• FTSE 100 closes down a shade
  • Entain suffers profit taking
  • Wall Street shares ahead

5.15pm: FTSE closes slightly in red

FTSE 100 index closed a shade lower on Thursday, while US benchmarks headed higher, after the Bank of England kept interest rates on hold.

Britain’s blue-chip benchmark closed down around five points lower, or 0.07%, at 7,087.

Conversely, the more UK PLC – focused FTSE 250 rose over 34 points, or 0.19%, at 23,830.

“To all intents and purposes it looks like the ‘Evergrande Debt Panic’ of September 2021 is at an end,” said Chris Beauchamp, chief market analyst at online trading group IG.

“US markets are now above where they opened on Monday, and are doing a good job of eating into the losses suffered last Friday too. Meanwhile in Europe the buying continues, although the FTSE 100 has suffered a modest reversal from the highs of the day. After such a promising start, the bears have fumbled the ball once again, and with astonishing ruthlessness the buyers have picked it up and run away with it,” he added.

“Today’s BoE meeting produced little in the way of concrete changes, and it still believes that price rises will moderate next year, essentially a recognition that even if they did raise rates it wouldn’t really do much at present to slow the rise in prices.”

3.50pm: Rolls-Royce leading riser after upgrade

Leading shares are drifting as investors digest the hints of possible monetary tightening given by the Bank of England in its latest report.

It said that in August it believed “some modest tightening of monetary policy over the forecast period was likely to be necessary” to meet its 2% inflation target.

Now it added: “Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain.”

It believes inflation may now rise slightly above 4% in the fourth quarter of this year, thanks to the much publicised jump in energy prices.

So despite Wall Street storming ahead in a positive response to the Federal Reserve’s comments on Wednesday – the Dow Jones Industrial Average is now up 1.29% or 442 points – the UK blue chip index is pretty much flatlining.

After moving as high as 7131, the FTSE 100 is now up just 2.22 points or 0.031% at 7085.59, as the pound strengthens on those Bank hints.

Sterling is up 0.95% at $1.3746, which means that several overseas earners in the leading index are suffering due to their exposure to the exchange rate.

But dollar earner Rolls-Royce Holdings PLC (LSE:RR.) is an exception. The aero engine maker rose 3.08% to become the day’s biggest riser as analysts at Berenberg raised their price target from 150p to 160p and issued a buy recommendation.

Meanwhile the prospect of higher UK rates has helping the banking sector.

Lloyds Banking Group PLC (LSE:LLOY) has been lifted by 2.23%, Barclays PLC (LSE:BARC) is 1.44% better and NatWest Group PLC (LSE:NWG) is up 1.31%.

But Entain PLC (LSE:ENT) is down 4.17%. There has been a spate of profit taking after shares in the Ladbrokes and Coral owner soared on news of a proposed bid from US group Draftkings.

And Hargreaves Lansdown PLC (LSE:HL.) is down 1.46% after its shares went ex-dividend.

The more domestically focused FTSE 250 is outperforming the leading index, up 0.23%.

Michael Hewson, chief market analyst at CMC Markets UK, said: “It’s been another positive day for European markets, up for the third day in a row, despite evidence that the broader economy is slowing. The FTSE100 for its part has done its best to reprise its role as the perennial party pooper, sliding back from its intraday highs, and struggling to close in positive territory. Some of that may be down to the sharp rise in the pound, and sharp rise in gilt yields.”

2.51pm: US economic growth slows

After the worse than expected US jobless claims comes a weaker than expected economic survey.

The IHS Markit manufacturing and services PMIs for September have both come in below the previous month and below forecasts.

Markit said: “Private sector firms in the US signalled a solid expansion in output during September, albeit at the slowest pace for a year and one that was much softer than that seen at the start of the summer.

“The overall upturn was weighed on by the weakest increase in service sector business activity in the current 14-month sequence of growth.”

Chris Williamson, chief business economist at IHS Markit, added: “The pace of US economic growth cooled further in September, having soared in the second quarter, reflecting a combination of peaking demand, supply chain delays and labour shortages

“The slowdown was led by a cooling of demand in the service sector, linked in part to the Delta variant spread. However, while manufacturers have seen far more resilient demand, factories face growing problems in sourcing enough supplies and labour to meet orders.

“Supply chain delays show no signs of easing, with another near-record lengthening of delivery times in September. Hence factory output growth also weakened and order book backlogs rose at a record pace in September.

