- FTSE 100 tumbles, down 135 points at 7,372
- Wage growth hits record high, unemployment rate jumps
- Marks & Spencer soars on strong food and clothing sales
4:40pm: FTSE 100 closes 117 points lower
London’s blue-chip benchmark closed Tuesday’s session down 117 points or 1.57% changing hands at 7,389.
3.56pm: Contradictory data leaves policymakers scratching heads
Kallum Pickering at Berenberg thinks the somewhat contradictory labour market data for June may leave Bank of England (BoE) policymakers scratching their heads.
On the one hand, a sizeable upside surprise to headline wage growth highlights the risk that near-term inflation pressures remain strong.
On the other hand, unemployment and employment data are weakening more quickly than expected, he noted.
Crucially, the single-month estimates for employment and unemployment in June show a rapid deterioration in labour markets.
If the negative trend continues, then the outlook for wages and thus inflation may be softer than previously envisaged, he suggests.
“While money markets have edged up their bets for the peak BoE bank rate on the back of the wage surprise, these negative trends caution against such a conclusion,” he felt.
3.35pm: M&S regaining its sparkle – Deutsche Bank
Deutsche Bank has increased its 2024 pre-tax profit forecast by 18% to £575 million and for 2025 by 13% to £649 million following today’s upbeat trading update.
“With 15% EPS growth in FY24e and FY25e, we believe the current 10x Cal 24e PE is too cheap,” the investment bank said.
“M&S has shown further evidence of its journey along the road to redemption with a very strong 19-week trading performance,” the bank said.
“We have been supportive of the M&S turnaround and view this as further evidence that investors should look at M&S again – with a fresh pair of eyes, as the business has fundamentally changed.”
It has raised its target price to 260p and reiterated a buy rating.
3.12pm: 888’s share price not factoring in integration success
888 Holdings PLC (LSE:888) received the backing of analysts at Jefferies following half-year results today.
The broker said the numbers were in line with its expectations and does not expect a material change to consensus full-year Ebitda estimates.
But it “believe the upside from a successful execution of the integration plan is materially ahead of the current share price.”
Jefferies said the William Hill acquisition "makes strategic sense, driving deleverage and equity upside".
It has a discounted cash flow upside case of 300p, nearly treble the existing share price, which implies 6.3x EV/Ebitda on 2025 estimates, versus 8-10x typically for a scaled online gambling operator.
It suggested future catalysts for 888 include Per Widerstrom joining as chief executive officer from mid-October, attributing him as having "a wealth of sector experience"; 888's chief financial offer search being "well advanced"; and debt reduction.
The broker kept a buy rating on the stock.
2.45pm: US stocks lower but Home Depot rises after results
As expected, US stocks have opened lower as concerns over a slowdown in economic growth in China weighed on global markets.
Shortly after the opening bell, the Dow Jones Industrial Average was down 154.93 points, 0.4%, at 35,152.70, the S&P 500 was down 18.34 points, 0.4%, at 4,471.38 and the Nasdaq Composite was down 27.52 points, 0.2%, at 13,760.81.
There were signs that consumer spending was remaining resilient in the face of interest rates rises as July’s retail sales figures showed a 0.7% month-on-month rise, ahead of forecasts for growth of 0.4%. Online sales were given a boost by Amazon Prime Day.
Andrew Hunter at Capital Economics said: “The 0.7% m/m jump in retail sales in July suggests that tighter monetary policy is still having remarkably little impact on real economic activity, but that isn’t necessarily a problem for the Fed when the evidence continues to suggest that inflationary pressures are fading rapidly.”
Sticking to the retail theme and Home Depot Inc rose 2.2% after reporting better-than-expected second quarter sales and earnings.
However, sales were still 2% lower than the year before and the retailer said consumers were still wary picking up big-ticket items.
Nvidia rose 3.0% after UBS raised its price target to $540 from $475 and reiterated a buy rating.
The broker notes that expectations are already sky-high but advises investors to stick with it despite the recent pullback in the stock over the past month.
2.08pm: US retail sales lifted by Amazon Prime Day
Consumer spending held up well in July latest figures showed, with online sales boosted by Amazon Prime Day.
Figures released by the Commerce Department showed retail sales rose a seasonally adjusted 0.7% in July, better than the 0.4% FXStreet compiled consensus. Excluding autos, sales rose a robust 1%, also against a 0.4% forecast.
July’s numbers were boosted by a 1.9% jump in spending at online retailers, boosted by Amazon Prime day, while sporting goods and related stores increased 1.5% and food service and drinking places rose 1.4%.
