FTSE 100 analysis: UK unemployment falls as wage growth accelerates

FTSE 100 rises

The FTSE 100 is up 0.3% this morning.

That follows on from a positive session in Asia after China delivered a surprise cut in short-term lending rates – the first cut in 10 months - with reports that the country could introduce a fresh stimulus package also providing support.

Turning back home, Britain’s unemployment rate dropped to 3.8% in the three months through April from the 3.9% seen in the previous quarter, coming in below the 4% rise anticipated by markets, according to the Office for National Statistics. Pay, excluding bonuses, rose 7.2%, which is the highest ever recorded outside of the pandemic years. The acceleration in wages, partly caused by an increase in the national minimum wage, is a surprise as it suggests the Bank of England’s rate hikes have not loosened the labour market as much as anticipated.

That data, particularly the strong wage growth, is expected to reinforce expectations that the Bank of England will raise rates again when it meets next week. With that in mind, governor Andrew Bailey will testify to the House of Lords Economic Affairs Committee this afternoon.

Meanwhile, the European Central Bank’s Andrea Enria will be speaking at conference in Paris today, while Pablo Hernandez is due to speak at the Cinco Dias 45 anniversary event. That comes ahead of the ECB’s interest rate decision on Thursday.

The key economic event to watch today is US CPI, which could be the deciding factor as to whether the Federal Reserve hikes interest rates again or presses pause. The FOMC meeting begins today before the interest rate decision is made tomorrow. Traders and economists are expecting the key US inflation gauge to come in at 0.2% month-over-month, a reading that would bring the year-over-year rate down to 4.1% from 4.9% last month. Markets currently see a 76% chance that US interest rates will be left alone this week, but will today’s inflation data change expectations?

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, has drifted between a ceiling of 7,650 and the June-low of 7,452 over the past two weeks. We are waiting for the index to break out of this range to decide where it is headed next.

A break above the ceiling would mean a move toward 7,710 is possible, marking the level of support that held throughout most of May. A move below the June-floor risks seeing it fall toward 2023-lows at around 7,307.

Top UK stock news

Ashtead Group is down 1.7% this morning despite delivering another year of record revenue and profitability. Rental revenue rose 15% to $2.13 billion in the fourth quarter and adjusted EPS rise 18% to 84.3 cents. That was ahead of the $1.89 billion in rental sales and 83.0 cents EPS forecast. Its total dividend for the year was 100 cents, up from 80 cents the year before. That led to a 22% rise in annual rental sales and a 27% jump in full year EPS. However, its outlook disappointed after it said rental revenue would grow 13% to 16% and it will target $300 million of free cashflow in the new financial year, below the 17.6% topline growth and $575 million of cashflow pencilled-in by analysts.

Centrica is up 1.6% after it said it expects full year adjusted EPS to be at the top end of the 16.5p to 24.7p range provided by analysts following a ‘strong’ performance in the first five months of the year. While welcome news, that will still be much lower than the 34.9p delivered in 2022. It said earnings will be heavily weighted to the first half and warned that an array of uncertainties – from weather to commodity prices – could lead to a ‘range of possible outcomes for the full year’. Interim results will be released on July 27. RBC said there is strong momentum for further upgrades before the interim results are released while Morgan Stanley said the EPS guidance was ‘significantly’ ahead of expectations.

Schroders is down 0.9% today. It said it expects its wealth management business to generate net new business growth of 5% to 7% of opening assets under management each year. That is the main message ahead of its investor day for institutional shareholders today, when Schroders will reveal its wealth management arm grew assets under management to £115.6 billion at the end of April from £111.4 billion at the end of 2022.

A group of investors in gambling outfit 888 Holdings have proposed candidates to become chairman, CEO and finance director, according to the Times. They are pushing for the former CEO of GCV Holdings, Kenny Alexander, to become CEO and want the former finance chief of Betfair, Stephen Morana, to head up the finance department at 888. They also want to bring in GVC’s former chairman Lee Feldman onto the board. The stock is up 1.2% this morning.

HSBC is up 0.7% after revealing it will wind down its wealth and personal banking divisions in New Zealand through a strategic review that will see it phase out operations over several years as part of a shake-up that is seeing the bank exit less profitable businesses. The bank said it could no longer justify investing into the business because of ‘changing operating requirements in the market and scalability of the business.’

Bellway is down 0.3% after it said demand has improved in 2023 but that reservation rates have fallen while cancellation rates have risen between February 1 and June 4. The housebuilder handled around 190 reservations a week in the period, down from 253 the year before, while cancellations rates rose to 15% from 12%. Its order book has also taken a knock to £1.7 billion from £2.4 billion the year before. It reiterated plans to build 11,000 homes over the full year, broadly flat with what it produced the year before, although average selling prices are expected to dip closer to £300,000. It said its net cash position should rise to around £200 million by the end of the year from about £42 million at present.

Oxford Instruments is down 0.7% after it said revenue rose 21% in the year to the end of March to £444.7 million and that adjusted pretax profit jumped 24% to £82 million. ‘We have delivered growth in orders, revenue and profit, as well as maintaining margin, with performance strengthened in the second half as we converted our order book and realised the benefits of new pricing structures,’ said CEO Ian Barkshire. Its order book grew over 19% and ended the year at a record £319.6 million. ‘While mindful that the wider macroeconomic context remains challenging, our record order book and strong positions in attractive end markets underpin our confidence in the future growth of the group,’ Barkshire added. Its dividend for the year was raised to 19.5p from 18.1p.

Rio Tinto is down 1.5%. The miner said the chief executive of its Aluminum business Ivan Vella has resigned and will leave in December 2023. A search for his replacement is now underway.

Bunzl is ‘de-risking’ its supply chain by shifting some sourcing out of China, according to the Financial Times. The distributor currently sources around 10% to 15% of its products from China, but it is now diversifying by sourcing more from countries such as Mexico, India, Vietnam and Malaysia. That is in response to rising geopolitical tensions. Bunzl is up 0.4% in early trade.

BAE Systems has been initiated at Overweight by Morgan Stanley, which said the defence giant was a Top Pick thanks to its geographical diversification, robust medium-term outlook and the upside potential lingering over estimates. BAE is up 0.4% today.

Morgan Stanley also initiated coverage on engine-maker Rolls Royce with a Equal-Weight rating and a price target of 166p. The stock is up 0.7% at 151.23p.

Anglo American has been downgraded to Underperform from Outperform by Oddo BHF, which has a price target of 2,400p on the mining giant. The miner is up 1.3% at 2,448p today.

Admiral Group has been downgraded to Sell from Neutral by Citi, sending the insurer down over 5% this morning.

Hipgnosis Songs Fund has been upgraded to Buy from Hold by Jefferies, sending the stock 1.6% higher this morning.

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