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LONDON MARKET CLOSE: FTSE 100 ends higher as UK wage growth picks up

12th Sep 2023 16:59

(Alliance News) - The FTSE 100 ended higher on Tuesday despite higher-than-expected wage growth data in the UK giving the Bank of England something to think about ahead of its interest rate decision next week.

The FTSE 100 index closed up 30.66 points, 0.4%, at 7,527.53. The FTSE 250 ended up 19.86 points, 0.1%, at 18,542.30, and the AIM All-Share closed up 0.86 of a point, or 0.1%, at 743.21.

The Cboe UK 100 ended up 0.5% at 750.25, the Cboe UK 250 closed flat at 16,167.43, and the Cboe Small Companies ended up 0.4% at 13,115.33.

The Office for National Statistics said the UK jobless rate rose to 4.3% in the three months that ended July, from 4.2% in the three months to June.

The figure came in line with FXStreet-cited market consensus and, according to analysts at Lloyds Bank, provided some "tentative" evidence that pressures in the UK labour market may be starting to ease.

However, in the three months to July, annual growth in average total pay, including bonuses, accelerated to 8.5%. The rise was faster than F, which had expected an unchanged growth reading from 8.2% in the previous three-month period.

For Craig Erlam, senior market analyst at Oanda, the wage growth figures give the BoE "little option" but to raise rates again.

"I don't see how the MPC can see that and even consider pausing on the whole and markets seem to agree, with a 25 basis point hike almost 80% priced in," he said.

The Bank of England will announce its next interest rate decision on Thursday next week. At its last meeting in August, the central bank enacted its 14th successive increase, taking the benchmark bank rate to 5.25% from 5.00%.

The pound was quoted at USD1.2477 at the London equities close on Tuesday, down from USD1.2528 at the close on Monday.

In London, Smurfit Kappa was the worst blue-chip performer at the close on Tuesday, ending 9.8% lower.

The paper-based packaging manufacturer announced it had signed a definitive transaction agreement with the US's WestRock to combine as Smurfit Westrock, which it said would create a "global leader" in sustainable packaging.

Smurfit said that for each WestRock share, WestRock shareholders will receive one Smurfit WestRock share and USD5.00 in cash, while each Smurfit shareholder will receive one Smurfit WestRock share for each share in Smurfit.

Smurfit shareholders will own around 50.4% of the new company, while WestRock shareholders will hold the remaining 49.6%.

Shares in WestRock were up 5.1% in New York at the time of the London equities close.

Associated British Foods was the best performer in the FTSE 100, meanwhile, closing up 5.6.

The fast-fashion retailer and food manufacturer's shares surged as it reported that its performance in the current financial year, ending September 16, has been "slightly better" than previous expectations.

As a result, full-year adjusted operating profit is now expected to be "moderately ahead" of the GBP1.44 billion achieved in the previous financial year for the group as a whole and "strongly ahead" for the food division.

In the FTSE 250, Dowlais lost 7.3% as the company cautioned that auto worker strikes in the US could hurt full-year results, despite its interim results being ahead of expectations.

The automotive engineering firm reported its pretax loss in the six months that ended June 30 narrowed to GBP55 million from GBP130 million a year before, as revenue rose by 14% to GBP2.55 billion from GBP2.24 billion.

However, the company said it was leaving full-year expectations unchanged, as it is monitoring potential strike action against its automotive customers by the UAW, formerly the United Auto Workers.

The union is in negotiations with Detroit's 'big three' manufacturers: General Motors, Ford, and Chrysler-owner Stellantis. The UAW represents about 150,000 workers at the three companies, and current contracts expire on Thursday this week.

Elsewhere in London, Metro Bank plunged 18% after it admitted it it won't get approval this year from Bank of England's Prudential Regulation Authority for a reduction in its capital requirement for residential mortgages.

The retail bank said that in its latest discussions with the UK financial regulator, the PRA indicated more work is required from the company, meaning approval won't be granted during 2023, if ever.

On AIM, Cornerstone FS jumped 16% as the cloud-based payment provider reported a return to profit in the first half of 2023, as revenue surged, and said its strong momentum has continued into the second half of the year.

Consequently, Cornerstone FS said it expects its results for the year to be "significantly" ahead of market expectations, including achieving its first full year of positive adjusted earnings before interest, tax, depreciation and amortisation.

In European equities on Tuesday, the CAC 40 in Paris ended down 0.1%, while the DAX 40 in Frankfurt ended down 0.5% as investors looked nervously ahead to the European Central Bank's next interest rate decision on Thursday at 1315 BST.

Carsten Brzeski, global head of macro at ING, said that, while there are good arguments to justify both a pause and another rate hike, he is of the view that the ECB will hike rates one final time on Thursday.

The ING analyst noted that headline inflation in the eurozone has only "marginally" come down over the summer and at the same time wage growth has remained high.

"We admit that it is a very close call, but still-too-high inflation, a focus on actual rather than on predicted developments, and the fear of stopping prematurely will tilt the balance towards a final rate hike," he said.

The euro was weaker against the dollar amid the pre-decision jitters, with the currency changing hands at USD1.0729 at the European equities close on Tuesday, lower against USD1.0747 at the same time on Monday.

Stocks in New York were in the red at the London equities close, with the DJIA marginally lower, the S&P 500 index down 0.5%, and the Nasdaq Composite down 0.8%.

Traders were cautious ahead of an incoming US consumer price inflation print on Wednesday which could impact expectations around the future of interest rates in the world's largest economy.

According to FXStreet-cited consensus, headline CPI is expected to accelerate to 3.6% on an annual basis in August from 3.2% in July.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, warned that the "major fear" is a stronger-than-expected uptick in headline inflation or lower-than-expected easing in core inflation.

Against the yen, the dollar was trading at JPY147.13, higher compared to JPY146.42 late Monday.

Brent oil was quoted at USD92.26 a barrel at the London equities close on Tuesday, up from USD90.42 late Monday. Gold was quoted at USD1,912.01 an ounce, lower against USD1,923.84 at the close on Monday.

In Wednesday's UK corporate calendar, there are full-year results from Ricardo, Redrow and Tullow Oil, as well as a trading statement from On The Beach Group.

The economic calendar has EU industrial production data at 1000 BST.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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