On the downside, furniture sales slumped 1.8% and electronics and appliance stores reported a 1.3% drop. Gas station sales rose just 0.4% on the month despite rising prices at the pump.
US stock futures remain firmly in negative territory after the report with Dow futures now down 0.7% although futures for the Nasdaq have improved marginally, now down only 0.5%.
1.41pm: Here's a quick recap of the risers and fallers onthe junior market today
Shares in Abingdon Health PLC (AIM:ABDX) pinged 17% higher to 10.25p after getting a positive result from Tesco to stock what it says it the first-ever saliva pregnancy test.
Verditek PLC (AIM:VDTK) jumped 17% as the solar panel specialist announced a potential deal with Net Zero Valley (NZV), an Italian business in ESG-only investor SerendipEquity's portfolio.
Shares of Danish jewellery manufacturer Pandora surged by 2.7% following the company's announcement of an upward revision to its full-year revenue forecast.
PHSC (AIM:PHSC) plc shares surged by 33% following the announcement of a new share buyback programme.
Shares of Victoria plc, the flooring company, dropped 10% following the announcement that its auditors need additional time to finalise their procedures.
1.00pm: Just Group's first-half numbers impress JP Morgan
JP Morgan was impressed with first-half results from Just Group PLC (LSE:JUST) highlighting stronger underlying profit, strong capital generation, a better Solvency II ratio and a healthy new business pipeline.
First-half underlying operating profit was 7% ahead of consensus, it pointed out, and 2% ahead of its own forecast, with a stronger than expected Solvency II ratio, and reduced Solvency II sensitivities due to increased interest rate hedging.
Management is also highlighting the continued strong new business pipeline in both PRT and retail annuities., JPM added.
“We believe around 15% dividend per share growth is sustainable in the near-term given
management’s expectation of exceeding its 15% underlying operating profit CAGR target in the near-term,” the investment bank said.
We expect an increase to consensus estimates to reflect higher investment margins than expected in in-force profits.
JPM retains an overweight rating on the stock which rose 1.3% to 83.07p.
12.28pm: Fitch doesn't rule out further downgrades to US banks
Fitch on Tuesday warned that US banks have moved closer to sweeping credit ratings downgrades after a largely unnoticed cut in its assessment of the sector in June.
Speaking to CNBC, Fitch analyst Chris Wolfe said the move didn't grab much attention because no banks were downgraded but it does have big implications.
Another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 US banks it covers, Wolfe said.
Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist and US Bank. Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads.
Fitch's June action took the industry’s “operating environment” score to AA- from AA because of pressure on the country’s credit rating, regulatory gaps exposed by the March regional bank failures and uncertainty around interest rates.
The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders.
The country’s two largest banks by assets, JPMorgan and Bank of America, would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate.
And if top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe.
In terms of what could push Fitch to downgrade the industry, the biggest factor is the path of interest rates determined by the Federal Reserve.
Higher rates for longer than expected would pressure the industry’s profit margins, he pointed out.
12.04pm: China's woes to trigger falls on Wall Street
US markets are expected to nurse heavy losses when trading starts on Tuesday after fresh data from China showed growth in the world's second largest economy was fading.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.6% lower, while those for the S&P 500 fell 0.6%, and contracts for the Nasdaq 100 futures were down 0.7%.
China’s central bank unexpectedly cut the rate on its one-year loans in a move to shore up the country’s stagnant economy as figures released by the National Bureau of Statistics, showed retail sales, industrial output and investment all growing at a slower than expected pace.
The figures come on top of a raft of weak indicators from last week.
Duncan Wrigley, chief China economist, at Pantheom Macroeconomics noted “today’s data add to evidence that China’s economy is stalling, despite the gradual ramp up of policy support.”
He felt the central bank’s move was an “an attempt to shore up confidence, both in the financial markets and the broader economy.”
But he remains sceptical “that interest rate cuts alone will turn around economic growth, given poor household and business sentiment.”
In the US, the resilience, or otherwise of the consumer will be in focus with retail sales figures released at 0830 EST.
Figures for July are expected to show retail sales rose 0.4%, up from June’s 0.2% increase, according to a FXStreet compiled consensus.
Ahead of that Home Depot released better-than-expected second quarter results with both sales and earnings ahead of expectations although it did caution consumers remain wary of big ticket purchases. Sales edged lower in pre-market trading reflecting the weaker market.
