FTSE 100 hits three-week low and pound breaks $1.22 - but Goldman Sachs still thinks it's 10pc overvalued

BGP
  • Pound edges back towards $1.22
  • European bourses fall as commodities stumble
  • FTSE 100 falters as Lloyds comes under pressure
  • China stocks fall as bond yields rise amid liquidity concerns
  • Lloyds Bank takes another £1bn hit from PPI scandal
  • Pound could sink to $1.10 if hard Brexit concerns intensify, UBS warns
  • UK mortgage approvals pick up from 19-month low 
  • Hammond facing £84bn black hole in public finances

                                                                                                    

Market Report: Shares in Flybe plunge as chief executive heads for departure lounge 

Flybesuffered a severe bout of turbulence after the abrupt departure of its chief executive Saad Hammad caused shares to plunge towards record lows.

Shares nose-dived by as much as 14.8pc to 34.5p, within a whisker of its all time low of 34.25p, after the budget airline announced Hammad had stepped down from his role with immediate effect by “mutual agreement”.

Hammad joined in 2013 to turn around the business. During his three year stint, the airline returned to profitability as the group took drastic moves to axe jobs, sell airport slots and exit unprofitable routes. 

Rob Byde, of Cantor Fitzgerald, said Hammad “did a good job fixing a lot of tough legacy issues”, but added that profits are “thin” compared to rivals easyJet and Ryanair. “It probably needs a fresh approach and plan to lift growth and achieve margins,” he added.

Shares closed down 3.5p, or 8.6pc, at 37p. Its peers easyJet climbed 19p at 944p, Ryanair advanced 18c to €12.73 and British Airways owner IAG jumped 20.9p to 422.7p.

On the wider market, a slide in oil prices and disappointing trading updates caused the FTSE 100 to skid to a three-week low, down 59.55 points, or 0.85pc, on the day to 6,958.09.

Costa Coffee owner Whitbread was the biggest laggard after it suffered a slew of downward target price revisions following Tuesday’s disappointing second-quarter trading update. Shares dropped 171p to £35.28.

Copper miner Antofagasta also came under pressure, down 17.5p to 523p, after it said it sees full-year output coming in towards the lower end of its guidance - between a range of 685,000 and 720,000 tonnes.

Doubts Opec will be able to implement a deal to cut output dragged brent crude prices below $49 a-barrel. In its wake, Royal Dutch Shell B shares tumbled 47p to £21.36 and BP fell 7.2p to 488p.

On the other side, supermarkets were among the top risers after Goldman Sachs hiked their target prices. The US investment bank  said Tesco and Morrisons are pricing in earnings before interest and tax margins for the year of around 4.2pc, which implies they can achieve margins “right at the top of global peers”. Shares in Tesco inched up 3.4p to 213.6p and Sainsbury’s rose 3.2p to 243.4. Morrisons missed out on sector-wide gains, dipping 0.5p to 227.5p.

Elsewhere, robust earnings from French luxury group Kering boosted shares in Burberry 14p to £14.74.

Meanwhile, Lloyds clawed its way into positive territory, up 0.5p to 55.88p, by close of trading after announcing third-quarter underlying pre-tax profits of £1.9bn, compared with £1.97bn a year earlier.

Finally, Ironveld, one of ex-England Cricket Board chairman Giles Clarke’s mining companies, slipped 0.5p to 4.9p after it raised £1.8m through a placing of 40m shares to fund its Vanadium and Titanium project in South Africa.

On that note, it's time to close up for this evening. I'll be back tomorrow with more markets coverage. 

UK gilts slide, 5-year yields highest since Brexit vote 

British government bond prices fell heavily on Wednesday, pushed lower by a fall in euro zone debt and domestic factors, lifting yields on two- and five-year debt to their highest since June's vote to leave the European Union.

Five-year gilt prices  suffered their biggest fall in over two weeks as yields rose more than 6 basis points on the day to peak at 0.562 percent, a level last seen as the referendum result came in on June 24.

Two-year yields  also struck a three-month high of 0.305 percent, just over a week before a Bank of England meeting when it is expected to keep rates steady, contrary to earlier market expectations of a cut to a record-low 0.1 percent.

BoE Governor Mark Carney said on Tuesday that the central bank could not ignore the fall in sterling when it considered the outlook for inflation and rates, reinforcing market expectations for the central bank to stay on hold. 

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Only an unexpectedly weak showing from preliminary third-quarter GDP data due on Thursday was likely to revive bets for a November rate cut, said RBS gilts strategist Simon Peck.

"If it is a little stronger than the BoE is forecasting, that probably puts the nail in the coffin for a November cut, he said. Most economists expect it to show quarterly growth slowed to around 0.3 percent from 0.7 percent in the three months after the Brexit vote.

