Both the pound and London share prices were rising early Tuesday, after strong UK employment figures were expected to keep the Bank of England on the path of interest rate hikes.
The unusual combination of a tight labour market and falling real wages, due to rampant inflation, puts the UK central bank in a difficult position.
The FTSE 100 index was up 28.33 points, or 0.4%, at 7,488.73 early Tuesday. The mid-cap FTSE 250 index was up 109.42 points, or 0.6%, at 20,033.41. The AIM All-Share index was up 3.96 points, or 0.4%, at 959.54.
The Cboe UK 100 index was up 0.5% at 746.85. The Cboe 250 was up 0.6% at 17,716.83, and the Cboe Small Companies down 0.1% at 14,652.78.
In Paris, the CAC 40 stock index was up 0.4% and the DAX 40 in Frankfurt was 0.7% higher.
The UK labour market is in a better state that expected, but conditions still remain tight, official data showed on Tuesday. Joblessness was reduced and wages increased, though not by enough to keep pace with inflation.
‘Overall, the data continue to point to the risk of further domestic inflation pressures from a tight labour market,’ said Lloyds Bank.
The Office for National Statistics noted the UK unemployment rate had generally been falling since late 2013 up until the start of the Covid-19 pandemic in December 2019 to February 2020. Jobless increased then but has now returned to its pre-virus level.
The UK unemployment rate was estimated at 3.7% in the three months to May, 0.3 percentage point lower than the previous three-month period, and 0.2 percentage point below the pre-coronavirus pandemic level - which covers the period from December 2019 to February 2020.
The figure also beat the market consensus forecast, according to FXStreet, of 3.8%.
The ONS also released figures showing regular pay, which excludes bonuses, in the UK was up 4.2% year on year in January to March - in line with expectations.
However, in real terms - adjusted for inflation - in January to March 2022, growth in total pay, which includes bonuses, was 1.4%, but regular pay fell by 1.2% on the same period a year prior.
Capital Economics said: ‘The labour market has remained stronger than expected even though the economy has been weaker than anticipated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, perhaps from 1.00% now to 3.00% next year.’
Sterling was getting a strong boost from the data. The pound was quoted at $1.2401 early Tuesday, sharply higher than $1.2250 at the London equities close on Monday.
The euro was priced at $1.0459, up against $1.0402. Against the yen, the dollar was trading at JP¥129.31, up from JP¥129.10.
In London, Imperial Brands was the best performer in the FTSE 100, gaining 4.9%.
The tobacco firm said it was ‘pleased’ with its performance in the first half of its financial, as it was able to raise its interim dividend but saw a sharp drop in profit.
In the six months to March 31, operating profit slumped 27% to £1.20 billion from £1.64 billion. Imperial noted that operating profit in the recent year suffered from £201 million in charges for its exit from Russia, while the year before benefited from a £281 million gain from the sale of its cigar business.
Pretax profit was down to £1.26 billion from £2.06 billion.
Net revenue declined by 1.3% to £15.36 billion from £15.57 billion, which was blamed on lower excise duty in Europe.
‘These results provide further evidence that we have achieved the stabilisation of our core combustible business. During the first half of the year, we increased aggregate market share in the five priority markets which account for around 70% of our operating profit, while maintaining pricing discipline. This strong performance is an outcome of our tighter performance management and disciplined investment in sales execution and brand building,’ Chief Executive Stefan Bomhard explained.
Imperial upped its interim dividend by 1.0% to 42.54 pence from 42.12p.
Peer British American Tobacco was up 1.0%.
Vodafone was down 1.4% in early trade. It reported strong revenue growth in financial 2022, aided by Service revenue growth in Europe and Africa, but offered no further updates on its new largest shareholder, Emirates Telecommunications.
For the financial year that ended March 31, Vodafone's pretax profit fell to €3.95 billion from €4.40 billion, but operating profit improved to €5.66 billion from €5.10 billion.
Revenue was up to €45.58 billion from €43.81 billion, with Service revenue up 2.6% to €38.20 billion.
Chief Executive Nick Read said: ‘Our near-term operational and portfolio priorities remain unchanged from those communicated six months ago. We are focused on improving the commercial performance in Germany, actively pursuing opportunities with Vantage Towers and strengthening our market positions in Europe. These actions, together with the simplification of our portfolio and the ongoing delivery of our organic growth strategy, will create further value for our shareholders.’
Vodafone left its annual dividend unchanged at 9.00 euro cents.
‘This is a positive set of results for Vodafone,’ said Neil Shah, director of research at Edison.
He added, however: ‘Despite these results, there is clearly a demand for Vodafone to drastically change its approach. The group's senior management has been under increasing pressure from its investors following Cevian Capital's recent push for the group to restructure its portfolio earlier this year.’
Emirates Telecom, formerly known as Etisalat, has taken a 9.8% shareholding in Vodafone but said it has no plans to make a takeover offer. On Saturday, it said subsidiary Atlas 2022 Holdings Ltd purchased 2.77 billion Vodafone shares for about $4.4 billion, praising the quality of the business and its brand.
Unilever shed 1.6% after Societe Generale cut the consumer goods firm to 'sell' from 'buy'.
In the 250s, ContourGlobal surged 34% after it agreed to a takeover by US private equity giant Kohlberg Kravis Roberts & Co.
New York-based KKR has offered 263.6 pence per share for ContourGlobal, valuing the London-based power generation firm at about £1.75 billion. It closed trading in London on Monday at 193.40p, giving it a market cap of about £1.25 billion.
ContourGlobal's board have unanimously recommended the deal. Chair Craig Huff said the offer will ‘provide an opportunity for all shareholders to crystallise their investment in ContourGlobal at an attractive price.’
‘The board of ContourGlobal welcomes KKR's intention to provide capital and operational expertise to support ContourGlobal's strategy, including accelerating investments in the energy transition,’ he added.
Brent oil was quoted at $112.79 a barrel Tuesday morning, higher from $112.19 late Monday. Gold stood at $1,826.30 an ounce, up against $1,812.63.
In Asia on Tuesday, the Japanese Nikkei 225 index closed up 0.4%. In China, the Shanghai Composite ended 0.7% higher, while the Hang Seng index in Hong Kong was up 3.3% in late trade. The S&P/ASX 200 in Sydney closed up 0.3%.
Still in the economic calendar for Tuesday, there are US retail sales at 1330 BST and eurozone gross domestic product data are reported at 1000 BST.
Ahead of the GDP data, the European Commission on Monday downgraded its economic forecast for the EU and the eurozone, predicting economic activity to grow slower than previously thought, even as inflation accelerates quicker than expected.
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