- FTSE 100 closes 24 points higher
- US stocks rise after CPI data as Fed meeting starts
- UK housebuilders suffer as earnings data points to higher rates
4.40pm: FTSE higher at the close
Signs that inflation is slowing in the US has brightened investor spirits at home, with the FTSE 100 closing 0.3% above opening levels at 7,595 points.
A global risk-on sentiment pushes stocks higher, says Axel Rudolph at online trading platform IG.
“As soon as US CPI beat expectations, the percentage of traders expecting the Fed to 'skip' a rate hike at Wednesday's FOMC meeting jumped from around 75% to over 95%. The percentage of those believing in a 25 basis-point rate hike at the July meeting has risen to nearly 65%.”
3.50pm: On song
Hipgnosis Songs Fund shares hit the right note on Tuesday afternoon after analysts at Jefferies International upgraded its rating to 'buy' from ‘hold’, citing a “more favourable” risk-reward dynamic for the music rights investment firm.
The US broker’s analysts said they saw potential for Hipgnosis to announce selective disposals, generating cash to repay debt and/or make share buybacks.
"To date, Hipgnosis has yet to make a single disposal. Relationships with the selling songwriters are clearly key, with the manager entrusted with the assets, rather than being a pure financial buyer.
"That said, the fund could still dispose of an institutional acquisition, like Kobalt Fund 1, consisting of 33,000 songs, acquired for $23m in 2020.
"Alternatively, [it] could potentially sell a minority strip of its entire portfolio, while maintaining control of its catalogues,” they noted
The Jefferies analysts added: “Hipgnosis could attempt to appease shareholders by announcing plans to make portfolio disposals, providing a catalyst to help narrow its current deep 46% discount to net asset value.”
In late afternoon trading in London, Hipgnosis shares were 2.8% higher at 84.60p.
3.30pm: Crude rebound
Oil prices bounced higher on Tuesday, recovering some ground lost after a plunge on the previous day as investors eye key policy decisions by central banks this week.
UK Brent crude gained 3.6%, at US$73.71 a barrel, while US West Texas Intermediate (WTI) was up 2.6% at US$69.72.
Both benchmarks fell on Monday after analysts highlighted rising global oil supplies and concerns about demand growth ahead of the latest Federal Reserve policy meeting, which concludes on Wednesday.
Most market participants expect the Fed to leave interest rates unchanged, a view supported on Tuesday by US consumer prices data which rose by less than expected in May. The European Central Bank, meanwhile, is expected to hike its interest rates after a meeting on Thursday.
In China, the world's biggest crude importer, which posted disappointing economic data last week, the central bank lowered a short-term lending rate to restore market confidence.
All the demand jitters offset a temporary boost in oil prices last week from Saudi Arabia's pledge to cut more production in July.
The Organization of Petroleum Exporting Countries (OPEC) kept its forecast for 2023 global oil demand growth steady for a fourth month on Tuesday, slightly increasing expectations of Chinese demand growth.
3.10pm: What a pain
Lloyds Pharmacy chain is closing all of its branches inside supermarkets from today after an initial plan to close them later this year has been brought forward.
All 237 Lloyds Pharmacy branches in Sainsbury's stores across the UK will close their doors by the end of the day on June 13, according to Pharmacy Business magazine.
The closures were originally planned to be phased out over the next year, but have now been accelerated in a drastic move. It comes after an earlier announcement blamed "changing market conditions" for the decision, which is thought to put 2,000 jobs at risk across the UK.
It also follows a major restructuring operation at the business, which is the UK's second-largest chain of chemists behind Boots. Multinational private equity firm Aurelius purchased Lloyds Pharmacy from Sainsbury's last year.
Earlier this year, Lloyds Pharmacy was also reported to be considering closures of some standalone stores, but these are not affected by the latest news, the Pharmacy Business magazine report.
