• Global indices higher as calm descends and earnings provide cheer.
• Bank of America results help reduce US recession worries.
• Worries fall about bond market contagion after Trussenomics is torn up.
• FTSE 100 opens higher but Barclaycard index shows the scale of consumer belt tightening.
• Bank of England reported to be delaying bond sell-off amid uncertainty.
• Polls indicate potential election disaster for Conservative party.
• Ibstock puts in a resilient performance despite construction industry headwinds
By Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
The new sense of calm emanating from the UK has helped spread ripples of optimism across global markets, helped by a jolt of earnings cheer. A sea of green is lapping over indices, as concerns about contagion from a bond market meltdown abate. Bank of America’s upbeat assessment of the US economy as it posted a robust set of numbers was also a reassuring marker for investors. American consumers are still showing resilience in their spending habits, which is being taken as an indication that either a recession is less likely or will be shallower than has been feared. As interest rates tramp upwards, they are providing a boost to net income margins and helping offset weakness in the Bank’s investment division.
Newly parachuted in UK finance minister, Chancellor Jeremy Hunt has succeeded in appeasing bond market vigilantes for now. UK government borrowing costs are hovering near yesterday’s low with 10-year gilt yields still below 4%. But the hard-won truce could fall apart in the weeks to come if his spending plans don’t deliver the detail investors crave for economic policy uncertainty to abate.
This is likely to be why the Bank of England is reported to be further delaying the sale of billions of pounds of government bonds which it was originally due to offload earlier this month. It’s clear the bank is still unnerved by the potential for fresh instability in gilt markets given that so much uncertainty still remains about the government’s fiscal plans
This speculation of another hold-up for monetary tightening has not succeeded in giving much more support to the pound which is hovering around $1.13. The heightened sensitivity to the Bank’s expected moves indicates the fragility of the UK economy, as homeowners, consumers and companies grapple with the added financial pressure of higher borrowing costs, as a result of the mini-budget debacle. Pressure is still set to weigh on consumer discretionary stocks, particularly hospitality with the latest spending snapshot from Barclaycard showing how shoppers are trying to cut costs everywhere with non-essential spending growing by just 1%, the weakest since the February lockdown. People are hunkering down for the long haul and the tough winter ahead, by spending far less particularly on eating out, with restaurant spending already down by a brutal 12.2% in September. We’re also splashing less cash on new outfits and making do with current wardrobe ranges instead with clothing sales down by 4%. It’s little wonder shoppers are conserving every scrap of spare cash they have, faced with mounting bills everywhere they turn.
A further windfall tax on the profits of oil and gas companies has now been slapped on the table of potential moves by Jeremy Hunt, as he searches around for solutions to his government’s budget crisis. After chucking the Trussenomics agenda in the rubbish bin, the Conservative Party itself is waiting in skip, with the latest polls showing that their support has been demolished and that they risk being dumped into obscurity at the next election.
The Redfield and Winton poll estimate that the Conservatives could retain just 22 seats, a loss of 343, giving Labour the biggest lead ever for any party since 1997. This shows just how deep the damage of the last six weeks has been for the party, as a wrecking ball has swung, destroying the party’s reputation for economic prudence. Amid worries about this wipe-out, Liz Truss is still clinging on to power, though the expectation is that she’ll also sweep away well before the country heads to the polls, as the party attempts to restore its economic standing.
Concerns about a sharp slowdown in the housing sector have been brushed off by Ibstock, the clay bricks and concrete product manufacturer. It’s building up robust sales with trading exceeding expectations in the third quarter. Ibstock is putting in an impressive performance despite significant headwinds, with full-year results now expected to beat expectations showing there are resilient bright spots amid the current volatility. Ibstock is managing energy costs through a combination of forwarding buying and surcharges being passed on to customers. There still should be cautious given that new orders across the construction industry are slowing, but Ibstock is showing it is a smart operator. ‘’