London share prices edged upward at the open on Tuesday, as investors weighed the impact of an interest rate cut in China to spur demand against a greater chance of hikes in the UK to cool a tight job market.
Still ahead on Tuesday is an inflation reading for the US that is expected to be influential on a Federal Reserve policy decision due on Wednesday.
The FTSE 100 index opened up 7.50 points, or 0.1%, at 7,578.19. The FTSE 250 was up 22.36 points, or 0.1%, at 19,213.17, and the AIM All-Share was up 1.27 points, or 0.2%, at 793.75.
The Cboe UK 100 was up 0.1% at 755.62, the Cboe UK 250 was flat at 16,725.42, and the Cboe Small Companies was up 0.1% at 13,248.78.
The UK unemployment rate ticked downward in the three months to April, while pay growth accelerated, figures from the Office for National Statistics showed.
Unemployment edged down to 3.8% in the three months to April from 3.9% in the three months to March. Market consensus, as cited by FXStreet, had expected unemployment to rise to 4.0%.
James Smith, developed markets economist at ING, said the unexpected fall in the unemployment rate ‘underscores the overall resilience of the labour market right now’.
‘Crucially for the Bank of England, we also saw another marked acceleration in wage growth,’ he added.
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.
‘For the Bank of England, all of this cements a June rate hike and if the inflation numbers continue to come in hot, it’s quite plausible that we end up with an August move as well,’ Smith concluded.
The pound was quoted at $1.2566 at early on Tuesday in London, up from $1.2511 at the stock-market close on Monday.
The Bank of England will announce its interest rate decision on Thursday next week. Before then, there will be rate decisions this week from the Federal Reserve, the European Central Bank and the Bank of Japan.
With the Fed first to take centre stage on Wednesday, all eyes are on a US inflation print, due out at 1330 BST on Tuesday.
According to FXStreet-cited consensus, markets are expecting May’s consumer price index to show a continued slowdown in inflation. Headline consumer price inflation is expected to cool to 4.1% from 4.9% on an annual basis, with core prices expected to slow their annual rise to 5.3% from 5.5%.
Markets currently see a 76% chance that the US central bank will hold rates steady on Wednesday, with the balance anticipating another 25 basis point hike, according to the CME FedWatch Tool.
Market predictions have fluctuated over the past week. The 76% expectation of a hold by the Fed is up from 70% on Monday, but down from 78% a week ago.
Ahead of the inflation data, the dollar was softer.
The euro stood at $1.0799 early on Monday, higher against $1.0754 late Friday. Against the yen, the dollar was trading at JP¥139.49, lower compared to JP¥139.54.
In London, Admiral was the worst blue-chip performer in early morning trade, down 4.9%, after Citigroup cut the insurer to ’sell’ from ’neutral’.
Ashtead was down 0.2% despite posting a ‘record’ performance in the financial year that ended April 30, with double-digit growth in revenue and profit.
The equipment rental firm reported its pretax profit rose 30% to $2.16 billion from $1.67 billion the year prior, and its revenue climbed 24% to $9.67 billion from $7.96 billion.
‘Supply constraints continue to help Ashtead and drive their utilization rates,’ said Louis Knight, an analyst at research house Third Bridge. ‘Our experts say the average lead times for a new industrial unit can often be around one thousand days now,’ amid ‘the rise of mega projects’ in the infrastructure sector of the US.
Centrica shares were trading flat.
The British Gas-owner said its performance over the first five months of the year has been ‘strong’ and that it now expects its performance in the year as a whole to be around the top end of recent analyst expectations.
In the FTSE 250, CMC Markets dropped 6.4%, making it the index’s worst-performing stock in early morning trade.
The financial services firm reported a sharp drop in profit in the year ended March 31. Pretax profit fall 40% year-on-year to £52.2 million from £91.5 million the year prior.
The fall came as CMC Markets’ operating expenses increased by £45.6 million as a result of ‘significant’ investment in technology, people, and product throughout the year along with the impact of the elevated inflationary environment seen across all regions, the company said.
Elsewhere in London, William Hill-owner 888 climbed 4.5% after it announced it had completed the sale of its Latvian business to Paf Consulting.
Chair Jonathan Mendelsohn commented: ‘The sale of the Latvian business marks another positive step in the execution of our integration programme. This sale generates cash proceeds from a non-core market to support our deleveraging plans, as well as enabling reinvestment into our core and growth markets.’
In European equities on Tuesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both 0.6% higher.
In China on Tuesday, the Shanghai Composite closed up 0.2%, while the Hang Seng index in Hong Kong was up 0.7%.
China’s central bank cut a key policy interest rate on Tuesday, in a surprise move to boost the country’s flagging economy. The People’s Bank of China said it was lowering the seven-day reverse repo rate to 1.9% from 2.0%, the first such move since August last year.
The seven-day reverse repo is the short-term interest paid by the central bank on loans from commercial lenders, and a decrease in the rate is expected to increase domestic money supply and stimulate spending.
Beijing has kept interest rates low compared with other major economies, but the country’s near-zero price inflation highlights challenges faced by policymakers as they try to stimulate growth.
In Tokyo, the Nikkei 225 index closed up 1.8%. The S&P/ASX 200 closed up 0.2% after the stock market in Sydney returned from holiday.
In the US on Monday, Wall Street ended higher on hopes that the Federal Reserve to leave interest rates unchanged on Wednesday.
The Dow Jones Industrial Average closed up 0.6%, the S&P 500 up 0.9% and the Nasdaq Composite up 1.5%.
Brent oil was quoted at $72.39 a barrel at early in London on Tuesday, down from $72.71 late Monday. Gold was quoted at $1,964.91 an ounce, higher against $1,957.18.
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