The FTSE 100 was the laggard heading into Tuesday afternoon, as it struggled after the pound surged past $1.29 again, on robust UK pay growth.
The latest reading of the UK jobs market was mixed, with unemployment growing but wage inflation quickening. It puts the Bank of England under the spotlight.
Ebury analyst Matthew Ryan expects another 50 basis point hike from the BoE.
‘UK inflation is already running far hotter than policymakers had hoped, and price pressures will struggle to abate any time soon so long as earnings continue to grow at the current scorching pace. Bank of England governor Bailey has already warned that second-round effects on inflation will linger for some time yet, and today’s news will do nothing to soothe concerns of a dreaded wage-price spiral,’ Ryan explained.
The pound was quoted at $1.2916 at midday on Tuesday in London, rising from $1.2828 at the equities close on Monday.
The FTSE 100 index was down 11.34 points, 0.2%, at 7,262.45. The index is stacked with international earners, whose fortunes are hurt by a stronger sterling.
The FTSE 250 was up 110.31 points, 0.6%, at 18,138.27, and the AIM All-Share was up 0.21 of a point at 738.93.
The Cboe UK 100 was down 0.1% at 724.25, the Cboe UK 250 was up 0.6% at 15,882.97, and the Cboe Small Companies was up 0.2% at 13,456.27.
UK unemployment rose unexpectedly in the three months to May, while wage inflation picked up speed, figures from the Office for National Statistics showed.
The UK jobless rate unexpectedly rose to 4.0% in the three months to May. Market consensus, as cited by FXStreet, had expected it to remain unchanged from 3.8% in the three months to April.
‘The unemployment rate had generally been falling from late 2013 until the start of the coronavirus pandemic. Thereafter it increased until the end of 2020 but has now returned to pre-Covid-19 pandemic levels,’ ONS said.
In the three months to May, annual growth in average total pay, including bonuses, accelerated to 6.9% from an upwardly-revised reading of 6.7% in the previous three-month period. May’s figure topped the FXStreet-cited consensus of 6.8%.
‘The reason for the pound’s move higher is today’s UK jobs data,’ said AJ Bell analyst Russ Mould.
‘While there are some signs the tightness in the labour market is starting to ease, wage growth remains uncomfortably high in the context of the Bank of England’s efforts to get surging prices under control. If inflation is like toothpaste, to borrow the well-worn analogy, then the bank is likely to have to make a big mess of the economy trying to get it back in the tube. Borrowers face more pain with the prospect of further rate hikes to come.’
In European equities on Tuesday, the CAC 40 in Paris was up 0.9%, while the DAX 40 in Frankfurt was up 0.4%.
The euro stood at $1.1009 midday Tuesday, higher against $1.0984 at the London equities close on Monday. Against the yen, the dollar was trading at JP¥140.30, lower compared to JP¥141.52.
In the FTSE 100, British Gas parent Centrica was down 0.4%.
It said it has signed a long-term sale and purchase agreement for 1.0 million tonnes a year of liquefied natural gas. The agreement is for 15 years on a free on board basis at the Delfin Deepwater Port, located 40 nautical miles off the coast of the US state of Louisiana. It has a market value of $8 billion.
‘Given the uncomfortable headlines around Centrica’s British Gas operation and its treatment of vulnerable customers, it’s probably no bad thing the company is seen to be doing its bit for the UK’s energy security,’ AJ Bell’s Mould commented.
In the FTSE 250, RHI Magnesita shares were up 6.3% to 2,850.00 pence each.
Ignite Luxembourg said its offer to acquire 29.9% of RHI Magnesita shares has received valid acceptances for around 19.5% of the latter’s issued share capital.
As a result, Ignite Luxembourg opted to waive the offer acceptance condition of at least a 20% stake, in order to progress the offer closer to completion, subject to remaining conditions.
In mid-June, Ignite Luxembourg, a company indirectly managed by Rhone Holdings VI, made a partial cash offer for 14.1 million shares in Vienna-based refractory products supplier RHI Magnesita at a price of £28.50 for a total £401.9 million.
Future rose by 2.5%, after closing up 6.9% on Monday.
The Bath, England-based magazine publisher on Monday said it plans to buy back up to 10% of its shares. The on-market share buyback programme will return up to £45 million to shareholders.
Future has been a frequent acquirer of media and technology companies in recent years and ‘has historically prioritised organic and inorganic investment before debt repayment and returning excess cash to shareholders’, it said.
However, it explained the buyback ‘will provide greater flexibility to achieve an optimal use of cash to deliver value for shareholders, whilst still maintaining a strong balance sheet’.
On AIM, STM Group surged 71% to 47.00 pence, after it said it has agreed in principal to a potential cash takeover offer worth nearly triple its closing price on Monday.
The London-based financial services provider said the possible offer from Pension SuperFund Capital is for 70 pence per share. STM shares closed at 27.50p on AIM in London on Monday. It had a market capitalisation of £16.3 million, so the offer from PSF would value STM just above £40 million.
The possible offer is from PSF Capital GP II as general partner of PSF Capital Reserve LP. PSF provides pension savings and pension risk transfers.
‘Discussions in relation to the possible offer are at a very early stage,’ STM cautioned. ‘There can accordingly, at this time, be no certainty that any offer will ultimately be made for the company.’
Stocks in New York were called to open mixed. The Dow Jones Industrial Average was called down marginally, the S&P 500 index up 0.1%, and the Nasdaq Composite up 0.2%.
Brent oil was quoted at $77.80 a barrel at midday in London on Tuesday, down from $78.48 late Monday. Gold was quoted at $1,936.42 an ounce, rising from $1,923.22.
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