2.45pm: Fed rate pause expected
The FTSE 100 held firm in mid-afternoon trading, just below a new session peak, as US stocks opened higher on Tuesday following an easier May US consumer price index (CPI) inflation reading which added to hopes that the Federal Reserve will skip a rate hike at its latest two-day policy meeting ending on Wednesday.
Around 20 minutes after the New York open, the Dow Jones Industrial Average was up 98 points, or 0.3% at 34,487, while the broader S&P 500 index gained 0.4%, and the tech-laden Nasdaq Composite rose 0.6%.
US consumer prices for the 12 months ended in May rose 4%, the smallest 12-month increase since the period ending March 2021, according to the Bureau of Labor Statistics.
Truflation independent inflation data aggregator Oliver Rust said he believed the Fed would finally halt its rate-hiking cycle following the CPI print.
“As US inflation gets closer to the 2% target, we expect the Central Bank will finally hit the pause button on rate hikes and allow the economy to take a much-needed breather,” Rust said.
“The Central Bank will be forced to divert its mission from reducing inflation to avoiding a recession, especially with the start of the 2024 US presidential election campaign just around the corner.”
Other analysts are not as confident that a dovish pivot will play out, with Capital Economics chief North America economist Paul Ashworth pointing out that core inflation remains uncomfortably high for the Fed.
“Headline CPI inflation fell to a more than two-year low of 4% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as high as 5.3%, and core prices rising by 0.4% month-over-month, the Fed is likely to signal tomorrow that it is minded to hike interest rates at the late-July FOMC meeting,” Ashworth said.
2.30pm: Relief on fizz
Supplies of UK soft drinks look safe this summer after a breakthrough in pay negotiations at Coca-Cola Europacific Partners (CCEP) means there will be no walk-outs, union Unite said in a statement,
Strikes were due to begin tomorrow (Wednesday 14 June) but CCEP has offered around an 18% pay deal which will see salaries increase by between £3,476 and £3,876 in the first 12 months, with further increases to salaries from April 1 2024.
Unite general secretary, Sharon Graham said: “This is a well-deserved pay increase for Coca Cola workers. The famous soft drinks company made an astronomical £1.85 billion in profits. It’s only right that the workers on the factory floor get a fairer share of the profits they help to make. The workers are to be congratulated for joining forces and taking a stand.”
CCEP's plant in Wakefield, Yorkshire can produce 360,000 cans per hour, and 132,000 bottles per hour. Its products include Coca Cola, Diet Coke, Coke Zero, Dr Pepper, Fanta, Fanta Lemon, Fanta Fruit Twist, Sprite.
2.10pm: CPI slowing
The US consumer price index (CPI) for May came in slightly cooler than expected, according to the latest data from the Bureau of Labor Statistics.
Prices rose 0.1% month-over-month and 4.0% in the 12 months ended in May, after rising 0.4% monthly and 4.9% on an annual basis in April.
Analysts had been expecting a 0.4% increase month-over-month and a 4.1% annual increase.
Commenting on the data, Daniel Casali, chief investment Strategist at Evelyn Partners, the wealth management and professional services group, said: "The broad message from this report is that headline CPI inflation continues to slow. First, base effects, where prices rose sharply in the first half of 2022, are still working to dampen the annual rate of inflation. Second, energy prices are contracting from a year ago and typically, this leads CPI inflation ex-shelter. And third, annual shelter CPI inflation has slowed for two consecutive months and looks to have peaked.
“Importantly, the latest household surveys show that 1-year forward inflation expectations have also topped-out: the Conference Board is down to 6.1% from a peak of 7.9% last summer, while the University of Michigan’s estimate is lower still at 4.2%, below a high of 5.4% in March 2022. Inflation expectations can be an important driver of inflation, because if households and corporations foresee higher prices, they will bring forward purchases, further stoking price pressures."
Following the release of the data, US stock futures pushed higher with those for the Dow Jones Industrials Average up 0.2%, contracts for the S&P 500 adding 0.4% and those for the Nasdaq-100 ahead 0.7%.
