The fourth quarter got off to a poor start on Monday as stocks in London closed lower amid the persistence of the higher-for-longer narrative around interest rates.
The FTSE 100 index closed down 97.36 points, or 1.3% at 7,510.72 on Monday. The FTSE 250 ended down 302.13 points, or 1.7%, at 17,977.29. The AIM All-Share closed down 7.61 points, or 1.1%, at 718.57.
The Cboe UK 100 ended down 1.5% at 749.12, the Cboe UK 250 closed down 2.2% at 15,678.53, and the Cboe Small Companies ended down 1.6% at 13,055.83.
A number of US Federal Reserve officials are due to participate in a roundtable discussion on Monday, including Fed Chair Jerome Powell. Markets will be keeping a keen eye out for clues on the prospect of a hike in interest rates at the next monetary policy meeting in November.
Currently, investors see a 31% chance of the Fed raising rates by 25 basis points at its next meeting, according to the CME FedWatch Tool.
Just one week prior, investors saw a 19% chance of this outcome, meaning hopes that US central bankers would start rolling back months of rate hikes have faded in recent weeks.
‘It’s been a testing time for markets as investors weigh up the likelihood of sticky inflation and interest rates remaining higher for longer. There is a balancing act for central banks – they want to fight inflation but equally they want to avoid being too aggressive with rate hikes and putting their economy into recession,’ said Russ Mould, investment director at AJ Bell.
In London, United Utilities was one of the few blue-chip stocks in the green at the close on Monday, up 0.5%.
United Utilities, which supplies water and wastewater services in North West England, outlined a ‘hugely ambitious’ plan for £13.7 billion in total expenditure across the period.
The plan aims to safeguard supplies for 3 million households and reduce combined sewer overflows by 60% in the decade to 2030. It also targets a 25% improvement in avoiding pollution incidents across the five-year period.
It expects Ofwat to publish draft determinations next May/June, and final determinations by next December, after which point it will announce its dividend policy.
Pennon, which owns South West Water and Bristol Water, also submitted its five-year business plan to the regulator. It comprised a £2.8 billion package of capital investments, which will target storm overflows and pollutions, water quality and resilience, delivering Net Zero and environmental gains, and keeping bills affordable for customers.
Shares in FTSE 250-listed Pennon closed 3.1% higher.
Among London’s small-caps, Pendragon jumped 5.6% after it announced that it has agreed to improved terms with Lithia Motors for the sale of its UK motor business and leasing business.
Earlier this month, Pendragon and Lithia agreed to the terms of a proposed sale of Pendragon NewCo 2, Pendragon’s entire UK motor business and leasing business, for a gross consideration of £250 million. On Monday, the companies agreed to a 42% increase in the cash consideration to £367 million.
XP Power slumped 51% as it warned third-quarter trading was below expectations.
The Singapore-based manufacturer of power controllers said: ‘The economic uncertainty in China has also led to a reduction in demand in that market. These conditions are likely to continue for the remainder of the year, leaving the outlook below our prior expectation, with operating profit for the year ended 31 December 2023 now expected to be broadly similar to last year.’
On AIM, Horizonte Minerals plunged 59% after it said costs related to the design and execution of its 100%-owned Araguaia nickel project in Brazil have increased by at least 35%, and have delayed expectations of first production until the third quarter of 2024.
In European equities on Monday, the CAC 40 in Paris and DAX 40 in Frankfurt both ended 0.9% lower.
Stocks in New York were largely higher at the London equities close, with the Dow Jones Industrial Average flat, the S&P 500 index up 0.2%, and the Nasdaq Composite up 1.0%.
The successful avoidance of US government shutdown over the weekend helped boost risk appetite on Wall Street on Monday.
On Saturday, US Congress passed an 11th-hour funding bill to keep federal agencies running for another 45 days and avert a costly government shutdown.
Three hours before the midnight deadline, the Senate voted to keep the lights on through mid-November with a resolution that had advanced earlier from the House of Representatives in a day of high-stakes brinkmanship on Capitol Hill.
In addition, fresh data on Monday appeared to support the idea of resilience in the world’s largest economy as the latest US manufacturing data for September came in slightly ahead of forecasts.
The seasonally adjusted S&P Global US manufacturing purchasing managers’ index was 49.8 in September, up from 47.9 in August and higher than a previous flash estimate of 48.9.
Meanwhile, the ISM’s manufacturing PMI registered 49.0 in September, up from 47.6 in August and higher than market expectations, according to FXStreet-cited consensus, of a 47.7 print.
The pound was quoted at $1.2143 at the London equities close on Monday, down sharply from $1.2207 at the London equities close on Friday. The euro stood at $1.0508, significantly lower against $1.0585. Against the yen, the dollar was trading at JP¥149.78, higher compared to JP¥149.30 late Friday.
Brent oil was quoted at $90.70 a barrel at the London equities close on Monday, down from $92.64 late Friday. Gold was quoted at $1,833.40 an ounce, sharply lower against $1,856.33 at the London equities close on Friday.
In Tuesday’s UK corporate calendar, there are half-year results from online clothing retailer Boohoo and Mexican restaurant chain Tortilla Mexican Grill as well as a trading statement from bakery Greggs.
The economic calendar has the latest US job openings and labour turnover survey at 1500 BST.
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