- FTSE 100 plunges 237 points as UK PM sets out Brexit plan
- Dow Jones Industrials drops over 2% as US ADP data exacerbates growth concerns
- WTO decision on US tariffs sparks new Trump trade war fears
5.15pm : Bloodbath for markets
The FTSE 100 index recorded its biggest one-day drop for more than three years as fears over the state of the US and global economies amid trade war concerns and intensifying Brexit worries created the perfect storm for equities.
The UK benchmark tanked by 3.2%, or 237.78 points, to close at 7,122.54. That was the worst day’s performance by the blue chip index since the beginning of 2016.
This Friday sees the publication of the always closely watched US non-farm payrolls and today’s Automatic Data Processing (ADP) private sector jobs report, seen as a useful precursor, made for disappointing reading. It showed a modest 135,000 jobs were created in September compared to a consensus forecast of 152,000 jobs.
The average monthly job growth for the last three months also plunged to 145,000 positions compared to 214,000 in the same three months of 2018. Coming hot on the heels of a dismal US ISM manufacturing activity report yesterday, it all led traders to reach for the ‘sell’ button.
Adding to the chaos was news the World Trade Organization (WTO) has backed a US request to impose tariffs on US$7.5 billion of European goods due to the EU subsidies which were previously handed to Airbus, potentially sparking yet another trade war escalation.
Meanwhile in Brexit-land, fears are mounting over prime minister Boris Johnson’s next moves after the UK government offered new plans on leaving the bloc, which have reportedly not been met positively in Brussels, amid fears it could all escalate a ‘no-deal’ scenario.
At the Tory party conference in Manchester, Johnson was quoted as saying: “Let’s get Brexit done on 31 October…to answer the cry of those 17.4 million who voted for Brexit (and) for those millions who may have voted Remain, but are first and foremost democrats and accept the result of the referendum.”
On Wall Street, the Dow Jones Industrial Average around London’s close had plummeted by over 510 points, extending a near 300 point drop on Tuesday as October started very badly for investors.
3.45pm: FTSE 100 plunge hits 3.2% as BoJo unveils Brexit plan
Into the final hour of trading on Wednesday, the FTSE 100 was on course for a one-month low as concerns over the global economy and more Brexit uncertainty rattled traders in London.
Just after 3.45pm, the blue-chip index had slumped just over 3.2%, or 233 points, to 7,126.
Meanwhile, the publication of Boris Johnson’s much-awaited Brexit plan seemed to have done little to assuage the rout in equities.
Under the plans, revealed in a letter the EU Commission president Jean-Claude Juncker, Johnson’s proposes that Northern Ireland remain in the EU’s single market while also following UK customs rules, an arrangement that would need to be re-approved by the Northern Ireland Assembly every four years.
While the Democratic Unionist Party, which supports the Conservative through a confidence and supply agreement in Parliament, has backed the proposals, the reception has been less favourable in Dublin, with many expecting the plans will be given a similarly bleak assessment in Brussels.
The new plans, however, appeared to have given some support for sterling, which had mostly recovered its losses to be flat against the dollar at US$1.2303.
2.45pm: Wall Street opens sharply lower as recession concerns bite
The US markets joined their international counterparts on Wednesday morning by falling sharply in the first minutes of trading in New York.
Shortly after the opening bell, the Dow Jones had dropped 0.92% to 26,327, meanwhile, the S&P 500 sank 0.94% to 2,912 and the Nasdaq fell 1.01% to 7,828.
Gloomy US manufacturing data from Tuesday and today’s ADP jobs report, both of which have pointed to signs of a slowdown in the world’s largest economy, have spooked many investors and sparked selling amid fears of an impending recession.
The grim start for the US did little to stem the downward tide in London, with the FTSE 100 having slumped 175 points to 7,184 in mid-afternoon trading.
Retailers and other consumer facing groups are leading the falls, with Kingfisher plc (LON:KGF) the biggest blue chip loser, followed by Primark owner AB Foods (LON:ABF), Burberry Group plc (LON:BRBY) and Ocado PLC (LON:OCDO). Another prominent faller is Hargreaves Lansdown Plc (LON:HL.).
One of the biggest risers on the market today is Metro Bank PLC (LON:MTRO), rallying more than 30% as the dog-friendly bank brought its bond issue back from the dead on the same day that founder Vernon Hill agreed to step down as chairman.
Investors and analysts are also lapping up plans by Paddy Power owner Flutter Entertainment PLC (LON:FLTR) to merge with Canada’s Stars Group, the company which under its previous name Amaya tried but failed to merge with William Hill.
“The market will love this transaction, consolidation has been a well held theme in this space and will be expected to continue,” said analysts at Olivetree, admiring the potential to comfortably strip out around 5% of combined central costs.
1.55pm: Slower start expected on Wall Street
Concerns over the global economy looked set to hit Wall Street again on Wednesday, with the main US indices forecast to open in the red.
The latest ADP jobs report will have done little to lift the gloom surrounding the US economy, with the data showing the American private sector added 135,000 jobs in September, down from 157,000 in August and slightly below consensus estimates of 140,000.
