British Gas owner Centrica slipped to a fresh 14-year low as analysts started to count the cost of Theresa May’s energy price cap, with Investec telling clients that the writing is on the wall for the sector.
Investec said that the legislation was “a sea change in a long drawn-out saga” and that Centrica would be the most affected within the sector by the proposals, sending the utility giant’s shares sliding 3p to 174.5p to the bottom of the FTSE 100.
The broker’s downgrade from “hold” to “sell” topped off a torrid week for Centrica, with its share price tumbling more than 6pc on Wednesday as the Government stepped up its battle on what the Prime Minister described as “rip-off” energy prices.
A price cap covering an additional 50pc of the domestic market now seems more likely, analyst Roshan Patel argued, adding that regulation will have “considerable financial and industrial impact”.
Leaving a “buy” stamp on rival SSE, Mr Patel said the medium-term impact on the Scottish company’s earnings was limited by its “relative efficiency” in certain areas. SSE closed just 9p lower at £13.71.
Overall, the FTSE 100 nudged 14.88 points higher to 7,522.87 as the pound’s persistent weakness continued to buoy London’s big exporters.
Elsewhere, platinum producer Lonmin skyrocketed 11.3p to 85.3p after lenders gave the miner the green light to acquire the remaining 50pc stake in the Pandora project by providing covenant waivers.
The pressure on Lonmin has been mounting as it burns through cash in its restructuring efforts and the price of platinum continues to remain suppressed. RBC Capital Markets analyst Richard Hatch says that the move will “alleviate near-term pressure from the balance sheet”.
While yesterday’s 15pc jump was the miner’s best day of trading since July, the move is nothing compared with the recent plunge in Lonmin’s share price which has fallen from above £40 in 2013 to just 36.9p at its lowest level last year.
Meanwhile, a broker note from UBS warning that BAE Systems’ US momentum will be offset by a slowdown in its UK business pulled the aerospace giant down 2p to 613p.
Although Qatar has provided the company with some relief by signing a “statement of intent” to buy 24 Typhoon jets, the mid-term outlook “will be constrained by limited growth in the UK defence budget and potential continued delay in further sales to Saudi Arabia”, UBS analyst Celine Fornaro said.
EasyJet’s trading update showing that the flood of seats in the airline sector is putting pressure on European carriers pulled down British Airways owner IAG 3p to 614.5p and no-frills rival Ryanair €0.46 (41p) to €16.51.
EasyJet sank towards the bottom of the index despite record passenger numbers over the summer as revenue-per-seat, a key indicator of an airline’s health, dipped, sending it sliding 21p to £12.63.
Building materials supplier CRH retreated 36p to £27.74 after a rival entered the race to acquire US peer Ash Grove, while defence specialist Cobham moved 3.7p higher to 147.4p after UBS lifted its price target for the firm from 150p to 163p.
Newspaper publisher Johnston Press nudged up 0.3p to 16p after Christen Ager-Hanssen, who heads private equity firm Custos, increased his stake to 12.6pc in his attempt to rescue the i newspaper owner.
Markets wrap: Pound endures worst week in a year on Theresa May speculation
The pound has endured its worst week in a year as speculation swirled that Tory MPs are preparing to topple prime minister Theresa May, stoking fears on the currency markets of a fresh bout of political uncertainty.
Already wounded by weaker-than-expected data from the construction and manufacturing sectors, sterling’s performance on forex markets this week went from bad to worse as plans of a coup d’etat at Number 10 weighed heavily on the currency.
Against the dollar, which has conversely enjoyed another strong week, sterling tumbled by 2.5pc to below $1.31 over just five days while against a trade-weighted basket of the leading currencies, it shed 2.1pc.
Meanwhile, the FTSE 100 has been the one bright spot on equity markets, nudging up 0.2pc, with British Gas owner Centrica retreating most as analysts continue to count the cost of Theresa May's energy price cap.