Also weighing on the gilt market was an announcement by Lloyds Banking Group that it no longer intended to hold its 20 billion pounds ($24.5 billion) of gilts until they matured, due to the "current low interest rate environment".

Lloyds' announcement that it would no longer hold gilts to maturity had the accounting effect of lifting its capital ratio, ensuring it could pay a dividend.

"There have been some very small disposals of them," Lloyds chief financial officer George Culmer told analysts. "We will see where rates go and we will depend upon that," he added.

RBS's Peck said he did not think Lloyds' statement heralded a big sell-off, though it was a concern to the market.

"My conclusion is that it is a technical treatment... rather than a revelation of a change in their appetite," Peck said.

Ten-year gilt yields rose 8 basis points on the day to 1.171 percent, the highest since Oct. 17, but the price fall was in line with German debt, and the 10-year yield spread was unchanged on the day at 106 basis points.

Fifty-year gilt yields were 6 basis points up on the day as the market continued to digest Tuesday's issuance of 4 billion pounds of July 2065 debt.

Report from Reuters

European bourses close in red as disappointing earnings weigh 

A slew of disappointing earnings reports and a declining oil price caused European bourses to end the trading session deep in the red. 

By close of play: 

  • FTSE 100: -0.85pc
  • DAX: -0.44pc
  • CAC 40: -0.09pc
  • IBEX: -0.26pc

Chris Beauchamp, of IG, said: "US markets continue to dictate the tone, as disappointing numbers from Apple weigh on sentiment, while investors keep a nervous eye on falling oil prices. While scepticism around the OPEC deal was palpable, no one really expected it to unravel this quickly, but a procession of nations bearing their own ‘sick notes’ as to why they couldn’t possibly be expected to participate has shown that the unanimity on display recently was simply a front. In addition, sentiment has been hit by news that the Trump campaign for president may not be quite as DOA as previously thought.

"When combined with the disappointing numbers from Apple, it is clear to see why markets remain under pressure. It is  interesting to see Whitbread continue to sit at the bottom of the index, for a second consecutive day. The fall means the shares are now trading at 14 times earnings, equivalent to the levels seen in February and June; if traditional market seasonality means equities move higher from here then Whitbread’s relative cheapness could mean it outperforms into the end of the year."

Glaxo says it can withstand US pricing pressure as weak pound helps company beat profit forecasts

Here's our full report on GSK from Julia Bradshaw: 

GlaxoSmithKline has claimed it is well placed to withstand pricing pressure in the US as the weak level of sterling helped the FTSE 100 pharmaceuticals giant beat profit forecasts. 

Sir Andrew Witty, the outgoing chief executive, said he “fully anticipates” a change in pricing in the world’s biggest drugs market, as patients and payer groups demand a change in the way medications are bought.

But added that he is confident Glaxo is in a strong position to benefit from those changes. 

Pricing is a hot topic in the United States, where there is no collective bargaining power and patients pay more for drugs than in any other country in the world. Prices for some treatments which face little or no competition have surged in recent years.

“I think we will see sustained price pressure,” said Sir Andrew. “And that is what has driven strategy at GSK over the past seven years and I feel we are in a pretty decent position.”

Read more here

ECB all but certain to keep buying bonds beyond March, ease QE rules

According to a Reuters report the European Central Bank is nearly certain to continue buying bonds beyond its March target and to relax its constraints on the purchases.

Reuters has the details: 

ECB policymakers are due to decide in December on the future shape and duration of their 80 billion euros ($87.36 billion) monthly quantitative easing (QE) scheme, based on new growth and inflation forecasts.

They did not discuss specific options at last week's meeting and no policy proposal has been formulated. But sources familiar with the matter said it was all but sure that money printing would continue in some form beyond March, currently the ECB's earliest end-date.

This would be consistent with ECB President Mario Draghi's guidance last week that the Bank would keep a "very substantial degree of monetary accommodation" and his dismissal of an abrupt end to the bond scheme. 

The ECB declined to comment for this article.

Whether the current monthly volume of purchases will be maintained or reduced after March has not been decided and will depend on incoming economic data, the sources said.

Recent data has shown a slight uptick in inflation and other gauges of economic activity, suggesting a nascent recovery.

US service sector activity expands at fastest pace in almost one year

The US services sector expanded at its fastest rate since November 2105, data from Markit showed this afternoon. 

At 54.8, up from 52.3 in September, the seasonally adjusted Markit Flash U.S. Services PMI Business Activity Index1 signalled a robust expansion of service sector output in October. 