Big companies drove hiring by adding 67,000 jobs, while mid-sized firms added 39,000 and small businesses 30,000.
BREAKING: More signs we are heading into a recession and Trump is only focused on himself and getting dirt on his political opponents: “September private payrolls report shows the pace of hiring is slowing” https://t.co/1rus6ClQtO
— (((DeanObeidallah))) (@DeanObeidallah) October 2, 2019
Broken down by sector, education and healthcare saw the biggest increase, adding 42,000 jobs, while trade, transportation and utilities followed in second, adding 28,000.
“The job market has shown signs of a slowdown”, said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, while Mark Zandi, chief economist at Moody’s Analytics, said the figures indicated that business had turned “more cautious in their hiring” and that if they pulled back any further, unemployment would “begin to rise”.
Meanwhile, in London, the FTSE 100 had fallen further into decline as was down 161 points at 7,199 in early afternoon.
12.40pm: FTSE 100 losses reach plateau
As the market entered its afternoon session, the FTSE 100’s losses appeared to have reached something of a plateau after having fallen 151 points to 7,208 by early lunchtime.
Market sentiment is currently fragile at best and pessimistic at worst as a litany of weak economic data has raised red flags over the world economy.
Craig Erlam, senior market analyst at OANDA, said the sluggish growth figures, particularly in US manufacturing, had increased the probability of another interest rate cut by the Federal Reserve before the end of the year to “above 80%”.
One benefit of the renewed rate cut prospects was gold, which after hitting a 30-day low of just below US$1,460 an ounce on Tuesday was up 0.3% at US$1,486.3 on Wednesday afternoon.
Meanwhile, Boris Johnson’s keynote speech at the Tory party conference in Manchester had provided little to move the pound, which was 0.4% lower at US$1.2251 against the dollar.
“The prime minister was typically flamboyant in his address with numerous soundbites and humorous references thrown in, but in keeping with allegations often levelled against him, also thin on the ground in terms of any real details as to how he hopes to secure a new and improved withdrawal agreement or solve the contentious backstop issue”, said David Cheetham, chief market analyst at XTB.
He added that while an official response from the EU regarding the government’s new Brexit proposals for the Irish border, unveiled this morning, is not expected until a phone call between Johnson and European Commission President Jean-Claude Juncker later today, noises by EU officials and diplomats are suggesting the proposals “may not be enough to forge a major breakthrough”.
11.30am: FTSE 100 continues descent into late morning; EU officials rubbish BoJo’s Brexit plan
Going into late-morning the FTSE 100 had continued its descent into the red and had notched up at 137 point plunge to 7,223 shortly after 11.30am.
Some of the index’s big hitters have been under pressure by falling oil prices, with Brent crude falling to around US$58.86 a barrel.
Analysts at IG noted that the price of the black stuff had fallen as low as US$58.56, which they said indicated a “high likeliness of further downside”.
Brent’s weakness was causing issues for the supermajors, with shares in Royal Dutch Shell PLC (LON:RDSB) down 2.4% to 2,338.5p in late-morning while BP PLC (LON:BP.) close behind with a 2% drop to 504.1p.
Meanwhile, things do not seem to be looking good for Boris Johnson’s Brexit plan ahead of his speech at the Tory conference, with a media reports revealing that his proposals are likely to receive an icy reception in Brussels.
A report from Reuters highlighted comments from EU diplomats that the new proposals, aimed at removing the ‘Irish backstop’, a key sticking point in Brexit negotiations, were “fundamentally flawed” and “won’t fly”.
As the Prime Minister has talked up the offer as a final, after which there will be no more negotiation before the UK’s scheduled departure on 31 October, renewed fears of a no-deal exit have begun to make markets nervous.
Ahead of Johnson’s speech, the pound was 0.48% lower at US$1.2242 against the dollar.
9.55am: UK construction PMI declines
Data showing the UK construction industry’s second-sharpest fall in activity since April 2009 has knocked the FTSE 100 down 102 points to 7,258 in mid-morning trading.
The construction purchasing managers’ index for September fell to 43.3 from 45 in August, with survey compiler IHS Markit also reporting the second-quickest fall in new orders for over a decade.
Dire news on #UK #construction sector as purchasing managers report activity contracted for 5th month running in September & 2nd most since April 2009. #PMI down to 43.3 (45.0 in August). House building, civil engineering & commercial activity all contracted; new orders plunged
— Howard Archer (@HowardArcherUK) October 2, 2019
The lower reading indicates that the UK’s construction sector has been in contraction at a sharper rate the previously reported, with a figure of above 50 registering growth.
Construction employment numbers have been cut by their greatest extent since December 2010, which Markit said indicated that firms were cutting costs to offset sluggish demand as well as higher fuel and supplier charges.
Building firms are being buffeted by client hesitancy, Brexit uncertainty and a weak outlook for the UK economy, said Markit economist Joe Hayes, adding that following Tuesday’s weak manufacturing data it would be down to the service sector to show if the economy is showing any resilience.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, branded the data “devastating” and that the outlook going forward “did not look positive”.
