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LONDON MARKET OPEN: Financials lead decline in FTSE 100; M&S jumps

15th Aug 2023 09:01

(Alliance News) - Stock prices in London opened firmly in the red on Tuesday, following a mixed UK jobs print, and the latest stream of weak data from China.

The FTSE 100 index opened down 75.61 points, 1.0%, at 7,431.51. The FTSE 250 was down 102.94 points, 0.6%, at 18,658.49, and the AIM All-Share was down 1.7 points, 0.2%, at 753.25.

The Cboe UK 100 was down 0.9% at 741.33, the Cboe UK 250 was down 0.6% at 16,374.52, and the Cboe Small Companies was little changed at 13,617.75.

The FTSE 100 was weighed down by a poor performance in the financials sector in particular. Meanwhile, the prospect of further interest rate hikes in the UK was weighing on the more domestically-focused FTSE 250.

In European equities on Tuesday, the CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt was down 0.3%.

According to the Office for National Statistics, the UK unemployment rate unexpectedly rose to 4.2% in the three months to June, but wage inflation also increased more quickly than expected.

"This morning's numbers have not just given the central bank a headache, but a migraine," said CMC's Michael Hewson.

Annual growth in average total pay, including bonuses, accelerated to 8.2% in the three months to June, from the upwardly revised figure of 7.2% in the previous three-month period. June's figures overshot FXStreet-cited consensus of 7.3%.

"This total growth rate is affected by the NHS one-off bonus payments made in June 2023," the ONS noted.

Still, excluding bonuses, average earnings rose 7.8%, compared to the upwardly revised reading of 7.5% in the previous month. June's rise was above the consensus of 7.4%.

UK consumer price inflation was 7.9% annually in June.

"While many people will decry the strength of these numbers and warn of the risk of wage/price spiral they rather miss the point that consumer incomes have been squeezed for months, with the gap finally narrowing, and now starting to work in consumer's favour," Hewson added.

The pound jumped back above the USD1.27 mark shortly after the reading. This suggests the market believes the Bank of England will be troubled by the rising wages, and more likely to continue hiking interest rates.

Sterling was quoted at USD1.2707 early Tuesday, rising from USD1.2690 at the London equities close on Monday. The euro traded at USD1.0926, higher than USD1.0918. Against the yen, the dollar was quoted at JPY145.73, up versus JPY145.31.

Despite the squeeze on household budgets, there was an encouraging update from Marks & Spencer, which sent its shares up 8.3%.

M&S said it now expects the outcome for its financial year to show profit growth from the prior year, and expects its interim results to reveal a "significant" improvement from previous expectations.

Like-for-like Food sales grew over 11% in the 19 weeks to August 12, as the firm invested in quality and "sharpened" prices on its value lines. Like-for-like sales in Clothing & Home grew over 6%, with strong growth in stores offset by more "subdued" growth online.

"The retailer is seen as a bellwether for consumer sentiment and by raising its profit outlook it shows just how much more resilient shoppers are proving to be despite the ongoing storm of inflation and higher interest rates," said Hargreaves Lansdown's Susannah Streeter.

There was also some data on the wider supermarket sector from Kantar.

According to the research body, grocery price inflation eased by 2.2 percentage points to 12.7% in the four weeks to August 6. Over the same period, overall take-home grocery sales rose 6.5%, slowing from 10.4% last month.

German discount supermarkets continued to see the strongest sales growth, with Lidl and Aldi sales rising 20% and 21% respectively in the 12 weeks to August 6 compared to a year before. The total across grocers was 9.2% in the period. Tesco and Sainsbury's sales grew 9.5% and 9.3%, while growth was slower at Ocado and Waitrose, rising only 1.4% and 4.4% respectively.

In the FTSE 100, Legal & General was among the worst performers, down 3.4% after its interim results.

In the first half, the financial services firm said pretax profit was GBP324 million, down 53% from GBP697 million a year before. This was largely due to around GBP617 million in investment losses, with operating profit only falling 1.8% to GBP941 million from GBP958 million.

"[Legal & General Retirement Institutional] and [Legal & General Capital] performed strongly, [Legal & General Investment Management] results stabilised, and Retail's performance - while impacted by competition in some areas - was bolstered by growing annuity sales and progress in US protection," L&G said.

L&G raised its dividend to 5.71 pence up from 5.44p a year before, and said it intends to grow the dividend at 5% each year to 2024. The firm said it was on track to achieve its five-year ambitions for the 2020 to 2024 period.

Companies across the finance sector were also in the red, with M&G down 2.2%, Segro falling 2.4%, and Phoenix Group down 2.1%.

In commodities, gold was quoted at USD1,904.67 an ounce early Tuesday, lower than USD1,909.82 on Monday. Brent oil was trading at USD86.54 a barrel, higher than USD86.47.

In Asia on Tuesday, trading was mixed. In China, equities weakened as economic data pointed to further weakness in the Chinese economy. The Shanghai Composite closed down 0.1%, while the Hang Seng index in Hong Kong was down 0.6% in late dealings.

Chinese retail sales, a key gauge of consumption, grew 2.5% year-on-year in July, the National Bureau of Statistics said, down from 3.1% in June and falling short of analyst expectations. In addition, the NBS said industrial production grew 3.7% in July from a year ago, down from 4.4% in June.

It adds to the recent weak data from China, and suggests the country may struggle to achieve its 5% growth target set for the year.

In an attempt to stimulate activity, the People's Bank of China cut the medium-term lending facility rate – the interest for one-year loans to financial institutions – from 2.65% to 2.5%. A lower MLF rate reduces commercial banks' financing costs, in turn encouraging them to lend more and potentially boosting domestic consumption.

"Policy action overall has underwhelmed, and investors are looking for a lot more welly before being more confident that the economy may have more insulated from the downturn," said HL's Streeter.

Meanwhile, the Nikkei 225 index in Tokyo closed up 0.6%.

Japan's economy grew 1.5% in the three months to June, official data showed, beating expectations on the back of strong exports. The average forecast for quarter-on-quarter growth in the world's third-largest economy had been 0.8%, according to Bloomberg News. The data, released by the Cabinet Office, means the economy grew an annualised 6.0%, compared with the market expectation of 2.9%, giving Japan three straight quarters of growth.

The S&P/ASX 200 in Sydney closed up 0.4%.

In the US on Monday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.1%, the S&P 500 up 0.6% and the Nasdaq Composite 1.1%.

Still to come on Tuesday's economic calendar, there's US retail sales at 1330 BST.

By Elizabeth Winter, Alliance News senior markets reporter

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