Persimmon has signalled the culmination of economic uncertainty and rising mortgage rates has began to impact sales and the UK housebuilder has said they are now entering a ‘challenging period’.

Persimmon shares were down as much as 8.3% on Tuesday morning.

Rising mortgage rates were central to the uncertainty around trading at Persimmon and their key sales metrics have steadily deteriorated.

Build rates were 20% ahead of last year but the questions will be asked around their ability to sell the newly built homes. Persimmon cancellation rates increased to 28% from 21% in the preceding 12 weeks from 1 July 2022 highlighting adverse buyer behaviour in the face of worsening economic conditions.

Persimmon sales

Persimmon’s net private weekly sales rate per outlet has fallen to 0.48 in the six weeks since September, representing a sharp drop from the 0.6 average rates 1 July 2022 to 7 November 2022.

“Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position,” said Dean Finch, Group Chief Executive.

“Persimmon enters this more challenging period as a five-star builder, with average selling prices below the market average, high quality land holdings, and a robust balance sheet. The recent strengthening of our land holdings with disciplined investment will maintain our industry-leading embedded margins.”

Housebuilders also now face the pressure of the Help to Buy scheme being closed. Persimmon said around 20% of their sales were made using Help to Buy.

Falling house prices will do Persimmon no favours with Halifax saying average UK house prices fell 0.4% in the month to October.

Dividend

Persimmon has become one of the FTSE 100’s biggest dividend payers and today’s update has cast a shadow on their ability to maintain the current level of payouts, but stopped short of signalling any decision.

“Persimmon hasn’t given specific guidance on its dividends for this year, but reading between the lines of the new capital allocation policy, the double digit yield looks likely to moderate to a more realistic level,” said Derren Nathan, Head of Equity Research at Hargreaves Lansdown.

The FTSE 100 was broadly flat in Monday trade as investors assessed the situation in China and comments from Chinese officials on their zero-COVID policy.

Global equities rallied last week on rumours China had set up a committee to manage the end of their economically detrimental approach to managing the virus.

Over the weekend, Chinese officials said they would push on with lockdowns and quarantine in the immediate future, but there are at least signals they are considering a shift in policy.

The FTSE 100 was 0.1% weaker at 7,327 at the time of writing.

“The FTSE 100 on Monday largely consolidated its gains from the back end of last week as investors continue to weigh the latest hints on Chinese Covid policy,” said AJ Bell investment director Russ Mould.

“Hopes that Beijing was done with Covid lockdowns entirely certainly look premature but even a slight shift to a more pragmatic approach would be taken positively by markets.”

Nonetheless, Chinese equities rallied again overnight, and China-exposed FTSE 100 stocks gained. Goldman Sachs has predicted Chinese equities could rally as much as 20% if China’s COVID polices are scrapped.

Miners gain

Miners were among the top gainers on Monday in London with Rio Tinto adding 1.7%, Anglo American 2.6% and Antofagasta 1.8%. The sector has surged on Friday in line commodity prices.

Ocado was the top riser as it online retailer built on new contract wins last week and continued to rebound from heavy selling this year. Ocado shares were up 8% on the day but are still 59% down this year.

GlaxoSmithKline was the biggest faller, shedding 3.2%, after the pharma giant said it has received disappointing results from a blood cancer drug trail.

Bens Creek has issued a mining update outlining progress at their North American metallurgical coal assets including mining in a new permit area, plant facility upgrade, and steps to double daily production.

The updated ignited early interest in Bens Creek shares with the coal miner trading up over 10% in the first hour of trading on Monday.

However, as the session progressed, Bens Creek shares faded the early rally and traded just 2% higher at 24p at the time of writing.

After a blistering start to life as a listed company, Bens Creek shares have suffered dearly since the highs around 100p this year.

The key data from today’s announcement is the 2,500 tons of run of mine coal production in a single day at a higher clean coal recovery of 62%.

Investors will be looking forward to production increasing over the next year as capacity is improved.

The Bens Creek CEO summarised the mining update saying he was ‘confident that 2023 will be a good year for Bens Creek’ as the measures bear fruit.

“The set up to allow us to move from a contracted fleet to an owner operated fleet with two highwall miners is nearly completed.  This, together with the remediation of the infrastructure (from what was a previously idle mine) and the commencement on the underground mine for the creation of a first walking super section, is nearing completion,” said Adam Wilson, Chief Executive Officer of Bens Creek.

“An update on resources and the issue of a new mining permit have taken place at an expedited pace over the last twelve months and we remain confident that 2023 will be a good year for Bens Creek. The regular train deliveries and inventory build are now expected to commence alongside the increased production. As with all mining projects, more production spreads the cost across more tonnage and thus reduces the average unit cost per ton, thereby increasing margins.”

The Lloyds share price has remained frustratingly subdued since their earnings updates a couple of weeks ago and the dark clouds gathering above the UK economy suggest Lloyds shares could stay depressed in the immediate future.

The capital appreciation element from investing in Lloyds may be postponed as we move through the winter months into the spring, at which time we may see a shift in monetary policy, lower inflation rates, and overall market sentiment.

Lloyds shares may trade within their 40-43.5p range for an extended period meaning investors would have to rely on dividend income as compensation for the wait.

Third quarter profits at the bank were robust enough to support the share price, but provisions for bad debts were a warning of economic uncertainty.

However, there is undoubtedly the chance Lloyds jump back above 50p on positive developments in the UK economy, and the 4.7% Lloyds dividend yield adds an extra attraction for investors.

Lloyds Dividend

The bank has gone ex-dividend in early to mid April in the past two years and investors will be eyeing their final dividend payout next year which makes up the lion’s shares of their payout during the year.

Lloyds paid 1.33p as final dividend earlier this year and investors will be hoping this is at least maintained after the benefits of higher interest rates on profits.

Much will rest on the health of the UK economy and the level of future provisions Lloyds will have to make for bad debts, as well as demand for mortgages.

News today that UK house prices were falling will be a cause for concern, but many experts predicts any downside in UK house prices will be minimal.

With a yield of 4.7%, Lloyds has a better yield than the majority of FTSE 100 shares and is well covered at 3.9x. This means there is plenty of space to increase the dividend – should profits hold at current levels.

Lloyds share price was trading at 42.7p at the time of writing; up 1.7% on the day but down 10% year to date.

Chinese equities sparked a global rally in stocks last week on hopes the end of their Zero COVID policy was coming to an end.

Optimism around initial rumours on social media China were preparing a dedicated committee to end the policy built momentum last the week. Reports the Chinese authorities had also approved a new inhalable vaccine added to the positive mood.

This culminated in surging equities in Hong Kong on Friday and a sharp rally in China-focused equities globally.

However, over the weekend, Chinese officials moved to dampen any hopes of a broad reopening saying they would push on with their zero-COVID which includes lockdowns and strict quarantine measures.

There continues to be a higher number of COVID cases in China and there were fresh lockdowns and restrictions over the weekend.

Chinese equities

There was a brief period of negative trading in Chinese stocks overnight but this was quickly bought into with Hong Kong’s Hang Seng closing 2.5% higher on the day.

Despite Chinese official throwing cold water on an immediate end to their strict controls, there is an expectation building in markets that China will soon scrap the policy and Chinese demand will return before long.

“With China going into winter, most analysts think a change in zero-COVID is unlikely until at least March,” said said Tapas Strickland, head of market economics at NAB.