LIVE – Updated at 10:10
China has reported an unexpected contraction in manufacturing activity as major cities continue to be impacted by Covid restrictions.
This morning’s PMI reading of 49.2 compares with the previous month’s 50.1 and with expectations for 50, which is the barrier between growth and contraction.
The final trading session of October sees the Dow Jones Industrial Average on course for its best month since 1976 after rising 14.4% on the back of resilient earnings and hopes for a slowing in the pace of US interest rate rises.
Elon Musk is set to fire around 25% of the Twitter workforce as the billionaire tightens his grip on the finances of his newly-owned company. The Tesla boss worked through the weekend with his lawyer Alex Spiro on plans to sack 7,000 staff at the social media giant, according to reports by the Washington Post.
FTSE 100 Live Monday
- Elon Musk to fire 7,000 Twitter staff – reports
- China’s economy continues to slow
- Windfall tax speculation impacts banking and oil stocks
City Comment: Key rate rise coming on Thursday
10:09 , Simon English
Are political considerations leaking into Bank of England interest rate calls?
Well, we might have a clearer idea of that on Thursday, when the Bank makes one of the most closely watched monetary policy decisions in ages.
There’s no question rates will go up from 2.25%, but by how much?
City folk are asking each other this: are you a half, three-quarter, or full pointer?
If the Bank limits itself to a half-point raise, that seems to indicate confidence in the (latest) new government.
It suggests the members of the Monetary Policy Committee think inflation is being tamed, that Rishi Sunak and Jeremy Hunt are steady hands on the till after the chaos of Truss and Kwarteng.
If they go for a full point raise, as it might have had to do under the previous management, that suggests they are no more confident about the new brooms than they were about the last lot.
The Bank is, of course, fiercely independent of all political considerations. Of course.
Except Governor Andrew Bailey can be fired on the PM’s whim and there’s a wider context just now.
The FT reports that Sunak is “on a collision course” with City regulators over his desire for a new “intervention power” that would enable ministers to overrule the watchdogs.
The Bank thinks this is a dangerous plan that will weaken confidence in the City. The Treasury says “matters of significant public interest” could supersede that issue.
What this would mean in practice is not really clear, beyond the notion that Sunak, like Truss, wants growth and doesn’t think his desire for it should be blocked by the pencil sharpeners.
Bailey wouldn’t be human if he didn’t ponder, at least in passing, what sort of rate rise the new PM wants on Thursday.
Banks gain ground but oil stocks under pressure
09:52 , Graeme Evans
Windfall tax speculation as the government mulls how to fill a £40 billion hole in the public finances pushed banks and energy stocks in different directions today.
NatWest and Lloyds rose on reports that they won’t be targeted for additional taxes, whereas North Sea explorer Harbour Energy fell on fears that a levy on energy sector profits could be extended to 2028.
More signs of slowing momentum in China’s economy added to pressure as Shell lost 44p to 2374.5p and BP dropped 2.95p to 470p ahead of its third quarter results tomorrow.
The weaker-than-expected readings from the manufacturing and service sectors reflected the continued impact of China’s ongoing zero-Covid policy.
The FTSE 100 index slipped 10.33 points to 7037.34, with Harbour Energy off 3.2p at 370.8p and housebuilders including Barratt Developments 1% lower as attention turns to the demand impact of Thursday’s expected 0.75% rise in interest rates.
Glencore shares were a penny cheaper at 495.3p after the Financial Times reported that Tesla held discussions earlier this year about taking a stake of up to 20% in the FTSE 100-listed supplier of cobalt and other key raw materials for batteries.
On the risers board, British Gas owner Centrica improved 2.7p to 75.9p after US bank Jefferies raised its recommendation to “buy” with a 90p target. The rise, which came despite speculation of a windfall tax on generators, was accompanied by rises of 0.6p to 41.9p for Lloyds and 6.9p to 231.8p for NatWest after Friday’s big post-results fall.
The FTSE 250 index dropped 73.89 points to 17,842.78, but heightened speculation that British Airways owner IAG could lead consolidation of the European airline industry sent easyJet shares up 20p to 348.5p and Wizz Air by 63p to 1674p.
Musk to fire 7,000 Twitter employees: reports
09:31 , Simon Hunt
Elon Musk is set to fire around 25% of the Twitter workforce as the billionaire tightens his grip on the finances of his newly-owned company.
The Tesla boss worked through the weekend with his lawyer Alex Spiro on plans to sack 7,000 staff at the social media giant, according to reports by the Washington Post.