Meanwhile, the FTSE 100 index rose to the day's high, up 24 points, or 0.3% at 7,595.
1.30pm: A look at some of today’s movers
Risers
Predator Oil and Gas- up 31% to 8p: Shares soared after it found “significant shallow over-pressured gas” at its MOU-3 well in Morocco. An inflow of gas was experienced at 339 to 350 metres, where the company found it was significantly over-pressured (122 psi).
IOG - up 6% to 4.1p Shares in IOG bounced on Tuesday after the gas producer said first gas has been "safely delivered" from its Blythe H2 well in the North Sea, following recent hitches.
Fallers
Admiral - down 5% to 2,194p: Share in the insurer tumbled after analysts at Citi put the Cardiff-based company on its 'sell' list. The broker said that a 'deep dive' into industry loss ratio trends had suggested that consensus estimates for the group are currently an "outlier.”
1.00pm: US futures higher ahead of inflation figures
The FTSE 100 is close to its worst levels for the day, down 9 points, at 7,561 ahead of the restart on Wall Street.
US stocks indexes are expected to edge higher at the open on Tuesday, extending their recent gains after both the S&P 500 and Nasdaq Composite each recorded their highest close since April 2022 on Monday.
Investors were showing little nerves ahead of the May US consumer price index (CPI) inflation reading, due out at 8.30am ET on Tuesday, as hopes mount that the Federal Reserve will skip a rate hike at its two-day policy meeting beginning Tuesday.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were up 0.03%, while those for the S&P 500 index were ahead 0.1%, and contracts for the Nasdaq Composite added 0.3%.
On Monday, the S&P 500 and Nasdaq Composite jumped 0.9% and 1.5%, respectively, to finish at their highest level in 13 months, while the DJIA added 0.5%.
Ahead of the Fed rate decision on Wednesday, attention will be on the May CPI reading which is expected to show a steady 0.4% month-over-month rise in prices, while on a yearly basis economists expect a 4.1% headline increase, down from 4.9% in April.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank commented: "Expectations are rather soft – which make them harder to beat."
She added: "One encouraging piece of data, however, is the falling inflation expectations. The latest survey from the New York Fed showed that the one-year inflation expectation further fell to 4.1%, although we saw an uptick in 3-year expectation to 3%.
"What’s interesting here is the idea that consumers get used to the idea that, yes, inflation will slow from the actual levels, but we will not return to the 2%-inflation-era anytime soon. Both the US and Europe should accept and live with inflation levels that are closer to 3-4%, than 2% and below as has been the case for the past decade. In fact, trade war with China, war in Ukraine, energy crisis, energy transition, reindustrialization and onshoring are all inflationary factors, and will make the Fed’s job of reaching a 2% inflation rather complicated. "
Ozkardeskaya concluded: "While equity traders seem optimistic about the end of the Fed tightening, bond traders are more skeptical. The US 2-year yield remains on a positive trajectory. The US sovereign bonds outlook will remain negative until a strong hint that the Fed rate hikes are over."
On the corporate front, Oracle shares jumped in after-hours trading after topping estimates for the fiscal fourth quarter with adjusted earnings of $1.67 per share on revenue of $13.84bn.
12.45pm: New MPC member warns of dangers of relaxing policy too soon
Megan Greene, who will join the Bank of England’s Monetary Policy Committee in July, told MPs that there was still pressure on inflation coming from a tight labour market with fast wage rises.
“There are second round effects that seem to be seeping in,” she told the Treasury Committee of the House of Commons, indicating she thought high inflation was now driving wages higher in a ratchet effect, something the central bank should look at.
She also indicated that the bank might find it difficult to return inflation to its 2%. While she did not say how she would vote in her first meeting in August, Greene said the BoE was right to have raised rates in May.
“I think that there is some underlying persistence and so getting from 10% to 5% ... is probably easier than getting from 5% to 2%.”
She also warned about the risks of relaxing monetary policy too soon.
