Pound slides, cost of government borrowing rises ahead of Tory leadership race – business live | Business

Stock market futures are pointing to a lower open on Wall Street in just over half an hour, after Snap’s forecast of flat revenues over the busy holiday quarter spooked the market.

The company behind the photo messaging app Snapchat lost more than a quarter of its market value after it posted its slowest quarterly revenue growth in five years because advertisers cut spending. Shares in other tech and social media companies such as Alphabet, Twitter, Facebook owner Meta and Pinterest also fell. They are all due to report quarterly results in the coming days.

The tech-heavy Nasdaq is expected to fall 1.2% at the open.

Time for a look at the markets.

The pound has lost 1.37% to $1.1080 amid heightened political uncertainty after Liz Truss quit as prime minister yesterday, while general dollar strength is another factor. Sterling is down 0.6% versus the euro at €1.1404.

The sell-off on European stock markets has gathered pace.

• UK’s FTSE 100 down 79 points, or 1.1%, at 6,865

• Germany’s Dax down 174 points, or 1.4% at 12,593

• France’s CAC down 114 points, or 1.9, at 5,972

• Italy’s FTSE MiB down 424 points, or 2%, at 21,277

Crude oil prices have ventured into positive territory, with Brent crude up 28 cents at $92.65 a barrel.

Finally, UK government bonds are selling off again, especially longer-dated ones, pushing up their yields – which means higher borrowing costs for the government. The 30-year bond yield has advanced 13 basis points to 4.03% while the 20-year bond is yielding 4.3%, up 15 bps. Two-year gilt yields have edged up to 3.8% while the 10-year is yielding 4.08%.

Official figures showed today that government borrowing rose to £20bn last month, the second-highest September figure on record. Jeremy Hunt, the chancellor, pledged that he will do “whatever necessary” to bring down the nation’s debt, which has reached 98% as a share of GDP, the highest level since the 1960s.

Retail sales in Britain fell more steeply than expected in September, by 1.4%, as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.

Mark Sweney

Here’s our full story on the sharp drop in British retail sales:

Retail sales in Great Britain fell more steeply than expected in September as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.

The Office for National Statistics said retail sales dropped by 1.4% in September, against a forecast of a 0.5% fall by City economists, and marks the first month that volumes have fallen below pre-pandemic levels.

According to the latest figures, food store sales fell 1.8% as increasingly budget-conscious consumers cut spending amid concerns over price rises and the cost of living. The figures come as households across the country come under pressure from inflation hitting its highest level for 40 years on the back of soaring food prices.

“This is a disappointing but unsurprising latest instalment in the saga of the cost of living crisis,” said Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown. “Food sales were especially affected, as customers make do without extra trolley treats or more expensive dining habits.”

Spending on bigger ticket items continued to fall, with household goods stores, such as furniture retailers, recording a 1.5% decline in sales volumes in September. Other non-food stores, such as jewellery retailers, reported a 0.7% fall in sales in September, while there was a 0.6% drop in sales for department stores.

There was a sizeable fall in UK housing transactions last month, in further evidence that the housing market is slowing.

UK residential transactions fell 32% to 112,370 in September year-on-year, according to HM Revenue & Customs (HMRC) figures. The number was unchanged from August.

HMRC cautioned that the recent sharp rises in mortgage rates, following Liz Truss and Kwasi Kwarteng’s disastrous mini-budget of unfunded tax cuts on 23 September, which was largely reversed on Monday, have not fed through to the figures yet.

Current monthly transactions remain at levels similar to late 2019, before the coronavirus pandemic.

Recent increases in mortgage rates are unlikely to have had any impact yet on these statistics, as the publication reports transactions that have completed at the end of the property purchasing process, which may be weeks or months after a mortgage offer is in place.

China’s yuan has fallen to its weakest level against the dollar since the global financial crisis of 2008, despite efforts by major state-owned banks to stabilise the market.

The yuan finished the domestic trading session 0.46% lower on the day at 7.2494 per dollar, the weakest closing price since mid-January, 2008.

Sources told Reuters that state banks sold dollars in the onshore currency market to prevent the spot price from weakening past the 7.25 per dollar level.

The dollar has generally strengthened today as US Federal Reserve officials show no signs of changing their aggressive stance on interest rate hikes. Sterling has dropped more than 1% versus the dollar to $1.1117, and is 0.5% lower against the euro at €1.1414, amid heightened political uncertainty.

Compared to the moves we’ve seen in markets in recent days and weeks, an eerie calm has descended. The FTSE 100 index is down 0.7% at 6,892. Government borrowing costs fell sharply this week after Jeremy Hunt reversed almost all the unfunded tax cuts in the mini-budget that caused Liz Truss’s downfall.

The yield, or interest rate, on the 30-year UK government bond (known as gilt) has fallen back from above 5% after the mini-budget. Following the worsening in the UK’s public finances, bonds have sold off this morning, and the 30-year yield has risen again, to 4.065%, up 15 basis points. The 20-year yield has added 9 bps to 4.2%, while the 10-year yield has climbed 8 bps to 3.9% and the two-year yield increased to 3.68%.

Yields rise when bond prices fall, and increasing yields show that investors want a larger return for holding the debt.

In Germany, the 10-year bond yield hit a new 11-year peak today, driven up by concerns over rising interest rates, with the European Central Bank expected to hike borrowing costs again sharply next week. The 10-year Bund, as German government bonds are known, rose as high as 2.49%, the highest level since August 2011.

The slide in sterling has accelerated, a day after Liz Truss quit as prime minister in a tumultuous week that saw her sack her chancellor Kwasi Kwarteng and appoint Jeremy Hunt instead. Hunt lost no time and on Monday ripped up the pair’s mini-budget of unfunded tax cuts that sent the pound crashing and borrowing costs soaring.

The pound has dropped 0.76% to $1.1148 this morning, a one-week low.

The leadership race could see the return of Boris Johnson, who was forced to stand down as prime minister in July after a cabinet revolt, in what would be an extraordinary comeback. He and the former chancellor Rishi Sunak are leading in the Conservative party contest to become the fifth British premier in six years.

Sunak, a former Goldman Sachs analyst, is the bookies’ favourite, followed by Johnson. In third place is Penny Mordaunt, a former defence secretary who is popular with the wider Conservative party.

More on our politics live blog.