London pre-open: Stocks seen up after positive US session

(Sharecast News) - London stocks were set to rise at the open on Thursday following an upbeat session on Wall Street. The FTSE 100 was called to open around 20 points higher at 7,025, with all eyes likely to remain on bonds after the Bank of England stepped in on Wednesday to stabilise the gilt market.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "The BoE's QT (Quantitative Tightening) was supposed to begin yesterday. But instead, the BoE made a dramatic U-turn, and started buying bonds.

"And how about the QT? There will be no QT until a further announcement.

"And given how the things look shaky in the UK, there will certainly be no QT in the close future.

"What we will probably see is the BoE buying bonds to stabilize the UK's sovereign market, and hiking the rates to fight inflation - and Liz Truss' irresponsible government.

"I also believe that either Liz Truss and her Chancellor of Exchequer are on a hot seat, if they don't take a step back from the spending package and tax cuts they announced last week.

"Happily, though, the market heard Mr. Bailey, yesterday, and the UK sovereigns rallied. At least there is some confidence in the BoE - which is reassuring."

Investors will also be 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.

For example, a buyer using a 75% loan-to-value loan to buy an average price home would have mortgage repayments of £825 per month with rates at 2%. To keep repayments at a similar level when rates are at 5%, the buyer would only be able to afford a mortgage that is 28% smaller.

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 corporate news, Next cut its sales and profits forecast on the back of the weakening economic outlook, including the recent turmoil in currency markets.

It noted: "The devaluation of the pound looks set to prolong inflation, even once factory gates prices ease. It looks like we may be set to have two cost of living crisis this year: a supply side-led squeeze, next year a currency-led price hike as devaluation takes effect."

Elsewhere, Synthomer warned on profits as it highlighted deteriorating macroeconomic conditions since August.

The group, which pointed to reduced demand in construction and coatings end markets, now expects full-year earnings before interest, taxes, depreciation and amortisation to be 10% to 15% below its previous expectations.