Interactive Investor

Must read: FTSE 100, oil, bonds, Metro Bank, UK rents

Our head of investment rounds up the morning's big news.

5th October 2023 09:12

by Victoria Scholar from interactive investor

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    GLOBAL MARKETS

    European markets have opened mixed after a reprieve overnight in Asia and a stronger close on Wall Street. After a weaker close for the FTSE 100 on Wednesday, the blue-chip index is hovering around the flatline this morning with Tesco (LSE:TSCO) outperforming again after yesterday’s bullish update and some price target upgrades from Barclays and Bernstein this morning. 

    Oil prices remain under pressure today after suffering the biggest one-day drop in over a year. West Texas plunged 5.6% on Wednesday, settling below $85 a barrel reflecting concerns over higher for longer for interest rates and weaker demand. The move reverses some of oil’s sharp rally between June and September, driven by tight supplies. Saudi Arabia and Russia confirmed plans to stick to their voluntary output cuts at the OPEC+ meeting on Wednesday, but indications of further constraints to supply did little to stem yesterday’s sell-off. 

    Pressure on bond markets has eased after a drop in oil prices and a weaker than expected US ADP private employment report. However, analysts at Barclays suggested that only a sell-off in risk assets like equities would stem the slide in bond markets. US equity markets closed higher on Wednesday with the Dow Jones ending its three-day losing streak.

    METRO BANK 

    Metro Bank Holdings (LSE:MTRO) is reportedly looking at ways to raise up to £600 million in debt and equity financing including more than £100 million from selling shares after a steep slide in its share price. The stock is sharply extending losses today down around 25%, bringing its six-month loss to over 60% as investors flee the company. The UK challenger bank which was launched in 2010 is reported to have recently hired Morgan Stanley to help with advice and the potential capital raise. Last month Metro failed to secure regulatory approval to lower certain capital requirements in its mortgage business.  

    There have long been concerns about Metro’s finances – back in 2019 queues formed at some of its branches, sparked by negative comments about its financial position on social media. It also admitted in the same year it faced a major error around how it classified its loan book, sending its shares crashing down by nearly 40% in a single session. Just yesterday, ratings agency Fitch placed Metro Bank on ‘rating watch negative,’ reflecting its view that short-term risks to its ‘business model stabilisation, capital buffers and funding have increased’. 

    Metro floated on the stock market in March 2016 at £20 a share. Initially it rallied to a high of over £40 in 2018, but now it trades at just 38.5p per share, reflecting the major lack of confidence in the business among investors and its balance sheet woes. 

    UK RENTS 

    Rightmove says there are 25 enquiries per rental property on its website, more than three times higher than in 2019 before the pandemic and up sharply from 20 just five months ago. 

    Strong demand has lifted rents to fresh record highs of £1,278 on average outside of London. Between July and September, advertised monthly rents are up by 10% year-on-year. In London, that jump is even steeper with average rents surging 12.1% on last year, also reaching a record of £2,627. Rightmove said that versus 2019, the number of tenants is up 41% and the number of available properties is down 35%. 

    Mortgages have become much less affordable after the Bank of England’s aggressive stream of rate hikes. As a result, more and more individuals and families are being forced to turn to the rental market instead. 

    But they are finding that rents are also getting increasingly expensive. Tax changes have also made it less favourable for landlords, reducing the supply of available properties to let in the UK. A combination of strong demand and subdued supply has pushed rental costs to record highs, leaving many faced with the difficult decision of paying extortionate rents or very expensive mortgage costs, if they can afford the initial deposit.

    These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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