European equities were on the decline early Friday, with water utilities hurting the FTSE 100, but NatWest limiting the damage.
The FTSE 100 index traded down 6.76 points, 0.1%, at 8,262.62. The FTSE 250 was down 22.47 points, 0.1%, at 20,768.08, and the AIM All-Share was up just 0.12 of a point at 725.81.
The Cboe UK 100 was down 0.1% at 827.45, the Cboe UK 250 was down 0.3% at 18,324.35, and the Cboe Small Companies was up 0.1% at 16,865.49.
In European equities on Friday, the CAC 40 in Paris was down 0.5%, while the DAX 40 in Frankfurt was 0.2% lower.
In New York on Thursday, the Dow Jones Industrial Average lost 0.3%, but the S&P 500 rose 0.2% and the Nasdaq Composite climbed 0.8%.
In Asia on Friday, the Nikkei 225 index in Tokyo was down 0.6%. In China, the Shanghai Composite ended up 0.6%, while the Hang Seng index in Hong Kong was 0.5% higher. The S&P/ASX 200 in Sydney closed up 0.1%.
The pound was quoted at $1.2974 early Friday, up from $1.2955 at the time of the London equities close on Thursday. The euro stood at $1.0823, up from $1.0799. Against the yen, the dollar was trading at JP¥151.98, up from JP¥151.84.
ING analysts commented: ‘The dollar lost some ground yesterday on a correction lower in Treasury yields, but upside risks from the US election persist. Donald Trump’s seemingly stronger momentum should translate to higher implied volatility and a supported dollar. The election result may also have implications for the ECB’s decision on whether to cut 25 or 50bp in December.’
Taxes and borrowing are both set to increase in the UK, as Chancellor Rachel Reeves signalled she would rewrite the way government debt is measured in her first budget.
Labour’s 2024 election manifesto said Reeves would follow two rules: The current budget would be in balance so that day-to-day costs are met by revenues.
The second rule is that debt must be falling as a share of the economy by the fifth year of the economic forecast.
On Thursday, she confirmed that the way debt is measured as part of that target would be changed to allow greater flexibility.
She is expected to target public sector net financial liabilities as her new benchmark for government debt rather than the current measure of underlying public sector net debt.
A shift to PSNFL would give her greater headroom to meet her debt reduction target, because it includes a wider mix of state assets and liabilities – notably including expected student loan repayments to offset some of the liability.
XTB analyst Kathleen Brooks commented: ‘Next week’s budget was never just about tax and spend changes. It is more fundamental than that, and we now know that it will include a change to the way that the UK will measure public debt, which will free up to £50 billion in extra fiscal headroom for the chancellor. The news, which was first leaked to the press and then confirmed by the chancellor, will deliver more fiscal headroom than expected by analysts and weighed on UK bonds. UK bond yields were the only sovereign yield to rise on Thursday, bucking the trend of weaker yields in Europe and the US. The 10-year UK gilt yield was higher by 3.6 basis points, while the 2-year yield rose by 5 basis points.
‘This is hardly a ’Truss-like’ market reaction, however, it adds to the upward pressure on the 10-year bond yield, which has already risen by more than 50 basis points in the past month.’
In London, NatWest powered 4.5% higher as it lifted its outlook again.
The lender now expects to achieve a return on tangible equity above 15%, its outlook raised from ‘above 14%’. Total income excluding notable items is to be around £14.4 billion, up from its previous forecast of ‘around £14.0 billion’. Total income excluding notable items in the third-quarter rose 7.3% on-year and 5.1% on-quarter to £3.77 billion. For the whole of 2023, it totalled £14.34 billion, so it expects growth of around 0.4% for 2024.
NatWest in February had forecast a 2024 outcome in the range of £13.0 billion to £13.5 billion. It maintained its outlook in April, but then raised it in July.
Hurting the FTSE 100, Severn Trent and United Utilities fell 2.5% and 2.4%.
Peer Thames Water revealed a proposal to secure up to £3 billion in new cash from creditors as it seeks to bolster its finances and avoid the threat of nationalisation.
The struggling utilities company has put forward the deal amid continued efforts to restructure its significant debt pile.
Chris Weston, chief executive of the water supplier, said the transaction would deliver ‘further progress to put Thames Water onto a more stable financial footing as we seek a long-term solution’ to its financial troubles.
It said it only has £500 million in cash to support the company, as well as another £500 million for its reserves and compensation payments.
Ground engineering contractor Van Elle rose 5.3%, as it won a deal in Canada. Its Canadian rail subsidiary has been awarded ‘two strategically important contracts by ONxpress’, a consortium responsible for an infrastructure upgrade programme for the Toronto rail network.
‘The group has been appointed as a strategic supply partner for overhead electrification and other lineside foundations, ahead of the delivery phase of the GO Expansion programme. The scope of this contract includes development of design, construction methodologies and planning, enabling activities including training, plant strategies and logistics, and early engineering works such as ground investigation, test piling and other advanced works, focussed on the group’s on-track delivery expertise,’ Van Elle said.
The firm explained the deals under the framework is expected to be worth over C$50 million, around £27.8 million.
Brent oil was quoted at $74.26 a barrel early Friday, fading from $74.48 at the time of the London equities close on Thursday. Gold slipped to $2,727.01 an ounce from $2,729.94
Friday’s economic calendar has a US durable goods order reading at 1330 BST.
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