London open: FTSE slumps and pound slides; Next cuts guidance

(Sharecast News) - London stocks slumped and sterling was under pressure again on Thursday as investors continued to fret about the implications of last week's so-called mini-budget, with a guidance downgrade from retailer Next adding to the downbeat mood. At 0835 BST, the FTSE 100 was 1.3% lower at 6,913.08, while sterling was down 0.9% against the dollar at 1.0788.

On Wednesday, markets ended a little firmer as the Bank of England stepped in to stabilise the gilt market after the recent selloff. The BoE expects to spend £65bn on bond-buying overall in a bid to avoid a meltdown in the pensions sector, with £5bn of buying a day until 14 October.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said intervention by the BoE "hasn't moved the dial that much in terms of the UK's economic outlook".

"It did help calm Wall Street and traders in Asia, with worries about contagion easing. However, the FTSE 100 has opened lower, with investors still highly concerned about the knock-on effects of the government's deep tax cutting policy," she said.

"Government borrowing costs are still more than double what they were two months ago and the pound is languishing at 37-year lows, keeping the inflationary pressure up as more expensive imports will be passed onto consumers. The markets are pricing in that interest rates could hit 5.75% by next year, a hugely painful shift for homeowners."

Streeter said "the clock is ticking" for the Truss administration to come up with full costings of its plan, which has caused such uproar in the financial markets.

Investors were also mulling the latest research from Zoopla, which showed that home buyers could see their buying power slashed by more than a quarter as the cost of borrowing continues to mount.

According to the latest Zoopla house price index, house price growth remained stable at 8.2% year-on-year in September, despite the rising cost of living.

But the property portal warned that higher mortgage rates were likely to reduce buying power going forward. Its analysis showed that if mortgage rates rise as expected from 2% to 5%, household buying power will be slashed by up to 28%, assuming they want to keep monthly repayments unchanged.

Zoopla said: "This will impact housing demand into 2023 unless buyers put down larger deposits, allocate more income to mortgage costs or adjust their budgets, buying smaller property or looking to cheaper areas.

"We anticipate that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the south ease, as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic."

In equity markets, Next slid after the retailer cut its sales and profits forecast on the back of the weakening economic outlook, including the recent turmoil in currency markets.

Next now expects full-price second-half sales to be down 1.5% on the previous year, compared to earlier guidance for growth of 1%, while full-year profits forecasts have been trimmed to £840m from £860m.

Synthomer tanked as it warned on profits, highlighting deteriorating macroeconomic conditions since August and reduced demand due to de-stocking.

The group, which supplies aqueous polymers, now expects full-year earnings before interest, taxes, depreciation and amortisation to be 10% to 15% below its previous expectations.

Elsewhere, Barratt Developments, British American Tobacco, Hays, Rightmove, Games Workshop and Computacenter all fell as they traded without entitlement to the dividend.

Market Movers

FTSE 100 (UKX) 6,913.08 -1.32% FTSE 250 (MCX) 17,120.42 -1.16% techMARK (TASX) 4,133.18 -1.00%

FTSE 100 - Risers

BAE Systems (BA.) 812.60p 0.47% Haleon (HLN) 280.00p 0.47% Unilever (ULVR) 4,077.50p 0.31% Aveva Group (AVV) 3,155.00p 0.16% Rolls-Royce Holdings (RR.) 66.48p -0.33% Land Securities Group (LAND) 516.80p -0.42% Shell (SHEL) 2,251.00p -0.44% Airtel Africa (AAF) 130.70p -0.53% Unite Group (UTG) 839.00p -0.53% Convatec Group (CTEC) 199.70p -0.55%

FTSE 100 - Fallers

Barratt Developments (BDEV) 340.40p -8.17% Next (NXT) 4,952.00p -6.99% Ocado Group (OCDO) 495.40p -5.17% Rightmove (RMV) 480.00p -5.06% Smurfit Kappa Group (CDI) (SKG) 2,590.00p -3.61% Frasers Group (FRAS) 688.00p -3.57% Auto Trader Group (AUTO) 524.40p -3.07% Sainsbury (J) (SBRY) 177.00p -2.93% Associated British Foods (ABF) 1,253.00p -2.79% Legal & General Group (LGEN) 214.40p -2.68%

FTSE 250 - Risers

W.A.G Payment Solutions (WPS) 92.00p 4.31% Auction Technology Group (ATG) 730.00p 3.69% JPMorgan Emerging Markets Inv Trust (JMG) 107.00p 2.29% Templeton Emerging Markets Inv Trust (TEM) 147.80p 2.21% Baltic Classifieds Group (BCG) 135.00p 2.12% PureTech Health (PRTC) 243.50p 1.88% Tullow Oil (TLW) 45.24p 1.80% The Global Smaller Companies Trust (GSCT) 125.20p 1.79% The Renewables Infrastructure Group Limited (TRIG) 130.60p 1.24% Capital Gearing Trust (CGT) 4,910.00p 1.24%

FTSE 250 - Fallers

Synthomer (SYNT) 104.40p -24.35% Hays (HAS) 100.60p -9.61% Aston Martin Lagonda Global Holdings (AML) 133.30p -6.29% Supermarket Income Reit (SUPR) 97.40p -3.56% ASOS (ASC) 611.50p -3.55% Marks & Spencer Group (MKS) 100.15p -3.42% Liontrust Asset Management (LIO) 731.00p -3.31% Ferrexpo (FXPO) 118.60p -3.26% Mercantile Investment Trust (The) (MRC) 161.40p -3.12% TI Fluid Systems (TIFS) 124.40p -3.12%