FTSE 100 analysis: Unemployment rises and wages jump – Top UK stocks

Josh Warner
By :  ,  Market Analyst

FTSE 100

The FTSE 100 is down 0.2% this morning.

The index is responding to the latest jobs and wages data to come out of the UK, which is overriding further weak data out overnight from China, where industrial production and retail sales both came in significantly below expectations to fuel further concerns about the state of the economy.


UK unemployment and wages grow

We discovered this morning that the UK unemployment rate came in at 4.2% in June. That was higher than anticipated considering economists had predicted it would stay flat from the previous reading of 4%.

Meanwhile, average earnings excluding bonuses was up 7.8% from the year before in the three months to June. That was also much higher than the previous reading of 6.9% and the 7.3% forecast. In fact, it was the highest reading since comparable records began back in 2001!

The rise in unemployment suggests the labour market is cooling, although stronger-than-expected wage growth will not be welcomed by the Bank of England that continues to have a tougher time bringing down inflation compared to other nations. Still, it does mean that consumers have better purchasing power in a challenging environment,

The mixed data, which has left traders cautious in early trade today, will make UK inflation figures out tomorrow all the more important. Importantly, forecasts from economists suggest we could see prices rise at a slower pace than wages for the first time in almost two years!

We have already seen markets raise their bets, with traders now anticipating the BoE’s interest rate will peak at 6% by March. That has jumped from the previously expected peak of just 5.25%!


FTSE 100 analysis: Where next for the UK 100?

The UK 100, our index that tracks the FTSE 100, is on course to lose ground for fourth consecutive session today and sits at its lowest level in almost a month.

Still, the index continues to drift rangebound today between the 7,650 level of resistance-turned support and the 7,450 floor. We are waiting for a breakout for a stronger signal on the future direction. Beyond here, the longer-term trendlines – with the falling resistance tracing back to February while the rising, supportive trendline goes all the way back to the pandemic-induced lows we saw in March 2020 – are back in play.

We could see 7,630 provide some resistance before 7,650 considering the 100-day and 200-day moving averages have converged on this point.

The UK 100 is set to lose ground for a fourth consecutive session


Top UK stock news

Housebuilders like Persimmon, Barratt and Taylor Wimpey are on the radar today after markets hiked their BoE rate expectations this morning. That is hitting the industry as higher interest rates for longer will keep the pressure on the housing market and keep the housing ladder out of reach for more people. Commercial property owners like British Land and LandSec are also under pressure this morning.

Meanwhile, UK banks that benefit from higher interest rates like Lloyds and NatWest are down 0.1% to 0.2% in early trade.

L&G is down 0.5% despite the insurer beat expectations this morning. The company said it made an operating profit of £941 million in the first half. That was down from £958 million the year before, partly because of the adoption of new accounting rules named IFRS 17 that will slow the pace it is able to recognise earnings. Still, that was a strong beat considering analysts had forecast profit of just £823.3 million. The dividend was raised 5% to 5.71p, helping allay any fears that the new rules would impact its payouts as L&G said it will grow its dividend by at least 5% per year going forward.

Marks & Spencer Group is up 6.5% this morning after it said it remains confident that it can grow profits this year despite the risk of consumer spending tightening and confirmed it will deliver a ‘significant improvement’ when it reports interim results in November. The retailer said like-for-like sales of food rise 11% in the first half while clothing and homeware like-for-likes were up 6%.

888 Holdings is down over 8% today after revealing revenue and adjusted profits both more than doubled in the first half thanks to its acquisition of William Hill, although it turned to a loss at the bottom-line because of higher interest payments, acquisition costs and amortisation. The gambling giant said revenue jumped 165% from last year to £882 million, smashing the £771.5 million estimate, while adjusted Ebitda soared 211% to £156 million. However, it sank to a post-tax loss of £33 million from a profit of £12 million the year before. 888 said its adjusted Ebitda margin over the full year will be north of 20% compared to just 16.8% in 2022, which should lead to a significant jump in earnings. ‘We made very strong progress with the execution of our integration plan and we now expect to realise the full £150 million of synergies in 2024, a year earlier than the original plan,’ said 888.

B&M European Retail Value finished atop the FTSE 100 yesterday and is up another 0.8% this morning as reports suggested it could be among the bidders circling collapsed brand Wilkos, with Deutsche Bank predicting the discounter will gain market share and see a sales boost from the failure of its rival.

Just Group is up 3.7% after raising its outlook this morning after revealing underlying operating profits rose 2.5x fold from last year in the first half to £173 million. That was the result of retirement income sales more than doubling to £1.9 billion, leading new business profits up to £161 million from just £76 million the year before. It said this momentum has continued into the second half. It raised its interim dividend by 15% to 0.58p. ‘Given the very strong profit growth in the first half of 2023, we are highly confident of comfortably exceeding 15% growth in underlying operating profits for the full year,’ said Just Group.

Genuit Group is up 3.5% after it said it expects annual operating profits to be at the top-end of expectations in 2023 following a batter start to the year than anticipated. The company, which provides water, climate and ventilation systems, is feeling the pressure from the subdued construction market as higher interest rates impact demand for housing but said it performed better than anticipated in the first half, when revenue fell 4.2% (and 5% on a like-for-like basis) to £304.8 million. Underlying pretax profit was down 9.6% at £40.3 million. The dividend was kept flat at 4.1p. ‘The benefits from self-help measures are building and give management the confidence that, notwithstanding the uncertain market backdrop, the group expects to deliver a financial performance at the top-end of current market expectations,’ said Genuit Group.

Victoria was supposed to report annual results this morning, but the flooring specialist said its auditors have requested more time to complete its books, with the stock down 9.9% this morning. This means the full release will be delayed, although Victoria said it sold a record amount of flooring in the year and generated record revenue of £1.46 billion, while underlying Ebitda jumped over 20% to £196 million. Underlying free cashflow more than doubled to £71.3 million. "With all major integration projects in their final stages, we expect FY2024 to be a year of two halves, with stronger H2 earnings as the benefits of the reorganisation are experienced.  Completion of the projects is also expected to result in Victoria's free cash flow increasing sharply from H2 FY2024, with management focussed on returning to our long-run average cash conversion of Ebitda to net free cash flow of 55%.  Further ahead, FY2025 will see the full benefit of the successful acquisitions' integration with an expected uplift in margins driving an additional increase in earnings and free cash flow,” said executive chairman Geoff Wilding.

Bunzl is up 0.1% after announcing it has acquired three businesses and signed a deal to buy a fourth from various sectors across different geographies. It has purchased a Spanish distributor of foodservice and hospitality equipment named La Cartuja Complementos Hostelería for EUR5 million and a cleaning and hygiene product distributor in Brazil named Grupo Lanlimp for BRL210 million. It has also bought Dutch distributor Groveko for EUR23 million and PackPro, a packaging firm in Canada, for CAD33 million.


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