LONDON MARKET CLOSE: BoE plans action as sterling attempts rebound

A volatile session saw stocks close in the red in London on Tuesday, with blue chip housebuilders under pressure, while the Bank of England has said it will step with ‘significant’ monetary policy action at its next meeting in November.

The FTSE 100 index closed down 36.36 points, or 0.5%, at 6,984.59 on Tuesday. The mid-cap FTSE 250 index ended down 418.72 points, or 2.4%, at 17,304.11. The AIM All-Share index closed down 6.54 points, or 0.8%, at 821.35.

The Cboe UK 100 index closed down 0.2% at 697.95. The Cboe 250 ended down 2.2% at 14,826.99, and the Cboe Small Companies closed down 0.9% at 12,753.69.

The CAC 40 stock index in Paris closed down 0.3%, while the DAX 40 in Frankfurt ended 0.7% lower.

After Monday's disastrous session, sterling was staging a rebound on Tuesday but was facing stiff resistance.

Sterling fetched $1.0756 Tuesday evening, up from $1.0655 at the London equities close on Monday.

The Bank of England's chief economist indicated that the markets shock caused by the tax-slashing budget called for a ‘significant’ monetary policy action at its next meeting in November.

‘We have all seen recent significant fiscal news that has had significant market consequences,’ Huw Pill told a London event hosted by UK lender Barclays.

‘It's hard not to draw the conclusion that all this will need a significant monetary policy response.’

In London, housebuilders continued to suffer a sell-off to start the week with possibility of heftier BoE rate hikes hitting the housing market.

Taylor Wimpey lost 7.2%, Barratt 6.5% and Persimmon gave back 4.2%. Online property portal Rightmove closed down 8.9%.

Andrew Wishart, senior property economist at Capital Economics, said: ‘The upward revision to our bank rate forecast means that mortgage rates will rise further and faster than we previously envisaged, to a peak of 4.7% in March. The resulting higher cost of mortgage repayments will make the fall in buyer demand that has already begun worse, and a fall in prices inevitable.’

United Utilities shed 5.6% after it lowered its guidance for the half year ending September 30, due to inflationary pressures and lower consumption.

The Warrington, England-based water and wastewater company said it expects revenue for the first half of the year ending March 31, 2023 to be around 1% lower than the £932.3 million in the first half of financial 2022.

The decline is due to ‘moderately lower than forecast’ consumption. The lower consumption levels are expected to continue into the second half, which will mean full-year revenue will also be lower than previous guidance.

Peer SSE lost 7.3%.

In the midcaps, Close Brothers closed down 11%. It posted a decline in annual profit and income, as its Winterflood stockbroking business faced a tough comparator.

In the financial year ended July 31, the London-based merchant bank posted an operating pretax profit of £232.8 million, down 12% from £265.2 million the year before.

Operating income fell 1.7% to £936.1 million from £952.6 million.

‘Winterflood saw a 48% reduction in income, reflecting a market-wide slowdown in trading activity from elevated levels during the pandemic and a change in the mix of trading volumes, exacerbated by periods of volatility in falling markets,’ Close Brothers said.

Still, Close Brothers raised its payout by 10% to 66.0p per share from 60.0p.

Biffa closed a mammoth 28% higher after it backed a £1.3 billion takeover offer from private equity firm Energy Capital Partners, an investor in the fields of energy transition, renewables and infrastructure.

ECP will pay 410 pence cash for each share in the High Wycombe, Buckinghamshire-based waste management firm, a 27% premium to its 323.90p closing price on Monday.

The acquisition price is, however, 7.9% lower than an initial 445p per share proposal made back in June.

Biffa shares closed at 408.09p, giving it a market capitalisation of about £1.24 billion.

In London's junior market, musicMagpie rebounded strongly from Monday's steep drop. It closed Tuesday 77% higher after Monday's 70% plunge.

The used-technology reseller said on Monday it still expects that second half profitability will be a ‘substantial improvement’ on the first, but warned its Consumer Technology division has performed weaker than anticipated. It also warned that October and November, featuring the key Black Friday trading stretch, are expected to be hampered by worsening economic outlook and increasing cost of living pressures in the UK.

Stocks in New York were green at the London equities close, with the DJIA up 0.3%, the S&P 500 index up 0.5%, while the Nasdaq Composite was 0.8% higher.

Peter Garnry, head of equity strategy at Saxo Bank, said: ‘Equities are currently at edge with market sentiment and the VIX curve signalling that either the market extends into a meltdown or stabilises in order to likely stage a rebound.

‘In many of our client conversations we hear talk about hedging the downside and for many a simple strategy of buying puts on the market seems like a good strategy. The outstanding number of put options on US equities has also exploded recently reflecting the demand for puts. One thing to keep in mind is that with the high realised and implied volatility and inverted VIX curve, options have become expensive. It is like buying a fire insurance when the fire has just started.’

The euro fell to $0.9596 Tuesday evening from $0.9626 at the European equities close on Monday. Against the yen, the dollar inched higher to JP¥144.79 from JP¥144.41.

Gold fell to $1,633.10 an ounce Tuesday evening from $1,639.00 late Monday. A barrel of Brent firmed to $86.44 from $85.30.

In the international economic calendar on Wednesday, there is a German consumer confidence survey at 0700 BST, followed by US goods trade balance at 1330 BST.

In the local corporate calendar, there is interim results from online retailer boohoo, cinema operator Everyman Media, Domino’s Pizza franchisor DP Poland and healthcare software firm Emis Group.

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