11.14am: B&M and Poundland looking at Wilko
Retailers including B&M and Poundland are eyeing possible bids for the stricken discounter Wilko, according to The Sun's business editor, Ashley Armstrong.
Wilko collapsed last week and administrators at PwC have given suitors until the end of tomorrow to make rescue offers for the budget chain.
The rival discounters B&M European Value Retail, Poundland, The Range and Home Bargains have expressed interest in parts of the business, The Sun reported.
EXCL: B&M Bargains, The Range, Poundland and Home Bargains all on the list of interested parties to make early expressions of interest in #wilko ahead of Wednesday deadline.
Some want as many as 300 stores, other just 50. One bidder wants to keep brand. https://t.co/jjOM1Et84m
— Ashley Armstrong (@AArmstrong_says) August 14, 2023
The business employs more than 12,000 people and has about 400 shops, raising the prospect of significant redundancies as a result of the family-owned chain’s insolvency.
10.49am: L&G profits top consensus, but no buy-back
Legal & General PLC shares are down 3.6% amid the general market malaise and despite better-than-expected interim results.
Analysts at Jefferies pointed out operating profit of £941 million was 13% ahead of consensus with better-than-expected profits across LGRI, LGC and Retail.
LGRI was 14% ahead of consensus, largely driven by higher-than-expected returns on surplus assets, as rates have moved favourably, plus back book optimisation, it said.
LGC and Retail also experienced better-than-expected returns on assets while L&G's reported Solvency II ratio of 230%, was 5 percentage points ahead of its previous estimate, which the company has since stated was prudent.
Jefferies also highlighted operational surplus generation of £947 million was 5% better than expected.
UBS thought there was a chance of a share buyback given the high solvency ratio, however, no such announcement was made today.
It said the profit beat appears "to be driven by higher investment return and back book asset optimisation action in LGRI and Retail."
Jefferies has a buy rating on L&G while UBS rates the stock neutral.
10.14am: China cuts key loan rates as growth stalls
Adding to the depressed market mood is news out of China where the central bank has unexpectedly cut the rate on its one-year loans in a move to shore up the country’s stagnant economy as more data suggests a slowdown is picking up pace.
The cut, by 0.15 percentage points to 2.5%, takes the rate to its lowest level since it was launched in 2014.
Tuesday's data released by the National Bureau of Statistics, which comes on top of a raft of weak indicators from last week, showed retail sales, industrial output and investment all growing at a slower than expected pace.
Additionally, China suspended publishing youth jobless data, which hit a record high of 21.3% in June.
9.44am: M&S forecasts raised after strong trading update
Profit upgrades are coming through following the strong trading statement from
Marks & Spencer Group PLC which has sent shares up 7.5% to 220p.
Susannah Streeter at Hargreaves Lansdown said: “The retailer is seen as a bellwether for consumer sentiment and by raising its profit outlook it shows just how much more resilient shoppers are proving to be despite the ongoing storm of inflation and higher interest rates.”
House broker Shore Capital has raised its 2024 pre-tax profit number by 9% to £550 million after already raising its forecast by 6% as recently as August.
The broker said the update highlighted good trading and market share progress in the financial year year-to-date in both Clothing & Home & Food.
It noted better-than-expected full-price Clothing sales in particular meaning margins are robust.
Broker Peel Hunt said: “We would imagine that forecasts will rise in the order of 10% today, but have yet to speak to the company.”
UBS expects double digit increases in consensus with the growth weighted towards the first half.
“While clearly M&S is pointing to market share gains and execution, this coupled with recent upgrade at Next still points to UK consumer remaining in good shape and we see positive read through to other names today,” it said.
Indeed, of the three FTSE 100 stocks in positive territory at the time of writing, two are retailers, B&M European Value Retail and Frasers Group PLC (LSE:FRAS), up 0.4% and 0.1% respectively.
9.16am: Russia raises interest rates after fall in rouble
Away from the UK and Russia’s central bank has hiked its key interest rate by 3.5 percentage points to 12% at an extraordinary meeting on Tuesday, after the rouble plummeted beyond 100 to the dollar.
The rouble strengthened to 96 to the dollar in response, having weakened past 102 on Monday.
The ruble gained strongly on the decision, rising by more than 2% to around 95 against the U.S. dollar. https://t.co/AWTJgeSMoS
— The Moscow Times (@MoscowTimes) August 15, 2023
The central bank said it had taken the decision to “limit risks to price stability” after some inflation indicators rose over 7% but added that increased pressure on the rouble in the wake of Russia’s invasion of Ukraine was further driving inflation expectations.