“If you engage in stop-start monetary policy, you may end up having to tighten even more and generating an even worse recession on the other side.
“And also that inflation expectations can’t be allowed to become de-anchored or you end up in that situation,” she added.
12.36pm: Next in talks to sell Reiss - Sky
Next PLC (LSE:NXT) is in talks about the sale of fashion chain, Reiss, according to reports, as part of a deal that could value it at more than £500mln.
Sky News said the high street retailer and its fellow Reiss shareholder, Warburg Pincus, are working with bankers on an auction of the business, which was founded in 1971 by David Reiss.
Raymond James (NYSE:RJF), the investment bank, is overseeing the sale process, Sky said.
Exclusive: Next and Warburg Pincus, the buyout firm, are working with investment bankers at Raymond James (NYSE:RJF) on a potential sale of Reiss, the high street affordable luxury fashion chain; a transaction could value Reiss, founded in 1971, at more than £500m. https://t.co/4oyT87FzEX
— Mark Kleinman (@MarkKleinmanSky) June 13, 2023
City sources said on Tuesday that the auction was in its second round, with a number of buyers circling, Sky added.
Based on expected earnings before interest, tax, depreciation and amortisation in the current financial year of almost £65mln, Reiss could be valued at in excess of £500mln, according to the sources.
But Sky said a person close to Next cast doubt on whether it would ultimately sell its 51% stake, while a senior retail executive suggested that it may be using the process to establish a market price and then acquire Warburg Pincus's remaining interest.
Shares in Next were little moved around lunchtime while the FTSE 100 was down 5 points at 7.566.
11.45am: FTSE concedes early gains, housebuilders slide
After a bright start, the FTSE 100 has fallen into the red, down 5 points.
Strong wage growth figures have increased the likelihood of a higher peak in UK interest rates as investors bet the Bank of England will have to continue to take action to tame inflation.
Expectations of further interest rate increases, and resultant increases in mortgage rates, have rattled share price in housebuilders.
Barratt Developments PLC (LSE:BDEV), Taylor Wimpey PLC (LSE:TW.), Persimmon PLC (LSE:PSN) and Berkeley Group Holdings PLC (LSE:BKG) are down 4.1%, 3.7%, 3.2% and 2.4%.
Property companies, British Land PLC and Land Securities Group PLC (LSE:LAND) also weakened by 2.2% and 1.8%.
In the FTSE 250, property group, Hammerson PLC (LSE:HMSO) fell 4.1% while housebuilders Crest Nicholson Holdings PLC, Vistry Group PLC (LSE:VTY), and Bellway PLC (LSE:BWY) fell 4.0%, 3.8% and 3.8% respectively.
11.33am: Mortgage borrowing slumps and rates look set to rise further
Mortgage borrowing slumped in the first quarter of 2023 to its lowest level since the second quarter of 2020, figures showed today.
The data, from the Bank of England, revealed a 28% drop in lending to homeowners in the three months to March 31, compared to the previous quarter and 23.6% lower than the year before.
The value of new mortgage commitments (lending agreed to be advanced in the coming months) was 16.1% less than the previous quarter and 40.7% less than a year earlier, at £48.9bn, also the lowest observed since quarter two in 2020.
Worryingly, the value of balances with arrears increased by 9.5% over the quarter and 12.5% over the year, to £14.9bn.
Sarah Coles, head of personal finance at Hargreaves Lansdown said: “Mortgage borrowing plunged in the first three months of 2023, as higher rates took their toll on our enthusiasm for property. There’s every sign they will sink even lower, as approvals for the coming months dropped too.”
The data comes on fresh concerns that interest rates are set to rise even higher following a pick-up in the growth in wages.
The Bank of England’s Monetary Policy Meeting meets next week with a 25 basis point increase pencilled in the market although some think the Bank may need to consider larger hikes if it wants to bring inflation closer to its 2% remit.
