Closing post
Time for a recap.
Shares UK housebuilders took a dive after being hit with a double-whammy of challenging news.
Not only was the market knocked by Rightmove’s report, showing that sellers had slashed asking prices of UK at the fastest rate since 2018 in August, but also a profit warning from housebuilder Crest Nicholson.
The company said it was now expecting to make £50m in annual pre-tax profits this year, down from previous forecasts for £73.4m, saying that conditions had “worsened” due to “persistently high inflation and rising interest rates.”
Crest Nicholson said mortgage costs were deterring buyers, particularly first time buyers, who have no equity to support their purchases and were no longer able to draw on government schemes like Help to Buy.
The news hit fellow housebuilders, who were among the worst fallers on the FTSE 100 by 3pm on Monday, including Taylor Wimpey down 4.8%, Berkeley Group down 2.9%, Persimmon down 2.5%, and Barratt Developments down 2.4%.
Elsewhere, analysts were dissecting the effectiveness of China’s interest rate cut, and oil prices bounced amid concerns of tighter supplies.
That’s all from us today. We’ll be back bright and early at 8am on Tuesday. -KM
US stocks open broadly higher
Wall Street has open for trading and the main indices are in positive territory:
The S&P 500 has opened 0.28% higher at 4,382 points
The Nasdaq is up 0.47% at 13,352 points
The Dow is up 0.03% at 34,509 points
Here’s something else for the Bank of England to worry about, our economics editor Larry Elliott writes.
The Office for National Statistics has for the first time published its findings for the level of persistent inflation in the UK and the news is not good.
The data wizards at the ONS have found that – while the all-items measure of the cost of living peaked some months ago and is now down to 6.4%– the measure of persistent inflation has taken longer to peak and is still at 6.8%.
(For the purposes of the exercise the ONS uses its CPIH measure of inflation – which includes housing costs – rather than the more commonly reported CPI.)
The bills consumers pick up in restaurant and cafes are one of the better guides to the underlying trends in inflation, the ONS says.
In truth, the analysis won’t tell Threadneedle Street’s interest-rate setters anything they don’t already know, but it is another piece of evidence pointing to further increases in borrowing costs.
Brent crude oil prices rise above $85 amid concerns over tight supply
Brent crude oil prices are on a bounce, and are up around 1.1% today at $85.72, amid a predicted drop in supply from Opec+ producers including Saudi Arabia and Russia.
A rise in the price of heating oil, as countries in the northern hemisphere start to prepare for colder months ahead, has also sparked some bullish views on crude.
That’s alongside a further drop in the number of US oil and gas rigs in operation.
It helped push US WTI crude prices up nearly 1.4% at $82.35 by Monday afternoon, and propelled stocks in oil companies like BP up 1.5% towards the top of the FTSE 100.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said:
Brent crude, the benchmark has headed back above $85 a barrel. Supply cuts by OPEC+ member countries are feeding through, while US energy companies have reduced the number of oil and gas rigs in operation for the 6th week in a row.
The uplift in oil prices has put more of a spring in the step for energy giants BP and Shell, which gained ground in early trade.
Time to check in on stock markets.
We’re looking at a positive start for Wall Street, with Dow futures trading 0.38% higher at 34,695 points, S&P 500 futures up 0.53% at 4,406 points, and Nasdaq futures up 0.75% at 14,856 points.
Meanwhile, across Europe, housebuilders continue to drag down the FTSE 250:
FTSE 100 up 0.38% at 7,289 points
FTSE 250 down 0.5% at 18,006 points
Germany’s XETRA DAX up 0.79% at 15,697 points
France’s CAC 40 up 1.19% at 7,249 points
Italy’s FTSE MIB up 1.46% at 28,165 points
The “dramatic” rise in charging for flight add-ons has resulted in almost nine out of 10 airlines charging for at least one additional fee on top of the headline price for a flight, according to a report, my colleague Sarah Marsh writes.
Ryanair has emerged as the carrier that levies the most for extras such as seat selection, baggage check-in and insurance, as it becomes increasingly difficult to find an airline that offers everything up front.
Analysis by NetVoucherCodes, a money-saving voucher website, found 89% of all airlines charged for at least one extra, with the figure rising to 97% among European carriers.
The controversial issue of add-ons was reignited last week when an elderly couple were charged £110 by Ryanair for new boarding passes after they mistakenly checked into the wrong leg of their flight.
Ruth Jaffe, 79, and her husband, Peter, 80, accidentally downloaded their return boarding passes instead of those for the outgoing leg on a flight to France. The charges they incurred prompted others to complain about Ryanair’s fees on social media.
In June, Rishi Sunak ordered a review of “drip pricing” under which companies hide the true cost of products and services by charging consumers extra fees. The prime minister said the government would investigate how widespread the practice was and, if necessary, draw up measures to tackle the problem.
Read more here:
Updated
Nearly £2.2bn wiped off FTSE 350 housebuilders index in August
Today’s housing market woes have taken a further chunk out of the FTSE 350 index of housebuilders, which is now down around 9% since the start of August.
