- Wage growth remains steady at 2.1pc; disappointing figures pull pound back down to flat territory against the dollar
- Unemployment nudges down to 4.3pc, its lowest rate since 1975
- FTSE 100 lurches into the red; global relief rally on stock markets stutters
- Miners weigh heavily on blue-chip index early on; housebuilder Galliford Try edges up after posting profits at the higher end of estimates
Markets wrap: Squeeze on UK households tightens as wage growth figures disappoint
The squeeze on UK households got a little tighter today after the ONS confirmed that wage growth lags far behind rising inflation, knocking hopes of an early interest rate rise.
While unemployment dropped to a fresh 42-year low at 4.3pc, the tighter labour market couldn't pull up wages, which stagnated at 2.1pc in the three months to July.
Hawkish hopes of an early rate hike were ignited yesterday when inflation jumped to 2.9pc but sluggish wage growth has added another layer of uncertainty with the Bank of England Monetary Policy Committee due to meet tomorrow.
Although no change in policy is expected in tomorrow's meeting, inflation soaring well ahead of the bank's 2pc target has cranked up the pressure on Mark Carney and the MPC with chief economist Andy Haldane deemed the most likely to jump ship to the hawks.
The pound coming off a one-year high against the dollar following the job figures couldn't help the FTSE 100, which has been sunk by miners retreating on the price of copper slipping.
IG market analyst Joshua Mahony explained the miners' drag on the FTSE 100 today:
"Miners provided a drag upon the FTSE 100 throughout today’s session, as the deterioration in both precious and industrial metals dragged the likes of Antofagasta, Anglo American, Fresnillo and Glencore to the bottom of the leaderboard.
"Copper was today’s big loser amongst a sea of red for metals, while a selloff in gold in the face of equity market weakness saw the precious metal finally trade like a physical commodity rather than just a safe haven asset."
Hospital drugs firm Clinigen snaps up troubled rival Quantum for £150m
One of the largest companies on London’s junior market Aim, hospital drugs supplier Clinigen, has agreed a deal to snap up troubled rival Quantum Pharma for £150m.
The news sent shares in Quantum Pharma up 18pc. However, its suitor, which has a market cap of over £1.1bn, suffered a 3pc fall as investors mulled over the tie-up.
The offer is for 37p in cash and 0.0405 new Clinigen shares per Quantum share.
Shaun Clinton, chief executive of Clinigen, told the Telegraph the move would boost its ability to supply novel drugs to clinicians and enable it to expand further into continental Europe.
He said further acquisitions could be on the cards, saying: “We would consider further bolt-on deals to add speciality pharma products or to extend our geographical footprint.”
US markets lose steam after jumping to record closes
After jumping to record all-time closes yesterday, the Dow Jones and S&P 500 have lost their steam slightly over in the US this afternoon.
Both indices are in flat territory with the tug of war between Apple's 1.2pc retreat and energy stocks buoyed by stronger prices resulting in a flat finish.
Buyers are running out of steam, according to CMC Markets analyst David Madden.
"Stock markets in Europe are experiencing low volatility as the rally that we saw at the start of the week has lost momentum.
"The bullish sentiment on the back of Hurricane Irma not being as severe as predicted, and no new tensions in relation to North Korea, has been replaced with a lacklustre attitude. You could say traders are pausing for breath, after the positive run."
Blackpool Airport returns to public ownership after 13 years as Balfour Beatty sells stake
Balfour Beatty has agreed to sell its majority stake in Blackpool Airport to the council, as the local authority looks to protect the future of the site.
Construction company Balfour agreed the deal to sell 95pc of the airport for £4.25m, saying that it “further simplifies the portfolio, in line with the group's strategy”.
Blackpool Council had originally owned the airport until 2004, when it sold the stake to a consortium led by City Hopper Airports and Mar Properties for £13m. The council retained the remaining 5pc, while the rest was sold to Balfour Beatty in 2008.
However, falling passenger numbers and a legal dispute with operator Jet2 over the opening hours of the airport led to the site falling into administration in 2014.
Jobs growth accelerates but pay disappoints in interest rate dilemma for Carney
Unemployment tumbled to a new 42-year low in July, with more Britons than ever before in work.
Private and public hiring picked up in the three months to July with employment rising by 181,364, the fastest pace of jobs growth since 2015. More than 31.2m people are now in work, while joblessness dropped to 1.46m, or 4.3pc - a low not seen since mid-1975.
Employers appear keen to keep on hiring as the Office for National Statistics found 774,000 vacancies in August, a modest rise on the month.
The number of public sector workers also rose for the first time in a year to 5.44m.