Bond yields hit their highest levels since the financial crisis of 2008 and above those seen in the wake Kwasi Kwarteng’s infamous mini-budget in September after the figures.
Financial markets now think borrowing costs could leap to a high of 5.75%, up more than a percentage point from their current level of 4.5%.
Mortgage rates, which dipped at the start of the year, have been moving higher after stronger-than-expected consumer price inflation readings in the UK and the fast-moving market prompted HSBC and Santander to temporarily pull deals in the last week so they could be repriced in light of expectations of further increases in interest rates.
10.57am: 888 up again as activists push for top jobs
888 Holdings advanced a further 3.5% after a report that the consortium of activists who declared a 6.57% stake in the betting firm last week have put themselves forward as a putative new management team.
The Times said it is understood that the consortium has nominated Kenny Alexander, the former chief executive of GVC Holdings, now Entain, for the same job at 888, with Stephen Morana, the former Betfair finance chief and a non-executive at Entain, taking over as finance director.
The mooted reshuffle put forward to Lord Mendelsohn, the William Hill owner’s interim executive chairman, would also involve the Labour peer handing over to Lee Feldman, the erstwhile chairman of GVC.
The Times quoted a source close to FS Gaming Investments, the consortium, which is now the second biggest shareholder in 888, as saying: “We’ve put our money where our mouth is and now the ball’s in their court.”
Shares in 888 have soared 57% since the close on June 5th, the day before rumours of the stakebuilding began.
10.15am: Odey halts withdrawals from major fund
Beleaguered hedge fund business Odey Asset Management has stopped customers withdrawing their money from one of its major funds, according to a letter sent to investors and seen by Bloomberg.
The company has halted withdrawals from its Brook Developed Markets Fund, after revealing redemption requests had exceeded 10% of its value, according to the letter.
Odey Asset Management halts redemptions from the Brook Developed Markets Fund after redemption requests surge
in the wake of sexual assault allegations against the firm's founder Crispin Odey https://t.co/dbPlSMf1wg
— Bloomberg (@business) June 13, 2023
Any requests received on June 12 will be pro-rated, the letter added.
The fund’s strategy had US$569mln in assets at the end of May, according to the firm’s website. The fund was up 9.4% this year.
The company had insisted on Monday that it would not “gate” its funds as it severs ties with its founder Crispin Odey amid a series of sexual misconduct claims, which Odey denies.
A representative for Odey Asset Management declined to comment.
9.53am: Miners keep FTSE in the green
Gains in mining stocks are keeping the FTSE 100 the right side of the line with the index now up 16 points at 7,586.
Glencore PLC (LSE:GLEN), up 3.2%, Rio Tinto PLC (LSE:RIO), up 2.8%, Anglo American, up 2.1%, Antofagasta PLC (LSE:ANTO), up 1.8% and Fresnillo, up 1.8% occupy the top five places in the FTSE 100 risers list with Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF), up 1.6%, nor far behind.
Investors are hoping that a move by the People’s Bank of China to cut its seven-day reverse repo rate will support growth in the Chinese economy which has shown signs of faltering.
The decision was its first move to boost short-term liquidity in the country’s interbank market in nine months.
The central bank said the 0.1 percentage point cut, which lowered the lending rate to 1.9% was carried out to “maintain reasonably sufficient liquidity in the banking system”.
China is a huge consumer of metals and minerals and hopes of increased demand sent mining stocks higher.
9.35am: Bond yields top Truss levels after strong wages data
Expectations of further UK interest rates increases are pushing up the British government’s short-term borrowing costs which now sit above levels seen in Liz Truss’s brief premiership.
The yield, or interest rate, on UK two-year government bonds has hit 4.73% this morning, up from 4.62% last night, after this morning’s jobs report showed regular pay growing at the fastest rate on record.
Source: Refinitiv
That is slightly higher than the peak seen in the turmoil after last autumn’s mini-budget, when chancellor Kwasi Kwarteng’s plan for unfunded tax cuts spooked the markets.