The bleak construction numbers, combining with a report on Tuesday that showed a continued decline in UK manufacturing last month, also sent the pound sliding down 0.37% to US$1.2256 against the dollar shortly after the PMI data was released.
8.45am: FTSE 100 tumbles in early trading
The FTSE 100 opened in line with predictions on Wednesday morning, falling 39 points to 7,321 in the first half-hour of the session.
Equities have been pummelled as weak manufacturing data from a number of the world’s biggest economies this week, including the UK and US, have sparked fears that a worldwide economic slump could be in the offing.
On the company front, Britain’s biggest grocer Tesco PLC (LON:TSCO) was dominating the headlines after its chief executive ‘Drastic’ Dave Lewis announced his shock departure from the supermarket chain.
Lewis, who was hired by the grocery giant in 2014 and achieved his moniker after performing a root and branch overhaul of the supermarket following a scandal over profit overstatement, will step down next summer, saying, “Our turnaround is complete, we have delivered all the metrics we set for ourselves.”
However, the group’s half-year results managed to offset the upset of Lewis’s departure, with Tesco reporting a 6.7% rise in pre-tax profits to £494mln while also hiking its interim dividend 59% to 2.65p.
Despite an initial dip, the shares also moved positively and were 1.5% higher at 243p.
Meanwhile, the pound was down 0.22% at US$1.2274 against the dollar as Boris Johnson prepared to unveil a final Brexit offer to the EU, which many believe is likely to be rejected and increase the risk of a no-deal exit on 31 October.
Proactive news headlines
Premier African Minerals Limited (LON:PREM) has refused to confirm reports in Zimbabwe that is has been awarded an exclusive prospecting order application (EPO) for its Zulu lithium project.
Nu-Oil and Gas PLC (LON:NU) has revealed a restructuring amid a debt purchase by C4 Energy Ltd and a £500,000 share placing to provide short-term working capital.
6.45am: FTSE 100 to head lower
The FTSE 100 is expected to follow global markets lower on Wednesday as traders were spooked by the prospect of a slowdown in the world economy.
Spread-better IG expects the FTSE 100 to open around 32 points lower after closing down 48 points on Tuesday at 7,360.
US markets suffered a sharp selloff overnight as the ISM manufacturing index for the world’s largest economy dropped to its lowest level since 2009 in September.
The Dow ended Tuesday 1.28% lower at 26,573 while the S&P 500 dropped 1.23% to 2,940 and the Nasdaq fell 1.13% to 7,908.
The disappointing US data, coupled with similarly limp readings from China and Japan, also pushed Asian markets lower on Wednesday morning with the Japanese Nikkei 225 falling 0.48% while Hong Kong’s Hang Seng was down 0.06%.
On the currency markets, the pound was 0.13% lower against the dollar at US$1.228 as Boris Johnson prepared to unveil a so-called ‘final offer’ to the EU in a last-ditch bid to break the Brexit impasse as the UK’s exit date of 31 October draws closer.
The UK’s construction PMI, due later today, may also provide some catalysts for sterling, although analysts at RBC are expecting construction to mirror manufacturing in showing a “sustained period of weakness” as uncertainty continues to weigh, particularly on commercial building activity.
Tesco interims top of the list for Wednesday
Shares in Britain’s largest supermarket have been essentially flat over the past year but have risen 10% over the past month, suggesting hopes for a continuation of the solid start to its financial year, with rumours also swirling that Tesco is looking to offload its Polish business.
However, a sticking point may be the FTSE 100 grocer’s discount brand, Jack’s, which despite much fanfare at launch a year ago was in the news in the past week as the first high-profile store conversion was embarrassingly changed back from a Jack’s to a Tesco’s.
Wednesday’s eyes will also be fixed on the progress the supermarket has made in raising operating profit margins to its target range of between 3.5% and 4%, and if there is has been a healthy increase from half-year dividend of 1.67p a year ago.
Significant announcements expected for Wednesday 2 October:
Economic data: BRC shop price index, UK construction PMI, US MBA mortgage applications, US ADP employment
Around the markets:
Sterling: US$1.2285, down 0.13%
Brent crude: US$59.42 a barrel, up 0.9%
Gold: US$1,477.78 an ounce, down 0.28%
Bitcoin: US$8,200.5, down 2.6%
A radical new ‘two borders for four years’ Brexit plan will be launched by Boris Johnson on Wednesday, which will leave Northern Ireland in a special relationship with Europe until 2025 – Telegraph
Accountants raked in nearly £60million in fees from Thomas Cook in the 12 years before the travel company collapsed last week – Daily Mail
The boss of Waitrose has quit the business as part of a radical overhaul that will merge the supermarket’s management with its John Lewis department stores sister chain in an effort to cut costs – Guardian
Nissan to reconsider its decision to build the Qashqai sport utility vehicle at its Sunderland plant in case of no-deal Brexit – Financial Times