Must read: European markets, UK house prices, BAE Systems

GLOBAL MARKETS

After defying broader weakness across Europe to end the third quarter higher, the FTSE 100 has kicked off October modestly in the green with BAE Systems (LSE:BA.) and United Utilities Group Class A (LSE:UU.) at the top of the UK index.

After Paris overtook London last year to become Europe’s largest equity market, the UK is catching up once again and could regain its crown following the recent slide in French markets and the FTSE 100’s outperformance. 

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UK Chancellor Jeremy Hunt is expected to announce plans to increase the national living wage to at least £11 an hour from next April in a speech at the Conservative Party conference today. Tens of thousands of people on benefits could also receive lower payments if they don’t actively try to find jobs.  

US lawmakers reached a temporary deal over the weekend, which will fund the US federal government for 45 days. However, President Biden said he’s ‘sick and tired’ of the political brinkmanship. US futures are pointing to a stronger open, breathing a sigh of relief after a government shutdown was avoided for now. 

China’s Caixin/S&P Global manufacturing PMI dropped to 50.6 in September down from 51 in the previous month and below expectations for a reading of 51.2. A day earlier, it reported its official PMI for September which expanded for the first time in six months. Markets in China, Hong Kong, India, and South Korea are closed.

NATIONWIDE HOUSE PRICES 

UK Nationwide house prices came in unchanged month-on-month in September, outpacing expectations for a decline of 0.4% and improving from a drop of 0.8% in August. Year-on-year they fell by 5.3%, a slightly smaller drop than analysts’ forecasts for a decline of 5.7% but still the biggest annual drop since 2009, matching August’s reading. All regions suffered annual house price falls in the third quarter but the South West was the weakest performing region with prices down 6.3% year-on-year. The average house price now stands at £257,808. 

The housing market is under pressure as rising borrowing rates weighing on mortgage approvals and monthly mortgage payments increase sharply as a percentage of average income. However, with the Bank of England at or close to the peak of the rate hiking cycle, inflation coming down and house prices cooling, some pressures for potential homeowners could ease in the months ahead. Nonetheless, the era of cheap mortgage rates is now just a distant memory, with the housing market having to recalibrate to reflect the shift towards higher for longer interest rates.

BAE SYSTEMS 

BAE Systems has won a near £4 billion deal to build attack submarines as part of the AUKUS joint programme between the US, Britain and Australia. The deal with help fund 5,000 jobs in the northwest of England. BAE’s CEO Charles Woodburn said this will allow the company to ‘invest in critical skills and infrastructure to support our long-term national security.’ 

Shares in BAE Systems are trading higher reflecting the market’s optimism towards the deal. Also in a vote of confidence towards the stock, Berenberg has raised its assessment from a hold to a buy and increased its price target from 1,050p to 1,170p. 

Shares in BAE Systems have outperformed the stock market over the last year, up nearly 30%, driven by increased demand for defence spending amid the geopolitical uncertainty. The deal is a major win for the company, lifting the stock towards the top of the FTSE 100.