The latest survey also revealed an upturn in confidence towards the year-ahead business outlook, with service providers reporting the strongest optimism since August 2015.

Input cost pressures meanwhile picked up from the 19-month low recorded in September, which contributed to a slightly faster rise in prices charged by service sector companies during October.

 Commenting on the flash PMI data, Tim Moore, Senior Economist at IHS Markit said:

“The latest survey data reveal a decisive shift in growth momentum across the U.S. service sector, which mirrors the more robust manufacturing performance seen during October. Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualized rate of around 2pc at the start of the fourth quarter.

“Service providers experienced the fastest upturn in new business volumes since late-2015, which survey respondents linked to improving domestic economic conditions and signs of greater business investment in particular. That said, job creation remained relatively subdued in October, with firms reporting cautious hiring plans and efforts to alleviate pressures on margins.

“October’s survey findings contained positive signs for near-term growth prospects, with service sector companies the most upbeat about the business outlook since August 2015. Moreover, the monthto-month rise in this index was one of the largest seen over the past two years.”

Shares in Flybe plunge as chief executive steps down with immediate effect

Flybe's shares plummeted by as much as 14.8pc to a three-month low of 34.5p after the board announced chief executive Saad Hammad would step down immediately. 

Reuters has the details: 

Flybe Group said Chief Executive Saad Hammad would step down immediately, ending a more than three-year stint that marked the airline's return to profitability.

Flybe, which connects British regional airports to London and other European cities, said Hammad's resignation was by "mutual agreement".

The departure of Hammad, a former executive at rival easyJet and Air Berlin, leaves Flybe rudderless at a time when European airlines are grappling with increased economic uncertainty after Britain's vote to leave the European Union.

Several airlines in the region have issued profit warnings as they navigate slow demand and fierce competition in fares.

Although Flybe reported a 5 percent rise in first-quarter passenger revenue in July, it warned that Brexit and a string of deadly attacks across Europe could have a "materially adverse impact".

Under Hammad's leadership, Flybe has returned to profitability by drastically cutting jobs and wages, selling airport slots and exiting unprofitable routes.

Hammad was brought on board in 2013 to help Flybe counteract soaring fuel costs, falling passenger counts and higher airport charges. The turnaround, most notably, involved the airline quitting its main London hub at Gatwick airport.

Analysts said Hammad's surprise departure could allow Flybe to set out clearer goals as it heads into another bout of turbulence.

"The company needs to set out more clearly how they're going to grow the business and where they can get to in terms of margins and cash generation over the medium term ... I think it probably needs a fresh set of eyes just to take a look," Cantor Fitzgerald Europe analyst Robin Byde told Reuters.

Simon Laffin, Flybe's non-executive chairman, will step up as executive chairman as the airline scouts for a new boss. 

Laffin said Flybe remained "well placed" as the aviation industry faces a "challenging market environment".

In Flybe's statement on Wednesday, Hammad said, "Now is the right time for me to move on to a fresh challenge."

Hammad did not respond to an email seeking comments, while a Flybe spokesman declined to comment beyond the statement.

FTSE 100 skids to three-week low

Disappointing earnings and a decline in the oil price have dragged the FTSE 100 to a three-week low. 

It fell by as much as 1.41pc this afternoon to 6,918.84- that's its lowest level since October 3 when it touched 6,898.09.

New FCA boss promises an end to the ‘shoot first’ era of bank regulation

New FCA boss Andrew Bailey has set out a new mission statement for the City regulator. Tim Wallace reports: 

New City regulator Andrew Bailey won cheers from financiers and politicians by setting out a major review of the Financial Conduct Authority’s operations, putting his stamp on an organisation that has been criticised in the past for its willingness to "shoot first and ask questions later" when it comes to punishing firms.

Mr Bailey, who joined from the Bank of England in the summer, said he wants to make the FCA more transparent, accountable and predictable so that banks, customers and politicians can understand what the regulator does, how it does it, and how the industry should behave from now on.

That will include a new examination of when and how the FCA orders firms to pay compensation to mistreated customers, as well as a review of the definition of vulnerable customers, and working out how to treat bad behaviour by regulated firms in unregulated markets – for instance, by banks trying to manipulate currency markets.

Mr Bailey also wants to explain how the FCA will cope with rapidly changing technology in the City.

Continue reading here

Brent crude skids below $50 a-barrel as investors doubt Opec can seal day

Brent crude spent a third consecutive trading session in the red as investors grew increasingly doubtful that Opec will be able to agree a deal to curb output. 

Although it proposed an output cut at its last meeting Algiers, Iraq doesn't want to join the group. Iran, Nigeria, and Libya will all be excluded fro the output cut deal, and Indonesia and Venezuela may not take part either. 