“The upshot is yet another month of sharply rising prices charged for goods and services as demand outpaces supply, and higher costs are passed on to customers.”

2.45pm: US investors welcome Fed talk

Wall Street has opened sharply higher as investors welcomed a little bit of certainty from the Federal Reserve, and shrugged off worries about the possible collapse of China’s Evergrande.

The Dow Jones Industrial Average has jumped 1.04% or 356.94 to 34,615.26 while the S&P 500 is up 0.88% and the Nasdaq Composite 0.63%.

That has helped pull the FTSE 100 back into positive territory, although not by much.

The UK blue chip index is now up 7.88 points or 0.11% at 7091.25.

1.35pm: US jobless claims rise unexpectedly

US jobless claims saw a surprise jump last week.

The number of Americans seeking unemploment benefit rose from 335,000 in the previous week – itself revised upwards by 3,000 – to 351,000.

Analysts had been expecting a fall to 320,000.

The four week moving average fell by 750 to 335,750.

1.20pm: Leading shares turn lower

The earlier optimism appears to have faded now.

The FTSE 100 has dipped into negative territory, down 4.45 points at 7078.92 after the pound strengthened in the wake of the Bank of England report.

James Bentley, director of Financial Markets Online, said: “The Bank’s hints at a gradual tightening of monetary policy over the medium term have given sterling a shot in the arm. While UK equities are treading water, the prospect of a rate rise early next year has pumped up the pound against both the dollar and the euro.”

1.02pm: Bank reluctant to remove “comfort blanket”

More on the Bank of England‘s decision to keep interest rates on hold and maintain its bond buying programme (for now).

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ”Given the troubles stacking up for the UK economy, it’s not a surprise that the Bank of England has opted for the least worst option which right now is to do nothing, and make no changes to monetary policy. The fact that there was unanimous agreement around the table at the monetary policy committee not to raise rates highlights the conundrum facing policymakers. They have a particularly difficult puzzle to piece together right now because rising prices are now acting as a drag on the economic recovery, which limits their room for immediate manoeuvre on action to curb soaring inflation. In just a month pressures have mounted so much that the Bank is now downgrading its forecast of economic growth for the third quarter by 1%…

“There was dissent on continuing the current scale of the mass bond buying programme which has kept cheap money washing around the financial system. Two members voted against continuing with the existing programme, and there are hints that tinkering with monetary policy here is on the agenda, but no clear timetable was set. The Bank is taking a softly softly approach, not wanting to be seen to be even thinking about whipping away the comfort blanket wrapped around financial markets just yet for fear of provoking any kind of taper tantrum.”

12.41pm: Sterling bolstered by central bank comments

The pound has risen after the Bank of England report.

Suggesting the currency markets have taken note about the talk of tightening monetary policy, sterling is up 0.7% at $1.3712.

Immediatly before the Bank statement it was at $1.3679.

12.32pm: US markets pleased with Fed news

Wall Street is expected to add to its recent gains when trading begins later.

Having risen by 1% on Wednesday, the Dow Jones Industrial Average is forecast to open around 164 points or 0.46% higher. The S&P 500 futures are predicting a 0.51% gain while the tech-heavy Nasdaq Composite indicated 0.55% higher.

Investors seem to have been mollified by the Federal Reserve keeping its support for the economy in place for a little longer, even if there were hints that it might start tapering its bond buying later this year and that interest rates could rise next year.

Before the open come the latest weekly jobless claims.

Analysts are forecasting a fall from 332,000 to 320,000 as the US economy continues to recover.

The concerns about the possible collapse of Chinese property developer Evergrande have also eased, but that situation could of course easily change. The company has to pay US$83mln on a dollar-denominated bond which is due today.

Back in the UK and the FTSE 100 is barely changed after the Bank of England‘s latest update.

Having hit a high of 7131 earlier, the blue chip index is now up just 2.11 points at 7085.48.

12.21pm: Bank comments on interest rate increase

On interest rates, the Bank said: “All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme.”

That programme is due to continue until around the end of next year, but two members wanted to stop it as soon as practical after the meeting.

Dave Ramsden joined Michael Saunders in opposing the majority view, and called for the target for government bond buying to be cut from GBP875bn to GBP840bn at once.