Analysts ponder the pound's outlook amid political uncertainty
If you were wondering how precarious the markets believe Theresa May's position is, then the analyst notes lining up the different potential scenarios for the pound flooding into my inbox will give you a good sense.
ING foreign exchange strategist Viraj Patel provided this insight on sterling's outlook:
Scenario 1: PM May stays on
We would expect GBP to recover its latest conference-related losses should May cling on and domestic political risks meaningfully ease.
Scenario 2: May swiftly replaced
While certainly not our base case, a scenario of PM May stepping down – and a Tory Party leadership contest in the near-term – could see the pound getting quickly dumped (with short speculative positions being rebuilt after the recent neutralisation).
Scenario 3: Drawn out leadership contest
Were PM May to be swiftly replaced – and in particular by a ‘continuity’ candidate (ie, David Davis or Amber Rudd) – then we would expect GBP’s pain via the short-term political risk channel to ease.
Scenario 4: Another general election
We see trivial risks of a General Election being called in 2017 given that the Fixed Term Parliaments Act (and requirement of a two-thirds majority in the House of Commons).
Productivity down again as firms hire workers instead of investing in machines
Productivity fell through the first half of 2017 in the latest blow to hopes that wages will rise and prosperity take off, as workers’ are producing less output for each hour worked than they were a decade ago.
Rising productivity is a key factor in improving living standards over the long-run, so the fall in output per hour in both of the first two quarters of this year is a gloomy indicator.
Output per hour fell by 0.1pc from the first quarter of the year to the second, and is now 0.3pc below its level at the end of 2007, the Office for National Statistics said.
That means productivity is now 20pc lower than it was expected to be, if the pre-financial crisis rate of growth had been maintained.
Hurricane Irma impacting jobs figures won't stop the Fed from hiking
The headline figures in today's US jobs report being pulled down by Hurricane Irma won't be enough to stop the Fed from hiking in December, according to Manuel Ortiz-Olave, market analyst at Monex Europe.
Traders have latched onto wage growth picking-up to 0.5pc to boost the dollar on the currency markets, ignoring the 33,000 decline in payrolls.
Mr Ortiz-Olave explained:
"Wage growth has been the last piece of the inflation puzzle for the Federal Reserve over the last several quarters, as it remained stubbornly low despite a strong economic recovery and continued new lows in the unemployment rate. Albeit late, wage growth finally made an appearance in September with a massive increase well above expectations. Despite the contraction in employment, the three-month average of headline job creation remains above 100.000 jobs/month, which will not discourage the Fed from a hike.
"There can be no more doubt, the Federal Reserve will hike interest rates before year end as already strong data now has the support of the Fed’s “prodigal son”: wage growth. This suggests the economy will grow at a strong pace in the last quarter of the year."
Tarmac owner CRH in multibillion-pound bidding war for US cement giant
A bidding war has erupted over the US’ fifth largest cement maker after a mystery rival bidder trumped the offer made by the maker of Tarmac with a $3.8bn (£2.9bn) counter proposal.
The eleventh-hour approach from an unnamed buyer values Ash Grove Cement at between $3.7bn to $3.8bn, which could thwart the plans of the Irish building materials group CRH, itself the largest concrete maker in the US, which made a $3.5bn offer last month.
According to reports, sources close to the deal have revealed the mystery bidder as North American cement maker Summit Materials.
Glencore to spend $1bn on Chevron’s southern African oil assets
Glencore is to spend $973m (£743m) buying a majority stake in Chevron’s oil assets in South Africa and Botswana, just days after shoring up its grip on a Peruvian zinc miner.
The deal will see Glencore take 75pc ownership of Chevron’s refineries, pipelines and petrol stations in the two southern African countries; the combined business made $138m in pre-tax profits last year.
The remainder of the business will continue to be held by its current owner, a group that was encouraged to buy up assets under South Africa’s economic empowerment rules designed to support historically impoverished communities.
