London share prices fell at the open on Tuesday, after the Bank of England was forced to expand the scope of its bond-buying programme to prevent ‘fire sales’ UK government debt.
The FTSE 100 index fell 30.29 points, or 0.4%, to 6,929.02. The FTSE 250 lost 63.75 points, or 0.4%, at 17,061.54 and the AIM All-Share fell 1.01 points, 0.1%, at 798.62.
The Cboe UK 100 opened down 0.7% at 691.57, the Cboe UK 250 fell 0.6% at 14,583.15, and the Cboe Small Companies traded 0.2% higher at 12,643.74.
In European equities on Tuesday morning, the CAC 40 in Paris fell 0.1%, while the DAX 40 in Frankfurt opened down 0.9%.
Sterling briefly fell below the $1.10 mark on Tuesday morning. It sat at $1.1030 shortly after the London equities open, only slightly below $1.1038 late Monday.
The BoE once again intervened in a bid to calm volatile bond markets, which it said are now a ‘material risk’ to the UK's ‘financial stability’.
The BoE said it has widened the scope of its bond-buying programme, due to end this week, to include purchases of index-linked gilts.
The central bank said the measure is a ‘further backstop’ as it bids to restore orderly market conditions.
‘Fire sales’ of UK government bonds, or gilts, are a ‘material risk to UK financial stability’, Threadneedle Street warned.
Investor confidence in UK government finances took a hit late last month following Chancellor Kwasi Kwarteg's mini-budget announcement. UK borrowing costs jumped as investors were spooked the unfunded tax cuts announced by Kwarteng.
The UK chancellor was in focus again after the Institute for Fiscal Studies said the government will have to find spending cuts of more than £60 billion if he is to meet his target to get the public finances back under control.
The think tank said cuts of that size will not be achieved through efficiency savings. Major cuts would be needed.
The UK unemployment rate unexpectedly declined in August, while wage growth picked up, figures from the Office for National Statistics showed.
The jobless rate edged down to 3.5% in the three months to August from 3.6% in the previous three-month period. Market consensus, according to FXStreet, had expected the rate to remain stable at 3.6%.
Total pay, which includes bonuses, grew 6.0% annually over the three-month period, ticking up from 5.5% in the three months to July. Regular pay, excluding bonuses, rose 5.4%, accelerating from 5.2% growth. Pay failed to keep up pace with inflation, however.
In real terms - meaning adjusted for inflation - total pay fell by 2.4% and regular pay fell by 2.9%.
‘The Bank of England is already under severe pressure to implement a series of large interest rate hikes to control inflationary pressures, and the latest employment and earnings figures will add to this pressure,’ said Daniel Mahoney, UK economist at Handelsbanken.
‘With headline unemployment falling to levels last seen in 1974 and inactivity levels showing no signs of improving, the tight labour market seems to be, at least in part, feeding wage pressures.’
Mahoney said that while the market expects UK interest rates to reach 6% by the middle of next year, Handelsbanken thinks they will peak at 4%, as the BoE tolerates high inflation to avoid a traumatic hit to property prices.
The euro stood at $0.9711 on Tuesday morning, edging up from $0.9700 late Monday. Against the yen, the dollar was trading at JP¥145.62, soft from JP¥145.72.
In Asia, the Nikkei 225 ended 2.6% lower. Tokyo re-opened on Tuesday after being closed to observe the Sports Day holiday on Monday.
The Shanghai Composite ended 0.2% higher, though the Hang Seng in Hong Kong was down 2.0% in late trade. In Sydney, the S&P/ASX 200 lost 0.3%.
In London, Ferrexpo shares fell 7.4% in early trade. Production at its operations have been ‘temporarily suspended’ as the iron ore pellets producer in Ukraine continues to find itself caught up in the war started by Russia.
Following Russian air strikes in Ukraine on Monday, Ferrexpo said state-owned electrical infrastructure close to its operations have been damaged.
Ferrexpo did, however, add that it has enough stockpiles to meet expected sales volumes, though it noted this is ‘subject to logistics corridors remaining available to the group’. None of its workforce were injured as a result of the strikes.
PureTech shares fell 2.9% after it said takeover talks with San Francisco-based biopharmaceutical company Nektar Therapeutics have been terminated.
PureTech on Friday had announced that it was in discussions to be acquired by Nektar. However, the talks were not advanced, PureTech said on Tuesday.
‘These discussions were early in nature and the required announcement created the impression that discussions were more advanced than they were. Given the early stage of the discussions and the potential for an extended period of uncertainty, these discussions were terminated,’ the company explained.
Elsewhere on the M&A front, RPS Group shares fell 6.8% to 220 pence, as a suitor ruled out the prospect of a prolonged bidding war for the professional services firm.
WSP Global said its roughly £591 million, or 206 pence per share, offer for the company is final.
RPS in September recommended a £636 million takeover offer from consultancy and engineering services firm Tetra Tech. Tetra's offer is for 222p per RPS share.
WSP on Tuesday said its offer is now final, and RPS called meetings for November 3 to approve the Tetra Tech deal.
Pub firm Marston's rose 3.2% as it said annual sales were on the cusp of pre-virus levels. It also maintained guidance on energy costs.
In the financial year that ended October 1, like-for-like sales were down 1% from pre-virus levels. Marston's put this down to the impact of Omicron.
The company said electricity costs in the final 10 weeks of the financial year were higher than expected, though it affirmed its gas price is fixed until March 2025.
‘The recent announcement by the government concerning the energy price cap was helpful and further protects our H1 energy spend. Regarding H2, we await the review of the price cap, albeit we currently remain comfortable with the guidance we have provided on energy costs for the group's financial year as a whole,’ Marston's said.
Brent oil was quoted at $95.21 a barrel early Tuesday UK time, falling from $96.99 at the London equities close on Monday. Gold traded at $1,665.11 an ounce, down from $1,668.45.
After the morning's intervention by the BoE, central banks will remain in focus on Tuesday afternoon. There are speeches scheduled from European Central Bank board member Philip Lane at 1345 BST, before the Fed's Patrick Harker and Loretta Mester at 1630 and 1700, respectively.
The ECB announces its next interest rate decision on October 27, before the Fed on November 1. Minutes from the Fed's last meeting are released on Wednesday.
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