As concerns about the deal rise, Brent crude fell by as much as 2.15pc to $49.70 a-barrel - that's its lowest level since September 26. 

Credit: Bloomberg

US stocks slide at opening bell as declining oil prices weigh

Wall Street opened lower this afternoon as oil prices declined on lingering fears of oversupply dragging energy stocks into the red.

At the opening bell: 

  • Dow Jones: -0.48pc
  • Nasdaq: -0.54pc
  • S&P 500: -0.39pc

Shares in GSK slide despite Q3 results beat

Shares in drugmaker GlaxoSmithKline have dipped 1.2pc to £69.33 this afternoon despite third quarter results coming in ahead of expectations thanks to the weak pound. 

The group's core earnings per share of 32p beat forecasts of 29.6p, while revenue of £7.54bn was higher than expectations of £7.28bn. 

It also expects to enjoy even bigger gains in 2016 on the pound weakness following the EU referendum. 

Chief executive Andrew Witty, who retires in March, also said GSK's large manufacturing base in the UK means it will not have to hike prices for its products. 

He told reporters: "We manufacture inside the UK many of our products, particularly in the consumer business.

"That gives us a very good position in terms of being able to absorb some of the changes in the currency without being forced to increase price."

US trading session preview: US dollar weakens on hawkish comments from Fed official

Anthony Cheung, of Amplify Tradinglooks ahead to the US open: 

"The US dollar has already weakened this morning despite fresh hawkish comments from Fed member Harker. To me the comments are now fully priced in so come as little surprise, and in fact I feel a large part of this USD weakness is profit taking from the 8-month high seen in the DXY yesterday." 

Business rates shake-up is 'disgraceful, sneaky and unfair'

The recent revamp of business rates is a “revenue raising” exercise by government that is “ridiculously onerous”, according to the outspoken boss of property investment company Panther Securities.

Andrew Perloff, the chairman of the Aim-listed group, who is known for his blunt views, has launched a tirade against the review, which comes into force in April.

He said companies faced higher rates charges because of “higher than justified” prices being put on properties. He accused valuation officers of taking a “broadbrush approach” to rates.

Full rates are charged on empty properties

Mr Perloff also warned that businesses had little chance of appealing rising rates bills because the Valuation Office that oversees the changes “is proposing to make it awkward for appeals and possibly, in many cases, arrange that the valuation officer is the judge and jury”. 

Panther’s interim results last month had warned of Mr Perloff’s “cynicism” about the impending review, which was initially flagged as making the system fairer for businesses.

Report by Alan Tovey (Read more here)

Santander rattled by EU referendum

Santander has been hit by Britain’s decision to leave the European Union after sterling’s plunge following the referendum knocked UK revenues at the Spanish banking giant.

The pound’s steep devaluation against the euro since the vote hit the net profits Santander generated in the UK by 24pc to €364m during the third quarter.

Nathan Bostock, the chief executive of Santander’s UK business, also warned that “although we have not seen a material impact on our business in the short period since the EU referendum, we do expect a more challenging macroeconomic environment ahead”.

His caution contrasted with the more confident tone from high street rival Lloyds Banking Group and challenger Metro Bank, which posted results today.

Lloyds boss Antonio Horta-Osorio said that while some businesses had deferred investment and borrowing, consumers had been unfazed by Brexit, although he conceded that it was too early to discern longer term trends. Metro chief Craig Donaldson said the lender had “genuinely” not felt any impact.

Santander UK said: “The UK's decision to leave the EU has led to economic uncertainty and financial market volatility which we expect to continue.

Report by Ben Martin (Read more here)

Antofagasta tanks 7pc on Q3 production update

Copper miner Antofagasta tanked to the bottom of the blue chip index, down 7.2pc to 501.5p, after it said it sees its full-year output towards the lower end of its guidance of between 710,000 and 740,000 tonnes. 

It also now sees next years output lower between a range of 685,000 and 720,000 tonnes. 

The lower guidance has also dragged its peers into the red, with Anglo American off by 3.1pc, BHP Billiton down 2.2pc and Glencore 2.2pc lower. 

Markets update: European bourses deep in red as commodities weigh

A slump in oil prices and a disappointing production update from Antofagasta has weighed heavily on European bourses this afternoon. The copper miner said it saw output for this year coming in at the lower end of its previous guidance, and also forecast lower output for 2017.

Just after midday, here's the state of play in Europe: 

  • FTSE 100: -0.9pc
  • DAX: -1.02pc
  • CAC 40: -0.76pc
  • IBEX: -0.16pc

 Connor Campbell, of SpreadExsaid: "The FTSE’s losses intensified this Wednesday, dragged down not only by the talk of a £84bn Brexit black hole, but by its floundering banking and commodity sectors.

