A robust UK wage growth reading on Tuesday strengthened the case for more Bank of England hikes, supporting the pound but hurting the FTSE 100, and the large-cap index also succumbed to less-than-stellar data from China.
Miners ended lower on the China data, heaping pressure on the FTSE 100. Glencore lost 3.4%, while Antofagasta declined 2.0%. China is a major buyer of minerals.
Elsewhere, reports from M&S and Home Depot suggested that consumers either side of the pond are still spending, despite hawkish monetary policy.
The FTSE 100 index closed down 117.51 points, 1.6%, at 7,389.64. The FTSE 250 fell 101.68 points, 0.5%, at 18,659.75, and the AIM All-Share lost 5.03 points, 0.7%, at 749.93.
The Cboe UK 100 ended down 1.5% at 736.84, the Cboe UK 250 fell 0.4% at 16,403.28, and the Cboe Small Companies closed down 0.1% at 13,601.63.
In European equities on Tuesday, the CAC 40 in Paris shed 1.1%, while the DAX 40 in Frankfurt lost 0.9%.
China on Tuesday said it would suspend the release of youth unemployment rates, as its central bank cut a key interest rate to boost flagging growth.
A slew of disappointing figures in recent months has reflected a slump as China’s post-Covid rebound fades, with youth unemployment hitting a record 21.3% in June.
The National Bureau of Statistics said it would no longer release age group-specific unemployment data starting this month, citing the need to ‘further improve and optimise labour force survey statistics’.
The People’s Bank of China cut the medium-term lending facility rate – the interest on one-year loans to financial institutions – to 2.5% from 2.65%.
Retail sales, meanwhile, a key gauge of consumption, grew 2.5% year-on-year in July, the National Bureau of Statistics said, tailing off from a 3.1% rise in June and falling short of analyst expectations.
Overall, unemployment rose to 5.3% in July compared with 5.2% in June, the NBS said.
‘Today’s data add to evidence that China’s economy is stalling, despite the gradual ramp up of policy support. The PBoC’s 15bp MLF rate cut is larger than the 10bp June cut and came earlier than expected. The bank offered little official colour, but the likely explanation is that it is an attempt to shore up confidence, both in the financial markets and the broader economy,’ Pantheon Macroeconomics analyst Duncan Wrigley commented.
Robust wage inflation data from the UK may mean a pause by the Bank of England, let alone a rate cut, is an increasingly distant prospect.
In the three months to June, annual growth in average total pay, including bonuses, accelerated to 8.2% from the upwardly revised figure of 7.2% in the previous three-month period. June’s figures overshot FXStreet-cited consensus of 7.3%.
The UK jobless rate, however, rose to 4.2% in the three months to June. Market consensus, as cited by FXStreet, had expected it to remain unchanged from 4.0% in the three months to May.
Deutsche Bank analyst Sanjay Raja said wage growth remains ‘an obstacle to a pause in the hiking cycle’.
Raja added: ‘Despite growth signs of cooling in the labour market, the strength of wage growth – and in particular, private sector pay growth – will be worrying. Bear in mind, the Monetary Policy Committee expected private sector regular pay to slip to 6.9% year-on-year in Q3-23 – this looks unlikely now. This should leave the prospect of a 50bps hike on the table for September (though not our basecase) with hawks like [Catherine] Mann and [Jonathan] Haskel potentially calling for bigger hikes in four weeks’ time. Ultimately, the wage data was one big reason why we thought, and continue to think that the MPC has some way to go (with our terminal rate projection still at 5.75%). Put differently, a pause – in our view – remains at least a few months away.’
The pound was quoted at $1.2733 late Tuesday in London, higher compared to $1.2690 at the equities close on Monday. The euro stood at $1.0926, up against $1.0918. Against the yen, the dollar was trading at JP¥145.40, up compared to JP¥145.31.
US retail sales rose slightly month-on-month in July, figures from the US Census Bureau showed.
Advanced estimates of US retail and food services sales totalled $696.4 billion in July, up 0.7% from the previous month’s revised total of $691.3 billion.
Against the previous year, sales were up 3.2%.
Markets had expected sales to rise 0.4% month-on-month in July, according to FXStreet-cited consensus.
The data ‘keeps the risk of tighter monetary policy very much on the table’, Oxford Economics analyst Oren Klachkin commented.
‘Fed Chair Jerome Powell will likely strike a hawkish tone at the Jackson Hole Economic Symposium next week,’ Klachkin added.
Stocks in New York were lower. Both the Dow Jones Industrial Average and S&P 500 were down 0.7% at the time of the European equities close, while the Nasdaq Composite was 0.6% lower.
The US consumer will remain in focus as the week progresses, with earnings from Walmart and Ross Stores to come.
Home Depot on Tuesday reported a slight fall in second-quarter sales as it noted ‘continued pressure’ in certain big-ticket, discretionary categories.
The home improvement retailer also authorised a new $15 billion share buyback programme, replacing the previous one.
Home Depot reported net earnings of $4.66 billion in the three months ended July 30, down 9.9% from $5.17 billion the year prior. Its diluted earnings per share fell 7.9% to $4.65 from $5.05.
Second-quarter revenue fell to $42.92 billion. This was down 2.0% from the $43.79 billion achieved the previous year.
‘We were pleased with our performance in the second quarter,’ said Chair & Chief Executive Ted Decker.
Home Depot shares were 0.2% higher in New York at the time of the European equities close.
In London, another retailer, B&M European, topped the FTSE 100, rising 2.3%. B&M shares have been boosted by the expectation that it stands to benefit from a demise of Wilko.
The Times reported B&M is sizing up possible bids for Wilko, which fell into administration last week.
Analysts at Shore Capital Markets commented: ‘Although Wilko’s administration sale across its 400 stores commenced over the weekend is expected to have an immediate impact on UK-listed peers such as B&M, Dunelm, Next, and M&S, we see Wilko’s administration as further retail capacity coming off the sector. In our view, all these players can benefit from it in the medium/long term, with B&M being particularly well-positioned due to its strong value credentials.’
Elsewhere in UK retail, Marks & Spencer surged 7.4%. It now expects profit growth in its full financial year and interim results to show ‘significant’ improvement over previous expectations.
The London-based clothing, homewares and food retailer said it has seen ‘continued market share growth’ in Clothing & Home as well as Food in the first 19 weeks of its financial year.
Legal & General lost 2.7% as falling assets under management amid interest rate pressure soured a half-year profit beat.
At Legal & General Investment Management, assets under management declined to £1.158 trillion at June 30, from £1.290 trillion a year prior.
For the first half of 2023, the London-based financial services and asset management company’s pretax profit fell 53% to £324 million, from £697 million a year before.
This was largely due to around £617 million in investment losses, widened from £261 million, with operating profit only falling 1.8% to £941 million from £958 million, and beating consensus of £834 million.
Elsewhere in London, Abingdon Health surged 28%. It said that Tesco will roll-out Salistick, the first-ever saliva pregnancy test, in 298 stores and online from late-August.
Abingdon is the exclusive distributor of Salistick in the UK and Ireland on behalf of Salignostics, an Israeli developer of innovative saliva-based diagnostics tests.
Brent oil was quoted at $84.79 a barrel at the London equities close on Tuesday, down from $86.47 late Monday. Gold fetched $1,907.15 an ounce, down against $1,909.82.
Wednesday’s economic calendar has a UK inflation reading at 0700 BST, before eurozone gross domestic product data at 1000 BST. Minutes from the Federal Reserve’s most recent meeting are released at 1900 BST.
The local corporate calendar has half-year results from insurers Admiral and Aviva.
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