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London open: Stocks flat as investors mull wage growth
London stocks were steady in early trade on Tuesday as the latest UK jobs data showed a jump in wage growth that’s expected to maintain pressure on the Bank of England to hike interest rates.
At 0825 BST, the FTSE 100 was flat at 7,274.79, while sterling hit a 15-month high against the dollar.
Figures released earlier by the Office for National Statistics showed that wages grew 7.3% in the three months to May, unchanged on the previous month – which was revised up from 7.2% – and coming in above expectations for a 7.1% increase.
The ONS said that for regular pay, this marks the highest growth rate, which was also seen last month and during the Covid pandemic period for April to June 2021.
Including one-off bonuses, wages rose 6.9% during the period, up from 6.7% and versus expectations of 6.8% growth.
The data also showed that the unemployment rate was 4% in the three months to May, up from 3.8% in the previous three months.
Richard Hunter, head of markets at Interactive Investor, said: “UK markets opened for business in typically subdued mood, with labour market figures providing something of a mixed bag.”
He said that while some mitigation came in the form of an unexpected rise in unemployment, “the writing on the wall for further rate rises seems to have become clearer due to wage inflation”.
“The likelihood of higher interest rates has also led to another uptick in sterling, which has a dampening effect on the FTSE 100 where the majority of earnings emanate from overseas. In addition, commodity prices have been under pressure on the prospects of weakening Chinese demand, while the average dividend yield of 3.9% across the index has become much less of an attraction given the rates now available in other asset classes, especially bonds.
“A highly tentative switch out of defensive stocks into more cyclical sectors provided scant relief in opening trade, although the strength of conviction remains to be seen.”
Investors were also mulling a survey from the British Retail Consortium and KPMG, which showed that total retail sales increased by 4.9% in June as the warmer weather brought shoppers out for items such as beach towels and barbeque food.
The rise compared with a fall of 1% in June last year and is above the three-month average growth of 4.6% and the 12-month average growth of 4.0%.
On a like-for-like basis, retail sales increased by 4.2% in June, against a decline of 1.3% in June 2022. Food sales increased 9.8% on a total basis and 10.1% on a Like-for-like basis over the three months to June, while non-food sales rose 0.3% on a total basis and fell 0.5% on a like-for-like basis over the three-months to June.
“Retail sales growth ticked up slightly in June as hot weather prompted purchases of summer essentials. Sun-seekers headed to their favourite retailers to buy swimwear and beach towels, and outdoor games, garden furniture and barbecue food were boosted as families came together to celebrate Father’s Day,” said BRC chief executive Helen Dickinson.
However, she added that people were much more cautious about big-ticket purchases like furniture and technology equipment.
“Consumer confidence remains fragile. But, with headline food inflation easing for two months in a row as prices of essentials start to fall thanks to stiff competition and consumers continuing to shift shopping patterns to mitigate as much inflation as they can, confidence could improve.”
In equity markets, energy company Centrica ticked higher after saying it had signed an $8bn deal with US-based Delfin Midstream to buy 1.0 million of liquefied natural gas a year for 15-years.
Property owner British Land gained after saying it continued to see strong operational momentum in the business, despite ongoing macroeconomic uncertainty, with its retail parks proving to be a “winning format”.
Melrose spinoff Dowlais slumped as Citi initiated coverage of the stock with a ‘sell’ rating and 97p price target, which implies around 20% downside.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | +2.06% | +12.00 | 593.60 |
| 2 |  |
British Land Company Plc | +1.75% | +5.30 | 308.50 |
| 3 |  |
Itv Plc | +1.45% | +0.96 | 67.00 |
| 4 |  |
Rio Tinto Plc | +1.08% | +52.50 | 4,921.00 |
| 5 |  |
Land Securities Group Plc | +1.02% | +5.80 | 572.40 |
| 6 |  |
Fresnillo Plc | +0.93% | +5.60 | 608.80 |
| 7 |  |
Flutter Entertainment Plc | +0.86% | +130.00 | 15,285.00 |
| 8 |  |
Associated British Foods Plc | +0.85% | +17.00 | 2,027.00 |
| 9 |  |
Mondi Plc | +0.83% | +10.00 | 1,220.00 |
| 10 |  |
Croda International Plc | +0.79% | +44.00 | 5,584.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Melrose Industries Plc | -1.75% | -8.60 | 482.90 |
| 2 |  |
Standard Chartered Plc | -1.68% | -11.20 | 657.20 |
| 3 |  |
Hsbc Holdings Plc | -1.37% | -8.30 | 598.60 |
| 4 |  |
Carnival Plc | -1.22% | -16.50 | 1,340.00 |
| 5 |  |
Relx Plc | -1.21% | -30.00 | 2,444.00 |
| 6 |  |
United Utilities Group Plc | -1.19% | -11.20 | 929.80 |
| 7 |  |
Admiral Group Plc | -1.16% | -24.00 | 2,043.00 |
| 8 |  |
Astrazeneca Plc | -1.16% | -118.00 | 10,062.00 |
| 9 |  |
Rentokil Initial Plc | -1.10% | -6.60 | 593.80 |
| 10 |  |
Intercontinental Hotels Group Plc | -1.09% | -58.00 | 5,260.00 |
US close: Stocks start week with a positive finish
Wall Street marked its first positive closing in four sessions on Monday, as market participants turned their eyes to the forthcoming inflation data and girding themselves for earnings season.