"Dropping by 50 points the UK index is now firmly back under the 7000 mark, hitting a one-ish week low in the process. Even with Lloyds cutting its decline to roughly a third of what it was just after the bell (the PPI-peddler is now down 1pc) its third quarter report still pushed the majority of the UK banking sector into negative territory. More pressing than Lloyds was Antofagasta, which plunged 6pc following a production update that saw the company shift full year output expectations towards the ‘lower end’ of its previous guidance. This, alongside a dip from Brent Crude, helped herd the rest of the oil and mining stocks into the red, with notable slides from Anglo American, BP and Shell."

Metro Bank on the cusp of a maiden profit

Shares in Metro Bank edged up 0.7pc to £27.45 this morning after the British lender reported pre-tax profits for the third quarter of £600k, thanks to growth in lending, deposits and customer accounts. Ben Martin reports: 

Metro Bank has shrugged off the Brexit vote to win more customers and boost lending, taking it to the cusp of reporting its first profit.

Craig Donaldson, the chief executive of the challenger bank, said the lender had so far felt no impact from the vote to leave the European Union, four months on from the surprise referendum result.

In the three months to the end of September, deposits jumped 66pc to £7.3bn compared with a year earlier and lending climbed by 73pc to £5.2bn.

That helped Metro, which opens its 44th branch later this week, narrow its statutory quarterly net losses to £416,000, from £10.7m in 2015, and helped it swing to its first ever underlying pre-tax profit of £567,000, which strips out certain expenses including the cost of its stock market float in March.

Continue reading here

ConvaTec valued at £4.4bn in biggest London listing this year

British wound dressings maker Convatec has set the price of its IPO, valuing the company at more than £4bn in the biggest flotation on the London stock market this year and the largest ever European healthcare listing.

Reading-based ConvaTec will raise £1.47bn from the offer after the shares were priced at 225p a piece. Most of the windfall will be used to pay down debt.

ConvaTec chairman Sir Christopher Gent and chief executive Paul Moraviec

Meanwhile, private equity owners Nordic Capital and Avista Capital Partners have used the listing to offload part of their stakes in the business.

ConvaTec, which was founded in 1978, has 9,000 employees and operates in more than 100 countries.

It makes medical products, such as dressings to contain oozing wounds, endotracheal tubes, colostomy bags, catheters, surgical suction devices and faecal incontinence equipment.

Report by Julia Bradshaw (read more here)

HSBC sees pound sliding to $1.10 by end of 2017

Goldman's isn't the first one to comment on the direction of the pound today, UBS Wealth Management warned earlier that it sees the pound sinking to $1.10 if hard Brexit fears intensify. 

Meanwhile, speaking to Bloomberg radio earlier, HSBC economist James Pomeroy said he expects the pound to fall to $1.10 by the end of next year. 

Pound still 10pc overvalued, warns Goldman Sachs

The pound has further fall - it's still around 10pc overvalued, Goldman Sachs strategists have said this morning. 

In a note entitled "What is fair value for the British pound," the US investment bank said the pound needs   to fall between 20-40 pc from pre-Brexit levels. 

But the pound has only fallen 17.56pc since the EU referendum, which means it is still some way off the 40pc mark. 

"The signal that sterling is cheap therefore ignores the ructions that Brexit may cause for the UK economy and – potentially – a drop in fair value.

"As a result, we use a different approach, which calculates the depreciation needed to bring the current account to a new, post-Brexit equilibrium. That approach says that GBP needs to fall between 20-40 percent from pre-Brexit levels, so the declines since June have only brought us to the lower bound of this range."

Strategists at Goldman do not believe the pound is undervalued, because of the current account deficit. 

"We find that the sterling depreciation through October has probably taken the underlying current account deficit from just over 6 percent to about 3.pc." 

Pound rises at rate cut bets fade

Fading hopes of a Bank of England rate cut next week have lifted the pound above $1.22 today.  

Yesterday, Bank of England governor Mark Carney prompted the move higher after he said the pound fall would "undoubtedly" be on the agenda at next week's rate meeting. 

This morning it is changing hands up 0.07pc at $1.2205 against the dollar. 

Meanwhile, Kathleen Brooks, of CityIndex, also attributes the move upwards to the secret recording of PM Theresa May sounding "decidedly pro-Remain back in May when she was giving a talk to Goldman Sachs".

"She sounded concerned at the prospect of businesses leaving the EU in the event of a vote to Leave, and even sounded supportive of the UK remaining in the single market. This is at odds with her recent comments, which appeared to sacrifice the UK’s membership of the single market in return for complete control over EU immigration.