The yield on the 10-year gilt rose towards 4.4%, at 4.38%.
9.25am: Wage-price spiral underway?
Is a wage-price spiral underway? Today's figures from the ONS showed a pick up in wage growth sparking fears that inflation may become embedded in the UK economy.
Neil Wilson at markets.com thinks "we are now in wage-price spiral territory – private sector wage growth rose to 7.6% in the three months to April, whilst overall regular pay rose 7.2%."
"This only makes it harder for the BoE to cool inflation – a tougher stance is required but we know the dangers for the economy and notably the mortgage market if that happens," he added.
Andrew Sentence, a former external member of the Bank of England's Monetary Policy Committee agreed. He tweeted: "More shocking news on the pay front," adding "A full-blown wage-price spiral is underway here in the UK."
More shocking news on the pay front. Regular pay in the private sector is 7.6 percent up on a year ago (previous month’s figure was 7 percent). No sign yet that pay rises are levelling out, let alone falling. A full-blown wage-price spiral is underway here in the UK.
— Andrew Sentance (@asentance) June 13, 2023
The troubling data for the BoE has kept the lid on the FTSE 100 which is now 11 points higher at 7,582, off earlier highs of 7,594.
9.03am: Wage growth could prompt bigger rate hikes
Some more reaction to today's jobs and wages figures:
Chris Scicluna at Daiwa thinks the figures underscore “the likelihood of further significant tightening to come from the BoE.”
“With core inflation already significantly higher than in other G7 economies, and nominal pay accelerating further above levels that might be reasonably considered consistent with the MPC’s inflation target over the medium term to smack of substantive second-round effects, the BoE appears to have the biggest challenges of all the major central banks,” Scicluna said.
“Further rate hikes this month and in August seem inevitable. Indeed, some MPC members (e.g. the externals Mann and Haskel) might be looking to hike by 50bps next week,” Scicluna suggested.
Nick Rees, FX Market Analyst at Monex Europe, said: “Policymakers at the Bank of England got a nasty surprise once again this morning as UK labour market data prints hot across the board.
“This release not only confirms our expectation that the BoE will raise rates once again next week, but is likely to raise speculation that the BoE will need to return to larger rate hikes.
“In our view, a 50bp hike next week remains unlikely, but this morning's data does shift the balance of risks in that direction, while it also poses significant upside risks to our pre-release expectation of a 4.75% terminal rate.
“More surprising than wage data was the strength seen elsewhere in this latest round of data release, in particular employment numbers, which had been an area that previously showed signs of cooling,” Rees added.
Samuel Tombs at Pantheon Macroeconomics said that “the renewed pick-up in wage growth in April will add fuel to the recent rise in gilt yields and expectations for the future path of Bank Rate, by fanning the impression that the UK has a unique problem with ingrained high inflation.”
“The rise in overall average wages also was driven by momentum in higher paying sectors, such as financial and business services.
“This points to a high risk of ongoing momentum over the coming months,” he felt.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’Higher than expected wage growth will help households struggling with the cost-of-living crisis but the latest labour market trends risk adding fuel to inflationary fires and are set to make the Bank of England more determined to raise interest rates to put out the flames.
“The increases to minimum wage levels, up almost 10% partly account for the rise, and while hugely welcome for those on low incomes, it comes at a hugely tricky time when policymakers want to see spending power reduced, not bolstered, to help bring down the rate of price increases.”
ING Economics said: “Faster-than-expected wage growth points to a rate hike in June and potentially August, and is a reminder that pay pressures are likely to ease only gradually.
“That doesn't necessarily suggest the Bank of England needs to raise rates as aggressively as markets expect, but it does imply that rate cuts are some way off.
“Much will depend on how CPI inflation comes out over the next couple of months,” ING said.
It described the latest UK jobs report as “undeniably hawkish” for the Bank of England.
The EY ITEM Club said the figure “reinforces” the view that the Bank of England will raise Bank Rate to 4.75% at next week’s meeting.