Galliford Try avoids large infrastructure projects as charge on legacy contracts hits profits
The developer and construction company Galliford Try has said it will no longer bid for large fixed-price infrastructure contracts after its profits were hit by a charge on legacy contracts.
Pre-tax profits fell nearly 60pc to £59m due to the £98m charge it announced in May, relating to problem legacy contracts for the the Queensferry Crossing and part of a road in Aberdeen. But the company posted a 7pc rise in revenues to £2.7bn in the 12 months to June 30, and a 9pc increase in pre-tax profits excluding exceptional items including the charge.
Galliford added that the amount set aside was unchanged and it was making "good progress" on its target to increase profits by 60pc by 2021.
Its housebuilding arm, Linden Homes, and the regeneration division both reported stronger results, with operating profits up 16pc and 27pc respectively, but the construction side suffered, with margins on its underlying business squeezed to virtually nothing.
Pound and dollar await crucial Thursday
Sterling has dipped into the red against the dollar in the last half an hour but today's movements could be small fry compared to a big day for the two currencies tomorrow.
While sterling has the Bank of England's Super Thursday to contend with, the US's own inflation and interest rate hike worries will be the focal point for traders stateside.
Persistently sluggish inflation in the US has dampened hike hopes but a pick-up could reignite expectations that the Federal Reserve will raise rates for a third time in the cycle before the end of the year.
Lukman Otunuga, research analyst at FXTM, said this on tomorrow's US figures:
"Thursday’s CPI report is a big deal, especially when considering how concerns over stubbornly low inflation rates remain one of the key culprits weighing heavily on US rate hike expectations.
"Price action suggests that dollar bears still remain in control, as investors become increasingly sceptical over the Federal Reserve’s ability to raise interest rates again before the end of the year. A soft inflation figure on Thursday that falls below market estimates is likely to dent the prospect of higher US rates, consequently punishing the vulnerable dollar further."
Brent crude rallies close to $55 per barrel on upgraded demand forecast
Oil demand will pick-up faster than expected this year, the International Energy Agency has forecast today, boosting the price of Brent crude to close to $55 per barrel.
The IEA said that the market is beginning to rebalance as oil demand grows and production among OPEC members begins to fall.
Brent crude jumped 0.8pc to its highest level since late May after the report bumped up its demand growth forecast by 1.6m barrels per day.
Oil stocks have lagged behind crude’s rally in recent months but today the two oil giants on the FTSE 100, BP and Shell, have advanced 0.5pc and 0.6pc, respectively.
UK funds back DNA data miner that can diagnose disease
A biotech offering artificial intelligence that can diagnose diseases by mining hundreds of thousands of patients’ DNA data has completed a $30m (£22.6m) fundraising, backed by names including UK venture capital giant Balderton Capital.
Sophia Genetics said it would use the cash to expand its network of hospital tie-ups, which already stands at 330 hospitals in 53 countries, including nine in the UK. The push will be focused on expansion outside Europe.
It will also help fund a move into cancer diagnostics, with the latest therapies from drugmakers increasingly being tailored to suit a patient’s genetic profile.
Swiss-based Sophia Genetics has already analysed the genomic profiles of over 125,000 patients, providing a database that aids doctors in diagnosing a range of conditions from cystic fibrosis and hereditary heart problems.
Halfords names Dixons Carphone software boss as new chief executive
Halfords has appointed the boss of Dixons Carphone’s software business as it new chief executive.
Graham Stapleton has been hired to replace Jill McDonald, who is taking the reigns at Marks & Spencer’s clothing, home and beauty business next month.
Mr Stapleton, who joins the company in January, has previously served as chief executive of Dixons Carphone’s Connect World Services division. Prior to that, he was chief executive of Carphone Warehouse UK & Ireland.
Earlier in his career he held senior positions at Kingfisher and Marks & Spencer.
Lunchtime update: Squeeze on households confirmed by stagnant wage growth
The squeeze on UK households got a little tighter today as the ONS confirmed that wage growth lags far behind rising inflation.
Unemployment dropped to its lowest level in 42 years but the tighter labour market failed to translate to earnings with wage growth stagnating at 2.1pc.
The fall has knocked hawkish hopes of an earlier-than-expected interest rate rise at the Bank of England and the pound has pared its early gains on the currency markets. Sterling remains at a one-year high against the dollar, however, trading at $1.3274.
The FTSE 100's losses have eased but it is still stuck in the red, bucking the trend on markets. Miners weighed heavily on the blue-chip index as copper slipped to a three-week low while Tesco is the sharpest faller on a broker downgrade.
Spreadex analyst Connor Campbell commented on this morning's action:
"While sterling’s slide took the edge off the FTSE’s losses it couldn’t fully lift it out of the red. Instead the index is still down 30 or so points, weighed down by its mining stocks. As for the Eurozone, the euro’s bounce against the pound meant there was little for the DAX and CAC to enjoy, instead both indices sitting flat as the morning went on.