"We have mentioned before that there is likely to be a public Theresa and a private one, and the private Theresa could be less “hard” Brexit than she let on at the Tory Party conference. The more focus there is on the private views of Theresa May the more likely this is to soothe the battered pound. We continue to think that the worst of the selling pressure is over for the pound, bar another negative political shock, and we could see the currency trade in a relatively wide range until the end of the year between 1.20-1.25."

Ofcom fines Vodafone £4.6m for mis-selling and poor complaints handling

Shares in Vodafone edged down 0.7p to 225.3p this morning after Ofcom fined it £4.6m for customer failures. Jillian Ambrose and Cristina Criddle report: 

Vodafone has been fined £4.6m for mis-selling, inaccurate billing and poor handling of complaints - the largest amount ever levied on a telecoms provider.

Following an 18-month probe by industry regulator Ofcom, the company was fined £3.7m for failing to credit the accounts of 10,452 customers' pay-as-you-go accounts after they paid to top up their mobiles.

The affected customers collectively lost £150,000 over a 17-month period, Ofcom said.

The watchdog also found Vodafone failed to comply with rules on handling customer complaints, resulting in a fine of £925,000.

Its investigation revealed that customer service agents lacked "sufficiently clear guidance on what constituted a complaint" and did not deal with these cases in an appropriate, fair or timely manner.

Read more here

Lloyds Q3 results look 'a bit weak', says Cenkos

Returning to Lloyds' Q3 results, Sandy Chen, of Cenkos Securities, reckons the results look "a bit weak". 

Chen points out: 

  • Statutory pre-tax profts of £811m is down 15pc yoy;
  • Management’s underlying profit of £1.9bn (i.e. before a £1bn PPI top-up charge, £150m for packaged bank accounts etc) is down 3pc yoy
  • Customer loans and deposits are flat versus 2Q16
  • Management’s version of net interest income is down 1pc yoy (although statutory net income is down a lot more – from £9.0bn to £6.9bn for 9M16 on insurance gross-up and other volatility items).

Cenkos retains its "sell" rating following the results. 

Chen added: "Tangible BVPS per share of 54.9p as at end-3Q16 will probably nudge up in 4Q16, but the foreseeable 2016 dividend of 2.55p per share will probably nudge it down; leaving LLOY trading at a slight premium to tangible book, whereas all of its peers are trading at discounts to tangible book."

 

UK wages rose by 2.2pc last year

The Office for National Statistics has released its  Annual Survey of Hours and Earnings for this year, which has revealed wages rose by 2.2pc last year. 

Here are the key findings: 

  1. In April 2016 median gross weekly earnings for full-time employees were £539, up 2.2pc from £527 in 2015. The 2.2pc growth seen this year is the joint highest growth in earnings seen since the economic downturn in 2008 (matching that seen in 2013).
  2. Adjusted for inflation, weekly earnings increased by 1.9pc compared with 2015. This repeats the trend seen in 2015, which exhibited the first increase since 2008, and is due to a combination of growth in average earnings and a low level of inflation at that time.
  3. Weekly earnings grew by 2.2pc for full-time workers compared with 6.6pc for part-time workers.
  4. The bottom of the distribution has grown fastest this year, with the fifth percentile growing by 6.2pc and the 95th percentile growing by 2.5pc.
  5. In April 2016 the gender pay gap (for median hourly earnings) for full-time employees decreased to 9.4pc, from 9.6pc in 2015. This is the lowest since the survey began in 1997, although the gap has changed relatively little over the last six years.
  6. Median weekly earnings for full-time employees in the private sector were £517 (up 3.4pc on 2015) compared with £594 (up 0.7pc) for the public sector. While private sector median earnings have been around 85pc of public sector earnings between 2010 and 2015, the proportion has risen to 87pc this year.

Read the full report here

BBA data shows housing market activity has 'stabilised after recent softness'

Howard Archer, of IHS, says this morning's BBA data for September ties in with other indications that housing market activity has "stabilised after recent softness". 

He continues: "The RICS has reported that buyer enquiries rose in September for the first time since February although the increase was modest and variable across regions

"With housing market activity seemingly stabilizing but still relatively limited, we expect house prices to be essentially flat over the next few months."

Nevertheless, Mr Archer suspects that house prices will come under increasing pressure as 2017 progresses. He reckons they "may dip modestly over the year, possibly by around 3pc". 

"We believe housing market activity and prices will be increasingly pressurized in 2017 by heightened uncertainty and markedly deteriorating fundamentals for households.​"

UK mortgage approvals pick up from 19-month low 

UK banks approves more mortgages in September than expected after falling to a 19-month low in the previous month, data from the British Bankers Association showed this morning. 