Pound sinks further against the dollar on US job figures
Wage growth now at cyclical high; broadest measure of unemployment, the U-6, down 0.3 to 8.3%. Low jobless claims point to payroll rebound
— Joseph A. LaVorgna (@Lavorgnanomics) October 6, 2017
if this negative jobs number isn't revised away, one hell of a streak in the US has ended: 83 straight months of payroll jobs growth
— Daniel Gross (@grossdm) October 6, 2017
The mini-boost the pound received against the dollar from Theresa May saying that the Cabinet is behind her has been instantly erased by US job figures that have just landed.
Although the headline payrolls figure disappointed, dropping by 33,000, the currency markets have focused on the more impressive 0.5pc pick-up in average hourly earnings.
Pantheon Macro economist Ian Shepherdson explains how the storm has affected the figures:
"Payrolls were hit hard by the hurricanes. The official number undeshot ADP substantially because ADP is model-based and was supported by the rise in August payrolls.
"The official number is based only on the Sep survey of employers. We expect the recovery to begin in October, but if Katrina is any guide the big rebound won't come until November."
Weak PMI readings also key drivers for the pound's plunge this week
— Anthony Barton (@AntBarton89) October 6, 2017
— Barney Southin (@barneysouthin) October 6, 2017
Although hard to believe given the onslaught of criticism directed at her in the last couple of days, not everything is all Theresa May's fault.
While she has undoubtedly been the main catalyst behind the pound's plunge this week, some ropey PMI surveys from the manufacturing and construction sectors at the start of the week have also been key drivers.
Sterling dipped 0.9pc and 0.2pc on Monday and Tuesday following the weaker-than-expected figures but Capital Economics believes that concerns over a slowdown following the figures are overdone.
"First, we wouldn’t read too much into the PMI surveys, since they have a history of bouncing about quite a lot from one month to the next. What’s more, the different surveys have not been painting a wholly consistent picture.
"Second, the broader news on the economy doesn’t suggest that a substantial slowdown is likely. Consumers have been showing an impressive resilience in the face of the real pay squeeze. And there are signs that other parts of the economy will start to play a bigger role in supporting growth. Overall, we still expect GDP to grow by 2% or so in 2018."
Finsbury Food confirms closure of Grain D'Or with loss of 250 jobs
Finsbury Food has confirmed the closure of its loss-making Grain D’Or pastry factory, with the loss of up to 250 jobs.
The Aim-listed firm said Grain D’Or, which has two bakeries in London producing croissants, pastries and speciality breads, had been struggling in a hotly competitive market and suffering with “loss-leading pricing”.
The company first said it was considering closing the division in April and announced today it had decided to go through with it following a consultation period.
The closure, which will complete by December 2, will cost it up to £10m, although the firm said it expected the final figure to be closer to £6m.
Pound claws back lost ground as May says she has the 'full support' of her cabinet
Sterling has clawed back a little bit of the ground lost this week in the last few moments after Theresa May said that she was providing "calm leadership" with the "full support" of her cabinet.
After a week of plunges for the pound, the move higher is quite minor and leaves it 0.3pc lower against the dollar for the day, trading at $1.3087.
Meanwhile on equity markets, stocks are unusually throwing caution to the wind ahead of the US jobs figures, according to Accendo Markets head of research Mike Van Dulken.
"Probably because September's NFP figure is likely to be a meaningless hurricane-induced aberration, potentially also resulting in a sharp mean-reversion for October. With unemployment holding around lows, the real focus will be on wages growth. If this can hold at 2.5% annually, it supports recovering consumer inflation (and stable core), merely bolstering the likelihood of a Fed rate hike in December."
Lunchtime update: Pound on course for worst week in a year; easyJet the biggest laggard on rising FTSE 100
The pound is on course for its worst week in a year on fears that Tory MPs will attempt to topple prime minister Theresa May, bringing a fresh bout of political instability.
Ahead of US jobs figures this afternoon, the pound has sunk 0.5pc against the dollar with the greenback expected to brush off weak labour data still distorted from hurricane season later on and maintain its pressure on sterling.
