.
But it explained there are projects completed/near completion for a 100-110kt of incremental output in the near term, also providing some buffer for ramp up issues.
“Earnings recovery ahead of global peers and compelling valuation on 24E drives our rating upgrade to buy,” the bank said.
10:53am: BAE Systems receives double boost
BAE Systems – already buoyed by news of a £3.95 billion contract win – has been upgraded by Berenberg to buy with a 1,170p price target.
“We upgrade BAE Systems to buy to reflect signs of a pivot in capital allocation towards strategic M&A, in addition to maintaining appropriate returns to shareholders, and our expectation that BAE will deliver a 10% EPS CAGR over 2023-27,” it said.
The recent $5.6 billion acquisition of Ball Aerospace accelerates BAE’s exposure into the space domain, an area where the company was under-exposed, and Berenberg thinks the financial assumptions of the deal are conservative.
“Strong order intake is also increasing outer-year visibility and gives us confidence that we are entering a step-change in organic growth over the next five years,” it said.
Against this backdrop, the shares offer “good value,” it said, trading on 15.7x 2023 P/E for a 10% EPS CAGR over 2023-27.
The price target moved to 1,170p from 1,050p.
10:24am: John Lewis confirms White to leave
John Lewis has now confirmed that Sharon White, has today asked the partnership board to initiate the process to appoint a successor as she enters the latter stages of her five-year term.
The BBC broke the news earlier.
White said: “Having led the partnership through the pandemic and the worst of the cost of living crisis, it is important that there is now a smooth and orderly succession process and handover.”
“The Partnership is making progress in its modernisation and transformation with improving results. There is a long road ahead and I am committed to handing on the strongest possible partnership to my successor.”
9:46am: UK manufacturing sector shrinks for seventh month in a row
The downturn in the UK manufacturing sector continued in September albeit at a slower pace, a report has showed.
The seasonally adjusted S&P Global/CIPS UK manufacturing purchasing managers’ index posted 44.3 in September, up slightly from August’s 39-month low of 43.0, but still among the weakest readings seen over the past 14 years.
All five of the sub-indices comprising the PMI (new orders, output, employment, stocks of purchases and supplier delivery times) were consistent with a weakening of underlying sector performance, the report showed.
The @cipsnews #UK Manufacturing PMI picked up to 44.3 in September (Aug: 43.0) but continued to signal a marked deterioration in the goods producing sector, with output, new orders and employment all scaled back. Read more: https://t.co/CMvvAxpJP3 pic.twitter.com/88NZ3eCTWp
— S&P Global PMI™ (@SPGlobalPMI) October 2, 2023
It was seventh successive month that manufacturing output declined, as companies cut back production in response to lower order intakes.
Demand was impacted negatively by ongoing market uncertainty, the cost-of-living crisis and weak conditions in overseas markets, the report showed.
New export business contracted for the twentieth successive month in September, with reports of lower demand from within Europe, the US, mainland China and Brazil.
The biggest drains on export market conditions were client uncertainty and the subdued global economic situation.
9:33am: John Lewis chair not to seek second term, says BBC
Away from the markets and a bit of business news from the BBC’s business editor, Simon Jack.
He is reporting Dame Sharon White will stand down as chair of John Lewis Partnership.
She has initiated talks with the board of the John Lewis Partnership to appoint her successor, he said.
1/ Scoop. Dame Sharon White to stand down as Chair of John Lewis Partenership. She has initiated talks with the board of the John Lewis Partnership to appoint her successor.
The Chair of JLP serves 5 yr terms. Sharon White’s term ends next year and she will not seek a second..
— Simon Jack (@BBCSimonJack) October 2, 2023
The chair of JLP serves a 5 year term, Sharon White’s term ends next year and she will not seek a second, Jack reported.
“People familiar with the matter say that she is leaving at a moment when she considers the worst of the cost of living crisis to be over and now is the time to seek an orderly succession,” Jack added.
9:29am: United Utilities puts “money where its mouth is”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown thinks United Utilities is putting its “money where its mouth is.”
The group provides water and wastewater services across the Northwest of England and is planning to invest £13.7 billion into cleaning up its act across 2025-2030, which Chiekrie notes even the firm describes as an “ambitious and stretching target.”
He pointed out replacing over 925km of pipes is no mean feat, but once complete this should drastically reduce the amount of sewage being spilt into rivers and seas – something which utility companies have been heavily criticised for in the news lately.
“But all this begs the question of where the money’s coming from,” Chiekrie said.
He explained £1.35 billion of the cash will come from issuing new equity shares while just shy of £4 billion will come from issuing debt and should keep gearing at around 63%, towards the top of the group’s target range.
“This might cause some issues and uncertainty for investors in the short term,” he said.
“But today’s investment plan will increase United Utilities regulatory asset base by around 50%.”
“Given that the revenue United Utilities is allowed to earn is based on this figure, it should help bring cash in the door over the long term.”
9:10am: BAE Systems climbs on £4 billion sub contract win
A bit more on the BAE Systems PLC (LSE:BA.) contract win.
The defence manufacturer has been awarded a £3.95 billion contract from The Ministry of Defence for the next phase of the UK’s next-generation nuclear-powered attack submarine programme, known as SSN-AUKUS.
The funding follows the AUKUS announcement in March by the leaders of Australia, the UK and the US.
We’ve been awarded multi-billion pound funding to deliver the next phase of SSN-AUKUS, the UK’s next-generation attack submarine programme – the largest, most advanced and powerful attack submarines the Royal Navy has ever operated.
Find out more: https://t.co/hHzDIlYokd pic.twitter.com/klTFbFF8eS
— BAE Systems (@BAESystemsplc) October 1, 2023
BAE said the £3.95 billion funding will cover development work to 2028, enabling it to move into the detailed design phase of the programme and begin to procure long-lead items.
Manufacture will start towards the end of the decade with the first SSN-AUKUS boat due to be delivered in the late 2030s, BAE said.
Chief executive Charles Woodburn said: “We’re incredibly proud of our role in the delivery of this vitally important, tri-nation submarine programme.”
“This funding reinforces the Government’s support to our UK submarine enterprise and allows us to mature the design, and invest in critical skills and infrastructure to support our long-term national security.”
8:45am: BAE advances after awarded bumper contract
It’s a positive start to the day with the FTSE 100 up 17 points at 7,625.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “With a US government shutdown averted for now, it has brought a measure of relief, helping the FTSE 100 step into October with a nudge of positivity in early trade.”
BAE Systems tops the blue-chip risers, up 2.2%, after it won a £3.95 billion submarine contract from the Ministry of Defence for the next phase of the UK’s next-generation nuclear-powered attack submarine programme.
Broker Berenberg added to the positive mood by upgrading the company to buy from hold.
Antofagasta is up 2.1% after broker Citi upgraded to buy, while Melrose Industries rose 1.6% after it started a £500 million share buy-back.
But heading the other way was NatWest Group PLC (LSE:NWG), down 1.2% as Morgan Stanley (NYSE:MS) downgraded to equal weight with a 310p price target.
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.
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