The Bank said: “For two members, the economic outlook warranted a tightening in the monetary policy stance at this MPC meeting. There was increasing evidence from a range of global and domestic cost and price indicators that inflationary pressures were likely to persist. Record vacancy levels and the pace of underlying wage growth were evidence of ongoing tightness in labour market conditions, alongside other signs of capacity pressures.

“These members judged that, with the existing policy stance, inflation was likely to remain above the 2% target in the medium term. This reflected a greater impact from cost pressures, and the prospect of a larger and more persistent level of excess demand in the United Kingdom than in the central forecast in the August Report…

“Continuing with asset purchases when CPI inflation was above 3% and the output gap was closed might cause medium-term inflation expectations to drift up further. A decision to curtail the asset purchase programme at this meeting would imply a modest policy tightening and mitigate that risk, which might otherwise ultimately necessitate a more abrupt subsequent tightening in policy and hence a greater adjustment in growth and employment.”

12.08pm: Investors weigh up Bank report

The Bank of England has held interest rates at 0.1% and kept its bond buying programme at GBP895bn.

These are both as expected.

But another member has voted against the quantitative easing decision, meaning the split is now 7-2 rather than the 7-1 in August.

And there are hints about a tightening of monetary policy.

The Bank said “At its previous meeting, the Committee judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.

“Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain.

“The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations.

“At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate.”

It admitted that the pace of recovery of global activity had shown signs of slowing since its August meeting.

So it has revised down its expectations for UK GDP in the third quarter by 1% as a result, leaving it around 2.5% below its pre-COVID-19 level.

It had expected inflation to reach 4% in the fourth quarter of this year, but now reckons rising energy costs will push it slightly above 4%.

The FTSE 100 is now up just 6.61 points or 0.09% at 7089.98 as investors digest the report.

11.50am: Investors edgy ahead of rate news

With the Bank of England‘s latest report due shortly, leading shares have come off their best levels.

As investors wait to see what the UK central bank says about a possible easing of its bond buying programme, not to mention any comments about interest rates, the FTSE 100 is now up just 9.04 points or 0.13% at 7092.41.

Earlier it reached a high of 7131.

Reports that China is preparing for a potential collapse of beleaguered property developer Evergrande are not helping sentiment.

10.50am: Recovery cheer for pubs

The market is toasting signs of the glass being half full rather than half empty for the struggling pub sector.

Mitchells & Butlers (LSE:MAB) PLC said sales had recovered almost to 2019 levels following the reopening of pubs in May, although food-focused outlets did better than drinks-led sites.

Meanwhile Fuller Smith & Turner PLC was also more positive, saying trading had been steadily increasing with like-for-like sales for the seven weeks to 18 September at 86% of 2019 levels. Its rural pubs benefited from people taking domestic holidays, while it has also started to see growth in central London as office workers return.

AJ Bell investment director Russ Mould.said: “Fans of Shaun of the Dead may have been disappointed that, unlike the stars of the film, sitting out the pandemic in their local until it all blew over wasn’t an option. Now punters are permitted to head back to the pub it looks like they are doing so in decent numbers.

“Judging by the latest updates from pubs groups Mitchells & Butlers (LSE:MAB) and Fuller, Smith & Turner it is food-led rural and out-of-town venues which are leading the way, helped by a big surge in domestic tourism and the fact they typically enjoy greater amounts of outdoor space.

“Trading is still soggy for wet-led city centre establishments, though there are at least signs of that situation improving, particularly in Fullers’ central London estate…

“Pubs are doing what they can to make patrons feel comfortable with the idea of returning and of preparing for what could be a more difficult winter.

“However, there’s no escaping the reality that the whole sector could face a difficult few months of uncertainty given the sceptre of reintroduced restrictions or even just increased levels of infection reducing peoples’ ability or willingness to go out and have a few pints.”

Mitchells’ shares are up 2.21% at 268.6p while Fuller is 1.97% better at 744p.

Meanwhile The City Pub Group PLC (AIM:CPC, FRA:6QH) is not so lucky.

Its shares are down 2.58% despite saying sales since May were above 90% of 2019 levels.

It also continued its expansion plans by paying GBP1.7mln in cash and shares for the Cliftonville Hotel. an Edwardian Grade II listed site in Cromer, Norfolk.

9.42am: Heading for stagflation?

The UK economy saw growth slow in September, and by slightly more than expected, according to an initial snapshot of the month.

The latest IHS Markit purchasing managers indices for manufacturing and services both slipped back compared to August.