The FTSE 100 has nudged up 0.2pc this morning with easyJet retreating 2.7pc as its revenue-per-seat, a key health indicator for airlines, dips due to the oversupply of seats in the sector.
Spreadex analyst Connor Campbell said this on the markets' reaction to the latest movements within the Tory party.
"The vultures are circling over Theresa May following Wednesday’s cough-filled, letter-losing, prankster-plagued speech at the Tory conference in Manchester.
"There is clearly no market appetite for another Tory leadership battle, with investors seemingly suggesting that the damage it would do to the UK’s negotiating power with the EU outweighs the possible benefits of ending up with a ‘stronger’ leader."
Hollywood Bowl on for a strike as it eyes investor cash return after first year on stock market
Investors in the UK’s largest 10-pin bowling company could be about to hit a strike as the company suggested it would return cash to shareholders after its first year on the stock market.
Hollywood Bowl said customers had continued to flock through its doors with sales up by 8.9pc in the past 12 months compared to the same period last year. While new openings had helped, management said like-for-like sales for the year to September 30 - which include sites older than a year - were up a healthy 3.5pc.
This prompted management to state its results would be marginally ahead of expectations.
Chief executive Stephen Burns said the amount of cash the company was generating, thanks in part to investment in its sites and improvements to things such as its food offering, was enough to fund its investment plans and meant the board was “considering returning capital to the group’s shareholders.”
Centrica sinks as analysts count the cost of the energy price cap
It's probably about time we took a look at what stocks are moving in London this morning.
Analysts at Investec counting the cost of the new energy price cap at British Gas owner Centrica has pulled it down 1.3pc, bringing its loss for the week to 6.3pc, while building materials maker CRH has sunk 1.3pc after it emerged that it will have to battle with a rival to acquire US firm Ash Grove.
Housebuilder Barratt Developments has moved higher after Credit Suisse raised it to "outperform" and the Halifax house price data came in stronger than expected.
IG market analyst Joshua Mahony warned, however, that today's uptick is "unlikely to mark the beginning of a housing rebound given the dearth of houses for sale, coupled with a deterioration in real income and tighter regulation on investment properties".
London property market 'won't bounce back until 2021'
London's property market will not shake off its slump until 2021, when it will return to being the fastest growing part of the UK, economists have predicted.
Average prices in the capital have fallen for the first time since the financial crisis this year, amid fears that the housing market could stagnate when the UK leaves the European Union in 2019.
House price growth has slowed across the board since the Brexit vote last June, but forecasts by KPMG Economics suggest momentum in the market will pick up again around the time the country leaves the EU.
The prospects of continued uncertainty associated with the Brexit process, coupled with rising interest rates on the horizon, could trigger further adjustments in house prices and moderate growth in most regional markets over the short term, KPMG said.
EasyJet sinks to the bottom of the FTSE 100 as revenue-per-seat drops
No-frills carrier easyJet has sunk to the bottom of the FTSE 100 after its revenue-per-seat, a key indication of the health of an airline, dropped due to the oversupply of seats in the sector.
Nonetheless, Hargreaves Lansdown analyst George Salmon believes that "things are finally starting to look up at" the company.
"With passenger numbers and load factor both hitting a record high this quarter, easyJet is ending the year with good momentum.
"The net effect is that profits look set to come in marginally above expectations, putting easyJet on a smoother flightpath than investors had feared after the post-Brexit profit warning."
EasyJet shares take a knock despite record summer passengers
A persistent oversupply of airline seats has put downward pressure on low-cost carrier easyJet in spite of the airline saying profits would be at the top end of its guided range thanks to record summer passenger numbers.
Investors sent the shares down nearly 1.5pc in early trading to £12.65, making it the biggest faller in the FTSE 100, after the Luton-based company’s revenue per available seat - a key performance metric for airlines - fell 3.7pc in the final quarter of its trading year. Over the past six months, the number is down 1.4pc.
The fall comes as the airline industry struggles with too many available seats on flights. While some airlines have cooled the level of seat growth they had planned since the Brexit referendum last year, the low oil price has helped airlines keep a higher number of seats in the air than they might otherwise be able to do.
