Lady using cash machine
UK wages grew more than expected in the three months to May at 7.3% / Source: Adobe

Stock prices in London opened mixed on Tuesday morning in London, as markets eyed shock UK labour market data.

The FTSE 100 index opened down 5.90 points, 0.1%, at 7,267.89.

The large cap index was held back by a stronger pound, but boosted by share price rises among its mining stocks, amid the prospect of stimulative measures in China.

The FTSE 250 was up 104.55 points, 0.6%, at 18,132.51, and the AIM All-Share was up 1.81 points, 0.3%, at 740.53.

The Cboe UK 100 was flat at 725.21, the Cboe UK 250 was up 0.6% at 15,881.18, and the Cboe Small Companies was slightly lower at 13,431.79.

In European equities, the CAC 40 in Paris was up 0.6%, while the DAX 40 in Frankfurt was up 0.3%.

The pound climbed above the $1.29, after higher-than-expected UK wage inflation figures.

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 figures topped FXStreet-cited consensus of 6.8%.

‘Both the chancellor and the governor of the Bank of England will be chilled by today‘s numbers which have been released just hours after both spoke of the need for pay restraint if inflation’s sticky fingers are to be prized from the UK economy,’ said AJ Bell’s Danni Hewson.

‘The UK economy has been resilient and high employment has played a huge part in fostering that resilience. But if recession is really necessary to stamp out inflation‘s smouldering embers, there are signs that it is creeping closer.’

However, the data was something of a ‘mixed bag’, given unemployment unexpectedly rose 4.0%. Forecasters had expected it to remain unchanged at 3.8%. The rise points to loosening in the labour market - a development the BoE will be happy to see.

Sterling was quoted at $1.2901 early Tuesday, higher than $1.2828 at the London equities close on Monday.

Sterling was also benefitting from a weak dollar, as well as hawkish rhetoric from the head of the BoE and the UK’s chancellor.

Speaking at London’s Mansion House, BoE Governor Andrew Bailey has vowed that the central bank must ‘see the job through’ to quickly bring inflation back down. Bailey stressed that ‘unacceptably high’ inflation is currently his ‘pre-occupation’.

Meanwhile, UK Chancellor Jeremy Hunt said he is prioritising tackling inflation over tax cuts, in a blow to Tory MPs clamouring for a pre-election giveaway.

The euro traded at $1.1013 early Tuesday, rising from $1.0984 late Monday. Against the yen, the dollar was quoted at JP¥140.60, down versus JP¥141.52.

In the US on Monday, Wall Street ended in the green, with the Dow Jones Industrial Average up 0.6%, the S&P 500 up 0.2% and the Nasdaq Composite up 0.2%.

Sentiment across the Atlantic was somewhat timid ahead of Wednesday’s consumer price inflation print, and the beginning of earnings season. Major banks including Citigroup, Wells Fargo and JPMorgan will release second-quarter results on Friday.

In China, equities were boosted by the prospect of economic support measures from Beijing.

The Shanghai Composite closed up 0.6%, while the Hang Seng index in Hong Kong was up 1.1% in late dealings.

Chinese authorities on Monday urged banks and other financial institutions to provide easier terms for ailing developers by renegotiating the terms of their loans, with the aim of ensuring homes under construction are delivered. On Tuesday, state-run financial newspapers said more announcements were in the pipeline, as well as measures to boost business confidence.

The moves come as the vast property industry in China strains under the weight of enormous debts, with some firms such as Evergrande on the verge of collapse. The crisis has sent shivers through the world’s number two economy, which has in turn weighed on global growth.

The S&P/ASX 200 in Sydney closed up 1.3%, boosted by a stronger outlook for commodities amid the potential economic support in China.

The more positive mood music could also be heard in London, with miners rising in early trade. Endeavour Mining and Antofagasta rose 1.3%, with Fresnillo adding 1.1%.

Gold was quoted at $1,932.35 an ounce early Tuesday, higher than $1,923.22 on Monday.

Brent oil was trading at $78.01 a barrel, falling from $78.48.

The Nikkei 225 index in Tokyo closed marginally higher.

In further UK news, retail sales increased by almost 5% in June, although this masked a large drop in volumes after accounting for inflation, numbers showed.

The British Retail Consortium on Tuesday said total retail sales increased by 4.9% in the five weeks from May 28 to July 1, having decreased 1.0% during the same period in 2022.

Consumer confidence remains ‘fragile’, the BRC noted.

In the FTSE 100, Centrica rose 0.6%

The energy company and British Gas parent company said it signed a $8 billion long-term sale and purchase agreement for 1.0 million tonnes per annum of liquefied natural gas on a ‘free on board’ basis at the Delfin Deepwater Port. The port is located off the coast of the US state of Louisiana.

Operations and first liquefied natural gas are expected to begin at the port in 2027. It will see Centrica take delivery of around 14 LNG cargoes a year and could provide enough energy to heat 5% of UK homes for 15 years, the company said.

On AIM, STM Group surged 93% to 53.2p

The London-based financial services provider revealed it has agreed in principal to a potential cash takeover offer at 70p per share. Its shares had closed at 27.90p on Monday.

The possible offer is from PSF Capital GP II Ltd as general partner of PSF Capital Reserve LP. PSF provides pension savings and pension risk transfers.

Should an offer be made at the price suggested, the STM board would recommend it unanimously to shareholders, the company said.

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Issue Date: 11 Jul 2023