The economic forecaster expects the MPC to raise Bank Rate to 4.75% at next week’s meeting.”
8.43am: Admiral slides on Citi downgrade
The FTSE is holding firm but shares in Admiral Group top the fallers, losing 4.7%, after a downgrade by Citi.
The investment bank has moved the stock to sell, saying that a 'deep dive' into industry loss ratio trends had suggested that consensus estimates for the group are currently an outlier.
"We downgrade Admiral to sell and issue a negative catalyst watch as we expect an earnings expectation reset and material downside risk into 1H23E numbers," the broker said.
Citi said its new EPS forecasts were 10% below consensus.
The broker also said that industry feedback and detailed modelling suggests claims inflation in Motor remained elevated in the first half of 2023 but with a sharper drop in the third quarter. As a result, Citi sees downside risk for loss ratios in the first half of the year.
8.15am: FTSE 100 higher but wage growth accelerates
The FTSE 100 opened higher Tuesday although gains were limited as accelerating wage growth raised the spectre of further rate rises in the UK.
At 8.15am, London's blue-chip index was up 20.15 points, or 0.3%, at 7,590.84 while the broader FTSE 250 rose to 19,211.40, up 20.59 points, or 0.11%.
In the three months to April, annual growth in average total pay, including bonuses, picked up to 6.5% from 6.1% in the three months to March. Excluding bonuses, annual average earnings growth was 7.2% in the three months to April, compared to 6.8% in the previous three months. Both numbers were ahead of City expectations.
The pound rose 0.4% to US$1.2564 on expectations of further rate rises in the UK at a time the US central bank is expected to press the pause button at its meeting this week.
“With a pause pretty much considered bolted on, the latest inflation reading for the US out today will be closely watched for clues about the Fed’s next move, with some speculation that a hike might still follow a June pause,” said Susannah Streeter at Hargreaves Lansdown.
In company news, Centrica firmed 1% after the owner of British Gas forecast top-end earnings driven by its retail business.
7.52am: Wage growth remains stubborn fueling talk of further rates hikes
The UK unemployment rate ticked down in the three months to April, while pay growth picked up, figures from the Office for National Statistics showed, piling pressure on the Bank of England to keep raising interest rates.
Headline indicators for the UK labour market for February to April show:
▪️ employment was 76.0%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.0%
— Office for National Statistics (ONS) (@ONS) June 13, 2023
In the three months to April, annual growth in average total pay, including bonuses, picked up to 6.5% from 6.1% in the three months to March. This came above market consensus, which expected pay growth to hold steady.
Excluding bonuses, annual average earnings growth was 7.2% in the three months to April, compared to 6.8% in the previous three months. This was above expectations of 6.9% growth.
After taking inflation into account, average pay including bonuses fell by 2.0% in the year to February to April, or 1.3% excluding bonuses.
After taking inflation into account, average pay including bonuses fell by 2.0% in the year to February to April, or 1.3% excluding bonuses.
— Office for National Statistics (ONS) (@ONS) June 13, 2023
Samuel Tombs at Pantheon Macroeconomics said that “the renewed pick-up in wage growth in April will add fuel to the recent rise in gilt yields and expectations for the future path of Bank Rate, by fanning the impression that the UK has a unique problem with ingrained high inflation.”
“The rise in overall average wages also was driven by momentum in higher-paying sectors, such as financial and business services.”
“This points to a high risk of ongoing momentum over the coming months,” he felt.
Unemployment edged down to 3.8% in the three months to April from 3.9% in the three months to March while in March to May, vacancies fell 79,000 on the quarter to 1.1mln.
"Vacancies fell on the quarter for the 11th consecutive period and reflect uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment," the ONS said.
Tombs reckons the outlook for a further increase in labour market slack, the absence of any further changes in minimum wages for another 12 months, and the likelihood of a further fall in the headline rate of CPI inflation driven by lower energy prices, should mean that wage growth loses momentum over the next six months.