It added that further price growth would create a “significant risk” that Russia would not meet its target of reducing inflation to 4% in 2024, and said the hike would help it meet that target.
9.10am: Glimmer of hope on wage growth?
Simon French, chief economist at Panmure Gordon has highlighted one piece of better news in the figures.
He pointed out that data from HMRC saw a significant pullback in wage inflation from almost 10% to 7.8%.
Ignore the LFS wage data this morning - we knew this was going to be hot based on the UK payroll data last month - it’s the new data from July payroll data that is new info for the BoE. Significant pullback in wage inflation from almost 10% to 7.8% pic.twitter.com/n4VdA6xtC9
— Simon French (@shjfrench) August 15, 2023
8.50am: Food price inflation slows sharply - Kantar
Some better news on inflation.
UK grocery price inflation fell sharply as the cost of staples such as milk and sunflower oil eased, according to figures from Kantar.
Fraser McKevitt, head of retail and consumer insight at Kantar, comments: “The latest slowdown in price rises is the second sharpest monthly fall since we started monitoring grocery inflation in this way back in 2008."
In the four weeks to August 6, grocery price inflation fell by 2.2 percentage points to 12.7% while overall take-home grocery sales increased by 6.5% over the same period, down from 10.4% last month.
McKevitt noted: "Shoppers paid £1.50 for four pints of milk last month, down from £1.69 in March, while the average cost of a litre of sunflower oil is now £2.19, 22 pence less than in the spring.”
The wet weather had an impact with ice cream volume sales down 30% while soups were up 16%.
Both Tesco and Sainsbury’s outperformed the market this month, fuelled by sales growth of 9.5% and 9.3% respectively over the 12 weeks to 6 August.
Tesco boosted its market share to 27.0%, from 26.9% a year ago, and Sainsbury’s held firm year on year at 14.8%.
Asda pushed its sales up by 7.7% this month and now accounts for 13.7% of the market, while Morrisons has an 8.7% share as sales grew 2.3% compared with last year.
Aldi was the fastest growing retailer for the fourth month in a row, with sales increasing by 21.2% versus 2022 with the discounter now having a market share of 10.2%, a rise of 1.1 percentage points year on year.
Lidl’s sales rose by 19.8% and the retailer now holds 7.7% of the market.
Sales at Waitrose and Co-op rose by 4.4% and 3.4%, giving the retailers market shares of 4.4% and 6.1%.
Frozen food specialist Iceland saw sales increase by 6.7% to take a 2.3% share, while Ocado’s share now stands at 1.7% as spending at the online-only retailer grew by 1.4%.
8.35am: FTSE extends falls as wages jump and unemployment rises
The FTSE has tumbled as traders digest this morning's economic figures which showed a jump in wage
Susannah Streeter at Hargreaves Lansdown said: "The blast of cold air from higher interest rates is being felt in the labour market, with unemployment ticking up but the risk is that the growth in wages will continue to fan the fires of inflation."
"With the highest annual wage growth recorded in June since records began in 2001, another rate hike from the Bank of England looks bolted on in September," she thinks.
James Smith at ING Economics said "there are growing signs that the UK jobs market is softening, but for now the Bank of England will remain focused on stubbornly high wage growth. A September hike is highly likely, but November is more of a question mark."
Smith thinks private sector wage growth at 6% or above at year-end looks probable, but this is likely to be coupled with further signs of cooling in the jobs market.
“It’ll therefore come down to services inflation and if, as we expect, we’ve seen a bit of an improvement by the November meeting, then the ingredients could still be there for a pause at that point,” he suggested.
The EY ITEM Club thinks September’s rate rise will be the last in the cycle.
Martin Beck at the EY ITEM Club, said: “The latest official labour market numbers offered few signs that growing slack in the jobs market is exercising any discipline on pay growth.”
“The fact that pay growth has failed to decelerate would appear to make another rise in interest rates a given.”
But he said the decision was complicated by a significant slowdown in median pay growth in July, according to HMRC payroll data and evidence of growing slack in the jobs market.
“Short of a major downside surprise in tomorrow's inflation data, another rate rise in September looks very likely, given the committee's focus on the official pay numbers.”
“But the EY ITEM Club thinks the loosening in labour market conditions should mean that's the final rate increase of this cycle.”
8.15am: Wage growth puts pressure on Bank of England
The FTSE 100 fell as figures showed record wage growth providing a headache to the Bank of England as it continues to wage war against stubborn inflation.