At the close, the Dow Jones Industrial Average was up 0.62% at 33,944.40 points, while the S&P 500 rose 0.24% to finish at 4,409.53.
The tech-focused Nasdaq Composite added 0.18%, settling at 13,685.48.
In currency markets, the dollar saw modest losses against major currencies, last falling 0.09% against sterling to trade at 77.68p.
It lost 0.08% against the euro, making one dollar worth 90.83 euro cents, and slipped by 0.13% versus the Japanese yen, changing hands at 141.13.
“Friday’s gloomy atmosphere has faded to an extent today and stocks have attempted to regain some lost ground,” said IG chief market analyst Chris Beauchamp earlier.
“But it promises to be a choppy week with US CPI and then the start of earnings season on the calendar.
“After a mixed start to July, investors are certainly hoping for some better news, but as Friday’s payroll data shows a recession is still some way off, and as a result more rate hikes are still coming down the line.”
US inventories stall, China producer prices slump, and eurozone investor sentiment tumbles
On the economic front, fresh government data on inventories reported earlier showed that sales during May slipped by 0.2%, following a decline in wholesale inventories in the prior month.
The inventory-to-sales ratio, which measures the amount of time it would take a company to sell off all goods stored in warehouses, climbed slightly to 1.41 months, up from 1.4 months in April, and significantly higher than the ratio of 1.3 at the same time last year.
Meanwhile, Chinese economic concerns were exacerbated as producer prices took another hit in June.
Data from the National Bureau of Statistics showed that producer price inflation fell sharply by 5.4% year-on-year in June, surpassing expectations of a 5% drop and marking the worst slump since December 2015.
The consumer price index also slowed, coming in flat at 0% year-on-year in June from 0.2% in May, which fell short of expectations for it to remain steady.
That represented the lowest reading since February 2021, stoking fears of deflation.
Investor confidence in the eurozone meanwhile also took a hit, with the Sentix investor sentiment index tumbling more than expected to -22.5 in July, from -17.0 in June and well below the consensus estimate of -17.9.
The reading marked the most pessimistic investor sentiment since November last year.
Indices for both the current situation and expectations took a hit as well, registering at -20.5 and -24.5 respectively.
Of particular note was Germany, where the headline Sentix index saw a sharp drop from -20.3 in June to -28.4 in July, its lowest point since November last year as well.
Icahn Enterprises and Cava Group lead gains
In equities, shares in Icahn Enterprises – the diversified holding company controlled by billionaire investor Carl Icahn – surged 20.2%.
The sharp rise came on the heels of a Wall Street Journal report indicating the company had finalised revised loan agreements with its banks.
It said the new arrangements would disentangle Icahn’s personal loans from the trading price of Icahn Enterprises.
Elsewhere, Mediterranean-style fast-casual restaurant chain Cava Group closed the day with an 11.06% gain.
The recent public-market debutant, which made its IPO in mid-June, saw its stock rise as analysts initiated coverage.
Tuesday newspaper round-up: Gambling, DWF, credit card spending
The main lobby group for the UK gambling industry has been accused of making inaccurate statements relating to the regulation of the £10bn-a-year sector the day before its boss appears before a parliamentary committee. Michael Dugher, the chief executive of the Betting & Gaming Council (BGC), is to be question by MPs on the select committee for culture, media and sport on Tuesday as part of a review of government proposals to improve gambling regulation. – Guardian
Labour would use artificial intelligence to help those looking for work prepare their CVs, find jobs and receive payments faster, according to the party’s shadow work and pensions secretary. Jonathan Ashworth told the Guardian he thought the Department for Work and Pensions was wasting millions of pounds by not using cutting-edge technology, even as the party also says AI could also cause massive disruption to the jobs market. – Guardian
The boss of National Grid has complained that it takes a decade to build a new power line in an attack on planning red tape. John Pettigrew, the company’s chief executive, said that Britain’s planning rules add seven years of delays to the construction time for cables. His warning comes amid ongoing rows over delays in connecting new wind and solar farms to the UK’s electricity grid, which are threatening the Government’s target of making the network carbon neutral by 2035. – Telegraph
At least 40 lawyers are set for a payday of over a million pounds each as British law firm DWF prepares to go private. London-listed DWF on Monday said it is in negotiations to sell itself to Inflexion Private Equity in a deal worth about £342m. The takeover would result in a lucrative payday for many current and former DWF partners who own shares in the law firm. – Telegraph
Consumer card spending rose by 5.4 per cent last month as grocery shopping on cards jumped by 9.5 per cent, the highest growth in the category for two years, though still below the rate of food prices inflation. According to data from Barclays, 67 per cent of supermarket shoppers said they were looking for ways to cut the cost of their weekly shop, with 32 per cent shopping at multiple supermarkets in pursuit of deals. – The Times