“We remain unconvinced, therefore, that the MPC will need to increase Bank Rate all the way to 5.5% by the end of this year, as markets expect; a 5.0% peak still looks more likely to us,” he added.
7.40am: Record revenue and profits at Ashtead
Ashtead Group PLC (LSE:AHT) reported a strong performance in the fourth quarter which completed a year of “record performance with ongoing momentum in robust end markets.”
For the fourth quarter to April 30, the FTSE 100-listed firm reported revenue of US$2.44bn up 19% from US$2.08bn, pre-tax profit of US$466mln, up 21%, from US$386mln and EPS of 79.1 cents,, up 19%, from 66.5 cents.
Ashtead's chief executive, Brendan Horgan, commented: “We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these strong markets and ongoing structural change.”
For the full year, revenue increased 21% to US$9.67bn from US$7.96bn resulting in adjusted profit before tax increasing 25% to US$2.27bn from US$1.82bn.
In the US, rental-only revenue of US$5.88bn, was 23% higher year-on-year, representing continued market outperformance and demonstrating the benefits of a strategy of growing its Specialty businesses and broadening end markets.
The UK business generated rental-only revenue of £429mln, up 6% on the prior year, while Canada's rental-only revenue increased 20% to C$548mln.
Ashtead guided City scribes to revenue growth of 13% to 16% in the coming financial year.
A proposed final dividend of 85.0 cents made a total payout of 100.0 cents for the full year.
7.23am: British Gas owner sees top-end profit
Centrica PLC forecast top-end earnings driven by “significantly” higher profit in its retail arm.
The FTSE 100-listed firm said performance in the first five months of the year, across the business, has been strong overall.
“Given our current outlook, we expect 2023 full year Group adjusted earnings per share to be around the top end of the range of recent sell-side analyst expectations, with adjusted earnings per share heavily weighted towards the first half,” Centrica said.
In Retail, adjusted operating profit in the first half is expected to be significantly higher than in previous years, driven by a material positive impact on British Gas Energy from allowances in the UK domestic default tariff cap relating to costs incurred in prior periods.
In Optimisation, performance in Energy Marketing & Trading has remained strong to date.
In Infrastructure, availability and volumes from gas production, nuclear and gas storage assets have been good, helping to offset the impact of lower wholesale commodity prices.
First half net cash generation is also expected to be robust.
Working capital inflows in Energy Marketing & Trading relating to the continued cash realisation of 2022 profit are expected to be broadly offset by working capital outflows in British Gas Energy, reflecting seasonality and the changing price environment, and timing of government customer support scheme payments.
The company gave the update ahead of its AGM today.
7.00am: FTSE 100 expected to open higher, US CPI ahead
The FTSE 100 is expected to open higher as investors hope cooling US inflation figures today will be enough to prompt the US Federal Reserve to hold interest rates at this week’s meeting.
Spread betting companies are calling London’s lead index up by around 28 points.
The Federal Reserve, ECB and Bank of Japan are all set to make their latest interest rate calls this week.
The latest US consumer price index report is expected to show that headline inflation slowed to 4.1% year on year in May, a significant improvement from the 4.9% rate in April, offering hope the Fed will pause its interest rate rising spree.
"Any deviation from the forecast path is likely to cause a jolt of volatility on markets," said Susannah Streeter at Hargreaves Lansdown.
On Monday, US markets closed higher. The Dow Jones Industrial Average closed up 0.6%, the S&P 500 up 0.9% and the Nasdaq Composite up 1.5%.
In Asia, the People’s Bank of China cut its seven-day reverse repo rate, marking its first move to boost short-term liquidity in the country’s interbank market in nine months.
The central bank said the 0.1 percentage point cut, which lowered the lending rate to 1.9%, was carried out to “maintain reasonably sufficient liquidity in the banking system”.
Back in London, and the early focus will be UK jobless and average earnings figures plus updates from Ashtead, Bellway and CMC Markets.