It comes after Musk denied reports he plans to fire Twitter workers to avoid having to make hefty payouts to them.
The reports, which first appeared in the New York Times, suggested the billionaire wanted to fire Twitter employees before the beginning of November, when grants of share options were set to be awarded to them.
Musk commented “this is false” in response to a journalist who had discussed the report.
Banking stocks rally but FTSE 100 flat, easyJet up 4%
08:39 , Graeme Evans
A flat performance by the FTSE 100 index today masked some big moves in the energy and banking sectors as windfall tax speculation continues to swirl.
NatWest put back some of Friday’s post-results losses by rising 7.8p to 232.7p and Lloyds Banking Group lifted 0.9p to 42.1p on reports that the government is not planning to target the sector for extra taxes.
However, North Sea explorer Harbour Energy fell 5.7p to 368.3p on fears that a levy on energy profits could be extended to 2028. China’s latest disappointing economic figures added to pressure as Shell lost 44p to 2374.5p and BP dropped 2.95p to 470p ahead of its third quarter results tomorrow.
Electricity generators are also thought to be in the government’s windfall tax sights, but a “buy” recommendation from US bank Jefferies meant shares in British Gas owner Centrica still lifted 3.5p to 76.7p.
The FTSE 100 index slipped 5.20 points to 7042.47 and the FTSE 250 index edged up 19.50 points to 17,936.17, with easyJet and Wizz Air up 4% on speculation that IAG could lead consolidation of the European airline industry.
Blockchain firm Valereum buys Gibraltar Stock Exchange
08:06 , Simon Hunt
Blockchain firm Valereum has acquired the Gibraltar Stock Exchange for an undisclosed fee in a bid to turn the exchange into a hub to finance smaller businesses in Africa and the Middle East.
In August the business said it was selling off parts of its bitcoin mining business to cover the costs of acquisition. It also has plans to link securities with NFTs.
Valereum said in a statement: “The future focus of the GSX will be to expand the access to European capital for early stage and small-cap companies in the Middle East, India and Africa where there is a huge opportunity to empower entrepreneurs across the region.”
UK interest rates set for 33-year high
08:03 , Graeme Evans
Interest rates are set to hit a 33-year high this week, with the Bank of England seen hiking its base rate on Thursday by 0.75% to 3% in the ongoing battle to control inflation.
Financial markets expect that interest rates will reach around 5% next year before falling back due to factors such as the impact of the recession, lower commodity prices and the easing of supply chain pressures.
Hargreaves Lansdown analyst Susannah Streeter said: “The Bank wants to wave red flags now to throw cold water on expectations that there will be hotter prices to come and drown out demands for higher wages, which could lead to a more embedded price spiral.
“Dampening down demand now by raising rates and making borrowing more expensive is set to cause further financial pain for companies and consumers, but central banks clearly think it is the price to pay to reduce the risk of a prolonged period of stagflation.’’
China’s Covid impact shown in manufacturing downturn
07:54 , Graeme Evans
China’s economy has reported a further loss of momentum after the country’s manufacturing PMI reading fell to a weaker-than-expected 49.2 from the previous month’s 50.1. A figure above 50 represents growth.
The index for the services sector fell from 48.9 to 47, reflecting the impact of ongoing Covid restrictions on in-person activity.
Capital Economics thinks China’s economy will continue to struggle heading into 2023.
The consultancy said: “We don’t expect the zero-Covid policy to be abandoned until 2024, which means virus disruptions will keep in-person services activity subdued.
“In addition, the deepening global downturn will continue to weigh on exporters. And officials are still struggling to put a floor underneath the property market.”
Rates hopes lift Dow Jones, FTSE 100 seen higher
07:27 , Graeme Evans
A fourth successive 0.75% interest rate rise by the US Federal Reserve is seen as a near certainty on Wednesday, with clues on the subsequent path of hikes the key focus.
Deutsche Bank’s economists believe that 0.75% is also likely in December, but note that two payroll reports and two sets of inflation figures are due before the meeting.
They believe January could mark the start of a downshift, whilst still seeing upside risks to their terminal rate expectation of 5% given the recent inflation data.
Hopes of a slowing in the pace of rises have helped to lift Wall Street markets, with the Dow Jones Industrial Average the biggest beneficiary.
It has risen 14.4% so far during its best monthly performance since 1976, aided by the resilience of earnings updates outside the technology sector. The S&P 500 is up 9% and the Nasdaq Composite ahead by 5%.
The FTSE 100 index has experienced a mixed month but is expected to open eight points higher at 7055, according to CMC Markets.