17th Dec 2024 16:56
(Alliance News) - The FTSE 100 closed lower on Tuesday after "red hot" wage growth figures saw UK rate cut bets for 2025 scaled back.
The FTSE 100 index closed down 66.85 points, 0.8%, at 8,195.20. The FTSE 250 ended 270.17 points lower, 1.3%, at 20,542.86, and the AIM All-Share gave back 7.45 points, 1.0%, at 722.04.
The Cboe UK 100 ended down 0.7% at 823.10, the Cboe UK 250 fell 1.4% at 18,067.65, and the Cboe Small Companies shed 0.1% at 16,042.09.
In the three months to October, annual growth in average earnings including bonuses picked up to 5.2% from 4.4%, according to the Office for National Statistics. The figure easily beat the FXStreet-cited consensus of 4.6%.
Average earnings growth excluding bonus increased to 5.2% from 4.9%, outperforming the consensus of 5.0%. September's figure was revised up from growth of 4.8%.
ING's James Smith thinks the "hot" UK wage data will "embolden" Bank of England hawks.
"Private sector wage growth surged in the most recent month, and that means Bank of England rate cuts will remain gradual for the time being," Smith added.
Matthew Ryan at Ebury agrees, and expects the BoE to stress a "slow and steady" approach to rate cuts during the Monetary Policy Committee meeting this week after the "red hot" data.
"There is now effectively zero chance that the MPC lowers rates again this week, with today's news raising the possibility of a unanimous vote among the committee in favour of no change," Ryan added.
Data from the ONS also showed that unemployment in the three months to the end of October remained unchanged at 4.3%, compared to the three months to the end of September.
But it was the wage growth numbers that grabbed the attention of economists.
ING's Smith noted wage growth is entirely down to the private sector, which saw regular pay increase by 12% on a one-month annualised basis.
"This matters for the [BoE}, because private sector pay trends tend to be more reflective of the wider situation in the jobs market than in the public sector."
As a result, analysts believe the BoE will leave interest rates unchanged on Thursday.
Kallum Pickering at Peel Hunt argued there is little in the data to encourage BoE policymakers to abandon their "go-slow" approach to normalising monetary policy.
Pickering expects the next BoE cut to be in February, noting the market places a 65% likelihood of this occurring.
The wage print supported sterling. The pound was quoted higher at USD1.2707 at the London equities close Tuesday, compared to USD1.2694 at the close on Monday. The euro eased to USD1.0498 against USD1.0504.
Against the yen, the dollar was trading lower at JPY153.57 compared to JPY154.23 late Monday.
Stocks in New York were lower on Tuesday at the London equities close. The DJIA was down 0.6%, the S&P 500 index was 0.4% lower and the Nasdaq Composite fell 0.5%.
On Wednesday, the US Federal Reserve is forecast to lower interest rates by 25 basis points. Ahead of the meeting, investors weighed mixed economic figures.
Data from the US Census Bureau showed retail sales climbed at a higher rate than anticipated in November.
Advance monthly US retail sales climbed 0.7% monthly in November to USD724.6 billion from USD719.7 billion in October, when retail sales had grown 0.5%, with the latter figure upwardly revised from a previously reported 0.4% increase.
November's growth outperformed the FXStreet-cited consensus for a 0.5% uptick.
The figures follow a strong purchasing managers' report on Monday.
But US industrial production contracted more than projected, data from the Federal Reserve showed.
US industrial production fell 0.1% monthly in November, slowing from a fall of 0.4% in October. November's fall was contrary to the FXStreet-cited consensus, which had expected a 0.3% increase. October's figure was downwardly revised from a decline of 0.3%.
Wells Fargo said: "The expected bounce in industrial production was a no-show in November", and offered a "sobering assessment of the state of production."
In European equities on Tuesday, the CAC 40 in Paris ended up 0.1%, while the DAX 40 in Frankfurt ended down 0.3%.
German business confidence fell in December, a closely watched survey showed, reaching its lowest level since the start of the coronavirus pandemic.
The Ifo Institute's confidence barometer, based on a survey of around 9,000 companies, declined to 84.7 points from 85.6 points in November.
The indicator was at its lowest level since May 2020, when Europe was reeling from the impact of pandemic shutdowns.
"The weakness of the German economy has become chronic," Ifo president Clemens Fuest said in a statement.
On the FTSE 100, Bunzl fell 6.7%.
The company said 2024 had been another year of "significant progress" but cautioned that continuing price deflation will have a "slight" impact on annual profitability.
In a trading statement, Bunzl said it expects revenue in 2024 to be around 3% higher than in 2023, at constant exchange rates, and between 0% and 1% lower at actual exchange rates.
Growth at constant exchange rates is expected to be driven by acquisitions, with a small decline in underlying revenue over the year.
Within underlying revenue, volume growth in the third quarter is expected to continue in the fourth quarter, although deflation is likely to be more "persistent" than previously anticipated.
This is expected to have a slight impact on adjusted operating profit in 2024, driven by Continental Europe.
Barclays fell 2.2% after losing a key UK court challenge over its car loan practices.
The lender sought to appeal a ruling that it had failed to treat a customer fairly when she purchased a car.
Lawyers had previously said the decision, alongside another legal challenge going to the Supreme Court, will serve a template for how future complaints are handled.
Fellow car finance providers Lloyds Banking Group and Close Brothers fell 1.8% and 1.0% respectively.
Bucking the weaker market, London Stock Exchange gained 0.4% after UBS upgraded to 'buy' from 'neutral'.
The broker increased its share price target by 17% and said the risk reward is "skewed to the upside".
Over the next three years, we expect LSEG to accelerate revenue growth, generate around 100bp of annual [earnings before interest, tax, depreciation and amortisation] margin expansion and grow EPS by 15% per annum. Despite this, LSEG continues to be valued like an exchange, trading at a significant discount to the US and EU Info Services names, despite stronger revenue and Ebitda outlook," UBS added.
Elsewhere, Tullow Oil tumbled 11% after Kosmos Energy said it no longer intended to make a bid for the firm, ending a short-lived pursuit.
Kosmos Energy jumped 14%. Talks between the two were only confirmed at the back end of last week.
Capita slumped 14% after it said it expects as much as GBP140 million in cash outflow in 2024 due to lower revenue.
It also expects cash flow to be hurt by GBP50 million in additional restructuring costs in the first half of 2025, with "positive and consistent" free cash flow expected from the end of 2025.
Brent oil was quoted lower at USD72.70 a barrel at the London equities close Tuesday from USD73.82 late Monday.
Gold fell to USD2,637.16 an ounce on Tuesday against USD2,650.30 on Monday.
Wednesday's UK corporate calendar sees full-year results from Jersey Electricity.
Wednesday's global economic calendar has UK consumer inflation figures at 0700 GMT and the US interest rate decision at 1900 GMT.
By Jeremy Cutler, Alliance News reporter
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