Must read: FTSE 100, UK public sector finances, Capita

GLOBAL MARKETS

European markets are trading mostly lower with the DAX outperforming to log a modest gain. The FTSE 100 is under pressure with shares in volatile Ocado Group (LSE:OCDO) leading the losses. Admiral Group (LSE:ADM) is outperforming thanks to flattering broker comment. Citigroup raised its recommendation on the stock from a sell to a buy and upped its price target to 2941p from 2057p.

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The Nasdaq 100 climbed to the highest level since January 2022, rallying over 1% on Monday and the S&P 500 logged a five-day winning streak. After NVIDIA Corp (NASDAQ:NVDA) shares gained over 2% to start the week, extending this year’s blockbuster performance, investor attention turns to its earnings report due later today.

Plus focus will be on the latest Federal Open Market Committee meeting minutes for clues into the Fed’s next move. Elsewhere in central banks, European Central Bank governing council member Villeroy said rates are likely to remain unchanged for the next few quarters.

UK PUBLIC SECTOR FINANCES

UK public sector net borrowing excluding public sector banks in October 2023 was £14.9 billion, up by £4.4 billion year-on-year and the second-highest October borrowing figure since 1993 when monthly records began. In the financial year to October, borrowing hit £98.3 billion, up by almost £22 billion versus the same seven-month period last year. But it was £16.9 billion less than the Office for Budget Responsibility’s (OBR) forecast in March 2023.

Total public sector spending grew by £7.2 billion versus October last year, with higher costs such as increased benefit payments offsetting the end of energy price scheme payments. But inflation helped to boost the government’s finances with a £2.7 billion increase in central government tax receipts.

Although borrowing in October was only £3 billion less than in October 2020 at the height of the pandemic when billions were being spent on expensive programmes such as the furlough scheme, the government’s finances are in a much better position than the OBR had predicted earlier this year. This potentially provides some wriggle room for the Chancellor Jeremy Hunt when he makes his announcements tomorrow. 

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So far, the government has been trying to stick with fiscal prudence, refraining from tax cuts and spending increases where possible to provide a fiscal backdrop that supports that Bank of England’s inflation-combative monetary tightening path.

But with a general election looming, the Conservatives struggling in the polls, better-than-expected government finances and Rishi Sunak’s year-end target to halve inflation already met, the chancellor may resort to some vote-winning tax cuts in tomorrow’s hotly anticipated Autumn Statement.

CAPITA

Capita (LSE:CPI) is planning to lay off around 900 staff out of its global workforce of 50,000 as part of the company’s plans to cut costs and boost profit margins. This comes as a welcome development for its shareholders, with the stock trading sharply higher today, helping to reverse some of its year-to-date losses.

Shares in the outsourcer are still down by over 17% so far this year, reeling from a major ransomware attack in March this year which revealed that the company had unsecured data online, impacting customers, suppliers and employees. According to the Information Commissioner's Office (ICO), around 90 organisations were affects by personal information breaches.

CEO Jon Lewis is retiring at the end of the year, with Amazon Web Services’ vice-president of global telecommunications, Adolfo Hernandez, taking over on 17 January next year. Under Lewis’ five-year leadership, shares in Capita have fallen sharply by around 80% with the new CEO appointment and the latest cost cuts providing some reasons for investor optimism once again.