The BBA's members approved 38,252 mortgages for house purchase in September, down 15pc on a year earlier but up from 37,241 in August, which was the lowest level since January 2015.

BBA chief economist Rebecca Harding said: "Mortgage approvals picked up slightly this month but the housing market continues to shows signs of underlying weakness." 

Meanwhile, consumer lending rose at its fastest pace in almost 10 years buoyed by strong demand for credit cards. Lending increased by £175m in September, the data revealed. 

"Consumers are increasingly using short-term borrowing to take advantage of record-low interest rates. This trend has accelerated since the Bank of England cut rates in August," Harding added.

However, business lending fell by a net £312m during the month, it's biggest fall since June, due to uncertainty around the impact of Brexit.

Chancellor Hammond faces £84bn black hole in public finances

Think-tank Resolution Foundation has warned this morning that Chancellor Phillip Hammond is facing an £84bn blackhole when he announces the autumn statement next month. 

In a report today, it said: "The central question he faces is how to respond to a significant expected deterioration in the economic and public finance forecasts, partly but not wholly related to the economic impact of the Brexit vote."

The analysis in the reportraises the prospect of the new Chancellor having to respond to an £84bn deterioration (in 2015-16 prices) in the public finances cumulatively across the five years of the forecast period to 2020-21.

This would include:

  • £23bn additional borrowing in 2019-20, wiping out the £10bn annual surplus anticipated by the OBR at the March Budget and meaning the mandate’s requirement for a surplus in that year would be breached by £13bn;
  • Rising debt as a proportion of GDP in 2017-18, breaking the secondary rule by around £10bn in that year. 

Equities on the back foot as slew of disappointing earnings weigh

If you're just settling into the trading session, here's a look at Amplify Trading's morning briefing discussing US earnings, API inventories, US elections and the trading day ahead.

Anthony Cheung, of Amplify Tradinghighlights that equities are on the back foot this morning thanks to a slew of negative earnings, while oil is stable but down on the session after bearish API inventory data which was released overnight. 

The FTSE 100 has extended its losses this morning and is now down 0.94pc back below 7,000.

Pound could fall to $1.10 if concerns over 'hard Brexit' intensify, warns UBS 

The pound seems unfazed by a warning from UBS Wealth Management this morning. It reckons the pound could to a low of $1.10 if hard Brexit fears intensify. 

It said: " If concerns over the future of the UK’s trade relationships continue to dominate, it predicts that GBPUSD could temporarily fall to the 1.10-1.20 range."

However, in the next 12 months it is forecasting an improvement in the pound to $1.36.

Geoffrey Yu, Head of the UK Investment Office at UBS Wealth Management, says: “We expect the UK economy to bear the brunt of Brexit uncertainty in the coming months, levelling out as we move further into next year. Though the pound should recover accordingly, we cannot underestimate the central role that politics has played in sterling’s fate up until now. With the terms and conditions of the UK’s future trade links still unclear it is too early to rule out further downside risks in sterling.”

Pound seen plunging to $1.10 if hard Brexit concerns intensify, UBS warns

UBS Wealth Management also assessed the impact that the weaker pound is having on two further economic concerns: consumer resilience and the current account deficit.

Yu continues: “The UK economy has proved to be more resilient than many anticipated following the Brexit vote, with consumer sentiment in particular holding firm. Indeed, we expect the Bank of England to bump up its forecasts for GDP growth in November. But a weaker currency leads to rising prices, and it is households who will feel the pinch if higher inflation eats into incomes.”

Pound breaks $1.22

The pound has broken $1.22 this morning, climbing some 0.15pc to $1.2223.

Credit: Bloomberg

Lloyds: spectre of PPI has raised its 'ugly head again'

Shares in Lloyds are under pressure this morning because of the £1bn PPI costs taken by the bank. 

As part of its third quarter results, it also announced an underlying profit of £1.9bn in the third quarter, but its statutory profit was reduced to £0.8bn by conduct costs, in particular a £1bn PPI mis-selling charge, which resulted from the FCA’s decision to draw an end to claims in 2019, rather than in 2018 as previously mooted.

Laith Khalaf, of Hargreaves Lansdown reckons things "haven’t got any worse" for Lloyds over the summer, which under the circumstances is "a positive result".

"The bank continues to be profitable, and while Brexit has taken a bit of a shine off the bank’s prospects in the latter half of 2016, it looks like the bank is still going to be able to reward investors with a decent dividend at the end of the year.

"The spectre of PPI has raised its ugly head again, costing the bank £1 billion in the third quarter, thanks to the FCA’s deadline on customer claims being set a year later than expected."