It has resulted in around £2.2bn collectively being wiped off the value of its contstituent companies, including Crest Nicholson, Taylor Wimpey, Persimmon, Berkeley Group and Redrow.
The market cap has fallen from around £25bn to £22.7bn so far this month.
Updated
The fall in average asking prices is unlikely to be enough to offset broader issues in the UK housing market, experts warn.
House prices are still unaffordable for most of the UK population, which will be further deterred by the ongoing rise in interest rates in the coming months, which are likely to make mortgages more expensive.
And for those worried about UK house builders’ prospects, many expect that the ongoing housing shortage spur long-term demand for the largest companies.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:
Sellers might be reducing their prices but it’s still not enough of a lure, given how unaffordable houses have become.
The number of deals shaken on in August have been 15% lower than the same month in 2019. The low level of properties on the market isn’t helping with homeowners clearly more reluctant to sell in a falling market.
Even though the headache of cost-inflation is easing somewhat for housebuilders, there is very dim light at the end of the tunnel in terms of demand, given that interest rates are expected to be pushed up again in September.
Nevertheless, the housing shortages in populous parts of the UK don’t look like being solved any time soon, which should give housebuilders more resilience for the longer term.
A topical column from our economics editor, Larry Elliott, following confusion over the PBOC’s interest rate decisions this morning.
China’s economy is going through a rough patch. Growth is slowing and its property bubble has well and truly burst. Unemployment is rising.
So what, you might say? Every country has difficult periods when past excesses catch up with it. Eventually the economic cycle turns and recovery begins. China is the world’s second biggest economy and has grown at a stupendous pace over the past four decades. It plays a pivotal role in the global economy and has invested heavily in advanced manufacturing and AI. Sure, it has problems but it will emerge from them relatively unscathed.
But there are countries that never recover. The Soviet Union was a command economy that collapsed rapidly at the end of the 1980s. In retrospect, it was easy to see why the terminal crisis was going to happen, but it didn’t look that way when the Kremlin was deploying SS20 missiles across eastern Europe a few years earlier.
So here’s the alternative view.
China’s economic miracle is over. What’s been happening in the past week – the weakness of the currency, the fall in prices, the financial stress evident in the residential housing sector – are all signs of a deeper malaise that will require the ruling Communist party to undertake structural economic changes that will demand a loosening of rigid political control. China’s leader, Xi Jinping, is a self-styled strongman who will not be prepared to make any concessions to freedom and democracy. Sooner or later, China will go the way of the Soviet Union.
This sounds far-fetched, which it is, to an extent. The Soviet Union was a far smaller economy than China and was far less integrated into global supply chains. China matters to the world economy in a way the Soviet Union never did.
Read more here:
China’s central bank has cut one of its key lending rates but left another unchanged, surprising economists who had expected more forceful action to support economic growth amid widespread concerns over its path, my colleague Jasper Jolly writes.
The world’s second-largest economy is in the midst of a slowdown, and has slipped into deflation with prices falling year on year as slowing domestic spending weighs on the country’s post-Covid economic recovery.
The Chinese property industry is also in crisis, as the slowdown exposes overextended developers. Evergrande Group, once China’s leading property developer, filed for bankruptcy protection in the US on Friday as it tried to restructure its large debts.
The People’s Bank of China (PBoC), the central bank, has responded by cutting interest rates, but its latest move on Monday surprised economists, who had been expecting a bigger change.
China trimmed its one-year loan prime rate, which is mainly used as the benchmark for corporate lending, from 3.55% to 3.45%, but left its five-year equivalent, mainly used to price mortgages, at 4.2%. Economists polled by Reuters had expected both rates to be cut, with a 0.15 percentage point reduction to both the central prediction.
Read more here:
AJ Bell investment director Russ Mould said that while weak house price data (as was “hardly a surprise”, Crest Nicholson’s profit warning has “laid bare the the scale of the impact of a housing slowdown on the housebuilding sector.”
Sales of new homes have plunged alarmingly and, while not all developers in the space are created equal, the news, allied to Rightmove’s latest reading on the property market, has had a knock-on effect on share prices in the rest of the sector this morning.
The £7,000 drop in the average asking price observed by Rightmove in the last month, allied to a big drop in transaction volumes, is the kind of statistic to make estate agents distinctly uneasy.
The scale of Crest Nicholson’s warning may come as a shock to investors given it reported its first half results just a couple of months ago and this hints at the speed and scale of the deterioration in the market.
The one compensation for shareholders is Crest Nicholson is at least sticking with its planned full year dividend payment for now. However, its gloomy update will have set the market on alert for further warnings from its industry peers.
A reminder of the data from Rightmove, which this morning showed a 1.9% drop in average asking prices in August compared to a month earlier, making the sharpest fall in five years:
Crest Nicholson’s shares are up from their low of 166p low this morning, but are still down 8.8% at around 177p following its profit warning.