Markit said: “[The data] signalled a further loss of growth momentum in the UK private sector at the end of the third quarter. Rates of expansion in both output and new orders were each the weakest in the respective seven-month sequences of growth. The rate of job creation remained elevated, however, driven by strong hiring at service providers. Meanwhile, inflationary pressures showed little sign of abating, with input costs up sharply again and charges raised to the greatest extent on record.”

Chris Williamson, chief business economist at IHS Markit, said the report would add to worries that the UK economy is heading towards a bout of stagflation, with growth slipping and prices surging higher.

He said: “While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms. A lack of staff and components were especially widely cited as causing falls in output within the food, drink and vehicle manufacturing sectors.

“Shortages are meanwhile driving up prices at unprecedented rates as firms pass on higher supplier charges and increases in staff pay. Brexit was often cited as having exacerbated global pandemic-related supply and labour market constraints, as well as often being blamed on lost export sales.

“Business expectations for the year ahead are meanwhile down to their lowest since January, with concerns over both supply and demand amid the ongoing pandemic casting a shadow over prospects for the economy as we move into the autumn.”

Over in the eurozone, growth in business activity also slowed in September as companies faced rising prices, supply chain issues and the spread of the Delta variant.

So IHS Markit’s eurozone PMI fell to a five month low of 56.1, down from 59 in August.

The FTSE 100 seems little concerned at the moment, up 36.32 points or 0.51% at 7119.69.

9.25am: Engineers in focus

Engineering groups are among the leading risers in the blue chip index.

Rolls-Royce PLC is up 2.95% while Melrose Industries PLC (LSE:MRO, OTC:MLSPF, FRA:27MA) has put on 1.76%.

But after this week’s bid-fuelled surge in its shares, Ladbrokes and Coral owner Entain PLC (LSE:ENT) has dipped 2.02%.

Hargreaves Lansdown PLC (LSE:HL.) is down 1.42% as its shares go ex-dividend.

9.16am: Big decision for the UK central bank

After the Fed, it is the turn of the Bank of England to show its hand.

But if the US central bank hinted at higher interest rates and the beginning of the end of its support for the economy, the Bank may well be more circumspect.

There is unlikely to be much talk of rate rises, even though a hint on when it starts to ease back on its own bond buying programme could be on the cards.

Michael Hewson at CMC Markets said: “Recent comments from Bank of England governor Andrew Bailey, shone an unexpected light on the deliberations of the Monetary Policy Committee when they last met in August. While everything else was as you were as far as interest rates were concerned, external MPC member Michael Saunders went against the status quo when it came to the bond buying program, voting against the consensus.

“It now turns out that half of the MPC members at that time were much more confident about the UK economy than they were at the previous meeting. In comments to politicians at the beginning of this month, the governor admitted that at least 4 MPC members felt that the recent improvement in basic economic conditions could well be used as justification for a rate rise, although one wasn’t imminent yet.

“This was quite an unexpected moment of candour, as well as insight into the deliberations on the Monetary Policy Committee at the last meeting, and while it doesn’t suggest that policymakers are itching to pull the trigger on a rate move, it can’t be too long before the central bank reins in its bond buying program, with a signal coming as soon as today, although recent events around surging gas prices and energy suppliers going bust might stay their hand.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, also pointed to recent events as a possible brake on the Bank’s plans: ”There has been a bang crash wallop of troubling economic signs this week, which may keep tensions high round the table at Bank of England‘s monetary policy committee today. Members know full well that the economy needs to be weaned off the drug of cheap money, not least to give them options to treat any future crises and to keep a lid on inflation.

“But an interest rate rise any time soon, could tip many borrowers over the edge and into more debt, and put a further break on recovery. Already consumers were faced with rising prices in the shops, but now energy hikes are on the cards as soaring gas prices lead to the collapse of smaller cheaper providers.

“As well as the supply chain crisis, exacerbated by a shortage of labour and bottle necks at ports, the energy crunch is now feeding the fires of inflation. There was a bigger than expected rise in the consumer price index which shot up to 3.2% in July and the bank has already warned that the only way is up for prices over the coming months.

“The crux of the issue is whether these rises are transitory, a mantra which the MPC have overall stubbornly stuck to. Although it increasingly looks like inflation will linger for longer, most committee members are still likely to sit firmly on their hands and play a waiting game until well into next year, even when it comes to rolling back the mass bond buying stimulus programme.”