He also notes that the fall in bond yields has taken its toll on Lloyds pension scheme. It has swung from having a surplus of £430m to being in deficit to the tune of £740m.

"Thanks to the slightly absurd way pension liabilities are calculated, and bond yields being so volatile, defined benefit pension schemes currently represent a real headache for UK companies," he added. 

European bourses open in red as commodities and Lloyds weigh 

European bourses stumbled at the opening bell as commodity-related stocks came under pressure and results from Lloyds weighed. 

Here's the state of play in Europe: 

  • FTSE 100: -0.48pc
  • DAX: -0.42pc
  • CAC 40: -0.39pc
  • IBEX: +0.28pc

 Henry Croft, of Accendo Markets, said: "A negative opening call follows weak overnight trading in Asia and a slide in Crude Oil prices after an industry report showed a larger than expected inventory build yesterday evening.

"The fallout from FTSE 100 earnings releases is likely to sway markets this morning, with Lloyds (missing profit expectations by 6pc despite CEO stating no Brexit impact on consumers), Antofagasta, British American Tobacco, Bunzl, GSK and Standard life all reporting today. Also keep an eye on GBP FX markets today following yesterday’s sharp depreciation; with a noticeable motive yet to be found, underlying concerns over future performance of Sterling continue to build, commentators suggesting that a lack of natural buyers is likely to see the Pound fall further."

Shares in Lloyds slide after Q3 results

Shares in Lloyds have tumbled 3pc following the release of this morning's third quarter results, and are currently changing hands at 53.6p.

Lloyds Bank takes another £1bn hit from PPI scandal

Here's the full report from our banking correspondent Ben Martin: 

Lloyds Banking Group has taken another £1bn hit to cover the cost of the payment protection insurance mis-selling scandal, knocking quarterly profits at the state-backed bank.

Pre-tax profits at the lender slumped 15pc to £811m in the three months to the end of September after it took a further provision to account for the extension of the PPI claims deadline to June 2019. Lloyds is the bank that has been most affected by the scandal and has now set aside more than £17m in total to handle its fall-out.

Antonio Horta-Osorio, the chief executive of Lloyds

The bank, which is still 9pc owned by the taxpayer, also confirmed that the market volatility from the Brexit vote had hammered its pension schemes. While Lloyds’ defined benefit plans had a £430m surplus at the end of June, the schemes have now slumped to a £740m net deficit.

Worries that the pension could hit its capital position proved unfounded, however. The lender’s core tier one capital ratio edged up to 13.4pc from 13pc at the end of the first-half despite the deficit.

Read more here

Lloyds posts lower operating costs; warns economic outlook uncertain

Here's the key points from Lloyds third quarter results published this morning courtesy of Reuters: 

  1.  Lloyds to continue to expect to generate around 160 basis points of cet1 capital in 2016 pre dividend percent

  2. Loans and advances to customers were 1pc lower at £452bn (31 december 2015: £455bn

  3. Loans and advances to customers £452bn

  4. Operating costs were £5,959m in period, 2pc lower than in first nine months of 2015

  5. Continue to expect to generate around 160 basis points of cet1 capital in 2016 pre dividend 

  6. Outlook for UK economy remains uncertain

  7. Group's liquidity position remains strong and liquidity coverage ratio was in excess of 100 per cent at 30 September 2016.

Agenda: Pound edges back towards $1.22

Good morning and welcome to our live markets coverage. 

Recapping on yesterday's action, the pound endured a rollercoaster day dropping to $1.20 before recovering after Bank of England Governor Mark Carney told the House of Lords Economics Committee that the central bank would "undoubtedly" take the recent fall of sterling into account when its policymakers meet to consider cutting interest rates in the coming days.

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"It's undoubtedly something we will take into account over the course of the next week as we sit down, update our forecast and make our policy decision," Carney told the House of Lords. 

This morning the pound is edging back towards the $1.22, having fallen overnight.  

We will get an insight into the labour market later this morning when the ONS publishes it survey of earnings in the UK. Also for release this morning we have  UK BBA Loans for House Purchase data for September. 

Also on the agenda today: 

 

Full-year results: Earthport

Interim results: GlaxoSmithKline, Torchmark Corporation, JZ Capital Partners

Trading update: Genel Energy, Lloyds Banking Group, Cobham, Antofagasta, Bunzl, Metro Bank

AGM: Zibao Metals Recycling, Maxcyte, Redde, Oil & Gas Development, AFI Development

Economics: GfK consumer confidence (UK), durable goods orders m/m (US), goods trade balance (US), new home sales (US), crude inventories (US)

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