That is similar to the dip experienced in early July, when the company lost its CFO, but is still shy of the tumble suffered in the wake of Liz Truss’ disastrous mini-budget, which sparked a surge in borrowing rates and mortgage prices.
Updated
UK housebuilders are dragging down the FTSE 250, which is in the red and down 0.25% this morning.
That’s compared with a sea of green across most of Europe’s indices:
FTSE 100 is up 0.4%
Germany’s XETRA DAX is up 0.6%
France’s CAC 40 is up 0.99%
Italy’s FTSE MIB is up 1.32%
The gradual decline of mortgage rates (albeit from elevated levels) stalled today, according to the latest Moneyfacts data.
The average 2-year fixed residential mortgage rate today is 6.76%. This is unchanged from the previous working day
The average 5-year fixed residential mortgage rate today is 6.24%. This is unchanged from the previous working day
The average standard variable rate as of 1 August 2023 is 7.85%
There are currently 5,206 residential mortgage products available. This is down from a total of 5,208 on the previous working day.
Proportion of German construction firms in financial difficulty doubles
Not all is well in Germany’s housing market, either.
Around 10.5% of German construction companies said they had fallen into financial difficulty last month, double the number reporting challenges a year ago, according to the Ifo economic institute.
Its survey showed that the downturn in Germany’s residential construction sector intensified in July, with the number of companies complaining about a lack of orders growing to 40.3%. That is up from 34.5% in June and just 10.8% a year earlier.
Nearly 19% of construction companies also reported cancelled orders, which was far above the long-term average of 3.1%.
Klaus Wolrabe, Ifo’s head of surveys, warned:
A storm is brewing. Following many years of expansion, now higher interest rates and the drastic rise in constructions costs are choking off new business.
Updated
Crest Nicholson shares have pared some losses but are still down 10%.
Richard Hunter, head of markets at interactive investor, said the housing market downturn is already dragging on the more domestically-focused FTSE 250.
The index is down 0.3% this morning, and more than 4% so far in 2023.
Hunter says:
A profit warning from housebuilder Crest Nicholson prompted a further sell-off across the beleaguered sector, with the likes of Taylor Wimpey, Persimmon and Barratt Developments all in the firing line as the sellers took aim.
It also serves as a reminder that higher mortgage and interest rates are beginning to gain some traction which unfortunately comes at a time when the broader economy is posting little more than anaemic growth.
The FTSE250 has also turned negative on prospects and has now lost over 4% in the year to date.
The UK homebuilders index has fallen 2.9% in early trading in the wake of Crest Nicholson’s profit warning.
It has dragged on shares in Taylor Wimpey, down 4.6%, Barratt Developments, down 2.5% and Persimmon, down 3.6%.
Housebuilder shares tumble after Crest Nicholson profit warning
Share prices of UK house builders have tumbled following a profit warning from Crest Nicholson.
Crest Nicholson itself is down 14.4%, and is on track for its biggest daily drop since the Covid pandemic in June 2020.
Investors are spooked after the company – which reported a 60%+ slump in half-year profit in June – said worsening trading conditions meant it was expecting annual pre-tax profit to be around £50m, down from previous expectations for £73.7m.
Against a backdrop of persistently high inflation and rising interest rates, trading conditions for the housing market have worsened during the summer of this year.
While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers.
Crest Nicholson said mortgage costs were deterring buyers, particularly first time buyers, who have no equity to support their purchases.
That is on top of the lack of government support, following the end of the Help to Buy scheme, contributing to weaker transaction levels in recent weeks.
The group does not therefore expect to see a material improvement in trading conditions before its year end.
European markets are relatively muted this morning, with all of the FTSE 100, German DAX, French CAC 40, Spanish IBEX and European STOXX 600 all up just 0.1% at the start of trading.
Portugal’s PSI bucks the trend, rising 0.26%.
Introduction: Asking prices for UK homes drop; China cuts key interest rate
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We kick off with news of further woe for UK home sellers this morning.
Data released by property website Rightmove has revealed that the average UK home has been listed for around £364,895 throughout August.
That is 1.9% lower than a month ago, meaning that sellers have slashed prices by around £7,012 as they try to attract buyers put-off by high interest rates that have affected mortgage costs.
While there is traditionally a summer slump in asking prices, it is steeper than the average 0.9% drop in August, and marks the fastest monthly decline since summer 2018.
Zooming out, though, the data is a bit more forgiving, showing that on average, asking prices have only dropped 0.1% compared to a year ago.
Elsewhere, China surprised markets but slashing one of its key lending rates early this morning.
However, policymakers left a. separate five-year rate unchanged in a move that surprised markets
There are concerns in Beijing that the country’s economic recovery is losing steam due to an ongoing property slump, weak consumer spending and a drop in credit growth, prompting authorities to introduce more stimulus.
But concerns over the country’s rapidly weakening currency has prompted additional worries, and meant Beijing has had to tread lightly when introducing more monetary easing to avoid putting more downward pressure on the yuan.
It meant that while the one-year loan prime rate was lowered to 3.45% from 3.55% previously, the five-year loan prime rate was left at 4.20%.