Too late to make any difference, but ahead of the Bank decision comes a snapshot of the UK economy in the form of the initial purchasing managers survey for September, due imminently.

Meanwhile the FTSE 100 is now up 29.42 points or 0.42% at 7112.79 as investors shrug off the energy crisis and the continuing concerns about the struggling Chinese property developer Evergrande.

8.43am: Footsies adds to recent gains

It was interesting to observe how positively the US markets responded to the Federal Reserve effectively ushering an era of higher interest rates and the imminent tapering of asset buying.

But that apparent certainty is what traders required, it would seem, as the Dow Jones advanced 338 points, or 1%, with the Nasdaq mirroring that movement.

That the FTSE 100 didn’t respond in a more enthusiastic manner to the Fed’s after-hours monthly update probably reflects the fact that the UK benchmark effectively pre-empted the news with a triple-digit gain Wednesday.

On the market, the day’s big corporate update was a bit of a damp squib.

Royal Mail failed to move the dial with its latest trading update. With the shares almost doubled in value in the past year, it has to do a lot more these days to impress the City.

Still, Richard Hunter, head of markets at Interactive Investor, reckoned the update made decent reading.

“In some ways, the pandemic forced Royal Mail’s hand in driving significant change, and the speed and success of this transformation is increasingly evident,” he noted.

“Revenue figures are higher across the board, and notably higher compared to pre-pandemic levels, which the group believes to be evidence of structural change.

“In particular, domestic parcel volumes and revenues are now rebasing at substantially higher levels than seen pre-Covid, suggesting that the explosion of online trading has had an effect on deliveries which has now become entrenched.”

6.50 am: Footsie called higher

The FTSE 100 is set to start Thursday on the front foot, following US markets which last night got a little clarity over the closely eyed taper timetable – and anxiety over the Evergrande crisis and a possible Chinese spill-over receded to the background.

In London, IG Markets sees the FTSE 100 up around 32 points making the price 7,109 to 7,112 with just over an hour to go until the open.

Federal Reserve chair Jerome Powell appeared somewhat hawkish in a press conference last night following the Fed’s monthly meeting, steering market expectations to anticipate changes to reduce central bank stimulus potentially before year-end.

“In its statement the Fed stated that ‘if progress continues broadly as expected, the Committee judges a moderation in the pace of asset purchases may soon be warranted”,” said Michael Hewson, analyst at CMC Markets. “This tees us up for the September payrolls report, to be released on October 8th, and according to Powell, an even half decent report here could be the final piece of the jigsaw for tapering to start in November, with the potential to be all done by the middle of 2022.

“This rather begs the question, why wait until then, if you’re only looking for a semi decent report, unless you are buying time to see how the situation in Washington regarding the debt ceiling plays out, as well as the Evergrande crisis in China.”

On Wall Street the Dow Jones closed 338 points or 1% higher, at 34,258, whilst the S&P 500 similarly gained 0.95% to finish the session at 4,395.

The Nasdaq also added 1.02% to end its trading day at 14,896, whilst the small-cap centred Russell 2,000 index was stronger adding 1.48% to 2,218.

In Asia, Japan’s Nikkei was 0.67% lower at 29,639 whilst Hong Kong’s Hang Seng gained 0.43% to 24,325. Meanwhile, the Shanghai Composite index tacked on 0.37% to 3,641.

Around the markets

The pound: US$1.3642, up 0.15%

Gold: US$1,764 per ounce, down 0.1%

Silver: US$22.65 per ounce, down 0.22%

Brent crude: US$76.36 per barrel, up 2.76%

WTI crude: US$72.40 per barrel, up 2.74%

Bitcoin: US$43,811, up 4.4%

Ethereum: US$3,110, up 8.5%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mixed on Thursday after China’s central bank net-injected the most short-term liquidity in eight months into the financial system.

The People’s Bank of China pumped in 110 billion yuan (US$17 billion) of cash as investors continued to monitor the situation surrounding China Evergrande Group.

China’s Shanghai Composite gained 0.44% while Hong Kong’s Hang Seng index rose 0.72%

In Japan, the Nikkei 225 declined 0.67% and South Korea’s Kospi dropped 0.45%.

Australia welcomed the liquidity infusion in China, with the S&P/ASX 200 surging 1.21% by the last hour of trading.



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