At 8.15am, London’s lead index was down 19.38 points, 0.3%, at 7,487.77 while the FTSE 250 was little changed at 18,765.69.
Samuel Tombs at Pantheon Macroeconomics said, “wages still are rising too quickly for the MPC to tolerate indefinitely.”
“As things stand, we still expect the MPC to raise Bank Rate by 25bp in September, and then leave it at 5.50% at the remaining meetings of this year.”
“The momentum in wage growth still is too strong for the Committee to take a break just yet,” he thinks.
But ultimately, he pointed out the the next two CPI reports will have the largest influence on the MPC’s next steps.
Inflation figures are due tomorrow and are expected to show a hefty fall in the headline figure although the core number – excluding food and energy – is forecast to drop in a more modest fashion.
The wage growth figures came alongside data showing a jump in the unemployment rate to 4.2%, up from 3.9% in the previous quarter, and a drop in vacancies, further signs that the labour market is cooling.
Away from the economic figures and Marks and Spencer Group PLC (LSE:MKS) is a star performer, with shares up 8%, after forecasting profits ahead of previous expectations.
In a surprise trading update, the retailer reported strong growth in food and clothing sales so far this financial year.
Analysts at Peel Hunt said: “We would imagine that forecasts will rise in the order of 10% today, but have yet to speak to the company.”
But Legal & General Group PLC (LSE:LGEN) eased 1.9% after results although the insurer remained confident of hitting its five-year targets.
Richard Hunter at interactive investor, commented “Legal & General remains an investment behemoth which is very much a long-term prospect, similar to the investments in which it deals.”
7.44am: L&G on track as profit top forecasts
The insurance reporting season has kicked off with Legal & General Group PLC (LSE:LGEN) which remains confident of hitting its targets after boosting the dividend by 5% and reporting better-than-expected operating profits.
"We remain on track to achieve our five-year ambitions and deliver attractive returns for our shareholders,” said Sir Nigel Wilson, group chief executive.
Operating profit in the six months to June 30 was £941 million, down 2% from last year’s £958 million but above City hopes for around £834 million, while EPS fell to 5.16p from 9.52p.
“LGRI and LGC performed strongly, LGIM results stabilised, and Retail's performance - while impacted by competition in some areas - was bolstered by growing annuity sales and progress in US protection,” Wilson said.
The insurer said its solvency II coverage ratio was 230% compared to 212% the year before with solvency II operational surplus generation of £947 million, little changed from £946 million before.
The interim dividend was increased by 5% to 5.71p from 5.44p and L&G intends to grow the dividend at 5% per annum to 2024.
7.22am: M&S to beat expectations on strong sales
It's a busy morning of results and economic figures.
Back to the company news and a positive update from Marks and Spencer Group PLC (LSE:MKS) which expects interim results to beat previous expectations after strong growth in food and clothing sales.
“We now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations,” M&S said in a statement.
The retailer said the first 19 weeks of the year has seen continued market share growth in both the Clothing & Home and Food businesses, and good progress on the programme to reshape M&S.
Like-for-like food sales grew over 11% while like-for-like Clothing & Home sales grew over 6%, with strong growth in stores, and more subdued growth in online.
Sell through rates have been robust and stock into sale was lower than planned, the firm said.
Group operating margin has continued to be robust, driven by strong store performance and enhanced by our store rotation and renewal programme..
7.05am: Unemployment increases and wage growth hits record
The FTSE 100 is expected to open higher on Tuesday after US markets rallied led by gains in tech stocks.
Spread betting companies are calling London's lead index up by around 10 points.
The early focus in London will be results from Legal & General, Just Group and 888 Holdings.
Figures just out show a jump in the unemployment rate for April to June to 4.2% from 3.9% driven by the number of people unemployed for up to 6 months.
In a further sign the UK jobs market may be cooling the estimated number of vacancies between May and July fell by 66,000 on the quarter to 1,020,000. Vacancies fell on the quarter for the 13th consecutive period.
Headline indicators for the UK labour market for April to June 2023 show:
▪️ employment was 75.7%
▪️ unemployment was 4.2%
▪️ economic inactivity was 20.9%
— Office for National Statistics (ONS) (@ONS) August 15, 2023
Not good news for the Bank of England on pay. Data from the Office for National Statistics also shows that between April to June 2023, annual growth in regular pay (excluding bonuses) was 7.8%; the highest regular annual growth rate since comparable records began in 2001.
Annual growth in employees’ average total pay (including bonuses) was 8.2% in April to June 2023; this total growth rate is affected by the NHS one-off bonus payments made in June 2023.