Pound under pressure from dollar rising on tax reform hopes and strong macro data
— Robertson Baxter (@RobertsonBaxter) October 6, 2017
It takes two to tango on the currency markets and developments across the Atlantic have also cranked up the dollar's pressure on the pound.
Mike Van Dulken, head of research at Accendo Markets, explains why the greenback has had a strong week:
"Investors sentiment was buoyed by economic optimism after strong macro data (durable goods, ISM), a soft touch appointment as Fed Banking watchdog and House Republicans approving a budget resolution that increases the chances of passing of tax reform. This despite a tricky US jobs report looming in light of recent hurricanes."
Today's US job figures are expected to be so distorted by hurricane season that they will have "less impact on the US dollar than usual given that it will be difficult to gauge the underlying health of the labour market", according to MUFG currency analyst Lee Hardman.
Therefore, the momentum is unlikely to shift during the course of today and the last time the pound had a week this bad against the dollar it had sunk down to just above $1.22. Grim times.
Pound tumbles as Cabinet ministers privately agree that the prime minister needs to step down
Plot to unseat PM involved 5 ex Cabinet ministers going to see May to urge her to resign until Tory whips "outed" ringleader @BBCr4today
— Nick Robinson (@bbcnickrobinson) October 6, 2017
Michael Gove says Grant Shapps is wrong about Theresa May: leadership speculation is boring, he says
— Steven Swinford (@Steven_Swinford) October 6, 2017
The pound is tumbling on the currency markets after former Tory minister Grant Shapps said that Cabinet ministers had privately agreed that the prime minister needs to step down.
Spreadex analyst Connor Campbell, who described Mrs May's speech on Wednesday as Thick of It-esque, believes that "another Tory leadership battle would be seriously bruising for the pound", which is on course for its worst week in a year.
"At the moment, there is no real clear – or, at least, market-preferred – candidate to replace May.
"It could help out the FTSE, however, which is enjoying this latest spate of sterling suffering, the index now sitting above 7500 for the first time in 2 months, a rise that has directly correlated with cable’s recent collapse."
House price growth beats expectations as shortage of properties lifts figures
Monthly house price growth rose by 0.8pc in September, the ongoing shortage of properties for sale and "solid growth in the full-time employment" helping the figure comfortably beat economists' expecations
Russell Galley, managing director of Halifax Community Bank, warned that while price growth has improved, it is still lower than at the start of the year.
"However, increasing pressure on spending power and continuing affordability concerns may well dampen buyer demand.
"There has been recent speculation on the possibility of a rise in the Bank of England base rate. We do not anticipate this will have a significant effect on transaction volumes."
Agenda: Sterling sinks further as Tory infighting stokes instability fears
The pound has sunk below $1.31 against the dollar for the first time in a month, shedding another 0.5pc as Tory infighting stokes instability fears.
Sterling is now on course for its worst week in a year as the prospect of an ugly leadership battle looms.
While the greenback is also pushing in the other direction, buoyant from strong US macro data and political progress overnight, sterling is sliding against all the major currencies on the markets, dipping a further 0.3pc against the euro.
The British pound extended declines after slumping to a four-week low amid speculation about a challenge to Theresa May's leadership. (BBG) pic.twitter.com/5xCKe95p8D
— Holger Zschaepitz (@Schuldensuehner) October 6, 2017
US labour figures are the highlight of the economics calendar with just 95,000 jobs expected to be added to the US economy in September, a sharp drop from the previous month as hurricane season takes its toll on the data.
Back in the UK, house price data from Halifax due shortly is the sole release for traders to digest while on the FTSE 100, easyJet has slipped to the bottom of the index despite reporting that full-year profit will be at the upper end of management's guidance.
Trading statement: EasyJet
Economics: Halifax House Prices (UK) Non-Farm Payrolls (US), Unemployment Rate (US), Average Hourly Earnings (US), Wholesale Inventories (US), Factory Orders (GER)