"Looking to this afternoon and for now the Dow Jones seems to have stalled at 22100. The index is set to start the US session flat at that level, with little on the agenda – bar the latest PPI reading – to help it on its way to a fresh all-time high."
Slow wage growth a global problem
A reminder that some pay squeezes are more equal than others... pic.twitter.com/lc4xAEEU6V— Rupert Seggins (@Rupert_Seggins) September 13, 2017
Today's wage growth figures are proving a bit of a head scratcher for economists. The normal connection between a tight labour market and wage growth just hasn't been feeding through into the figures recently.
Real wage growth has fallen in almost all sectors with only a handful, including finance and arts, enjoying a rise.
Looking at the employment figures by region, Northern Ireland lags behind with just 68.2pc of its population in work compared to 79.6pc in the South East.
Investec economist Philip Shaw points out that slow wage growth is not just a UK problem:
"Both basic economic theory and common sense suggest that pay growth is likely to be bid up as labour becomes scarcer and shortages become more commonplace.
"However, soft wage growth is not just a feature of the UK economy, but an international phenomenon, with the authorities in the US, the euro area and Japan attempting to make sense of similar developments, despite tight, or at least tightening labour markets there."
Ashurst employment partner Crowley Woodford believes that confidence is key to sluggish wage growth:
"There is still a lack of confidence amongst employers with regards to the longer term future whilst workers still feel insecure in their jobs. This dampens the pressure on employers to offer higher pay and employee representative bodies to demand it."
Apple's iPhone X unveiling pulls down European suppliers
Unless you've been living under the rock or taken a vow against capitalism, you may have noticed that Apple unveiled its new iPhone X yesterday and the markets are of course not immune to the latest release from the world's largest listed company.
Disappointment that the iPhone X will not hit stores until November dragged down Apple shares 0.4pc last night in the US with the new £999 phone available to buy on November 3, a considerable delay compared to previous releases.
Given that Apple left its fourth quarter guidance in tact, it suggests that the tech giant expects to compensate for the delay with sales of its new iPhone 8, which will be released later this month.
Apple's share price knock has had a read across to its suppliers with British semiconductor firm IQE falling nearly 6pc while in Europe suppliers AMS and Dialog have both retreated. Imagination Tech shares, which have plummeted since Apple announced that it would soon stop using the company's chips, have fallen 4.5pc.
Markets update: easyJet jumps on new long-haul booking service
All that wage growth excitement has led me to neglect the big movers in London this morning so let's take a quick look at the laggards and leaders.
On the FTSE 100, easyJet has been propelled to the top of the leaderboard after making the move into long-haul through a new service that allows passengers to book connecting flights on partner airlines.
At the other end, Tesco has dropped 1.9pc on a broker downgrade from Exane BNP Paribas while mining stocks are struggling as the price of copper falls to a three-week low.
On the mid-cap FTSE 250, homeware store Dunelm has popped over 7pc after it told shareholders of a strong start to its financial year while wholesale retailer Booker has retreated 2.5pc following a broker downgrade.
Dunelm sales drop as it warns of difficult trading climate in the UK
Homewares retailer Dunelm has warned that it expects trading conditions to remain difficult in the UK as it reported a drop in like-for-like sales.
In its full-year results, Dunelm said like-for-like sales in its stores were down 2.4pc in the year to the start of July.
Overall like-for-like sales were down 0.5pc, and pre-tax profits fell to £92.4m from £128.9m in the previous year.
The decrease came despite an 8.5pc jump in total revenues, from £881m to £956m.
The FTSE 250 company said the sales drop in its stores was the result of lower footfall as a result of “unusually warm weather”.
Shares jumped 40p to 650.5p, a 6.6pc increase, following the update.
Job figures reaction: link between wages and unemployment weakening
The link between wages and unemployment is weakening, according to Deloitte's chief economist Ian Stewart.
"Job creation is a huge UK success story. Despite Brexit uncertainties and slower growth, the UK continues to generate ever lower unemployment and ever more jobs. "
"But the recession, and its aftermath, has weakened the link between unemployment and wages. In the past this degree of tightness in the jobs market would be pushing wages higher. Instead earnings growth has flat lined in the last couple of years."
Here's the reaction of the Minister for Employment Damian Hinds to today's job figures:
"The strength of the economy is helping people of all ages find work, from someone starting their first job after leaving education, to those who might be starting a new career later in life.
"Britain’s employment success is largely about a growth in full-time and permanent work, as employers invest in Britain and offer quality job opportunities that put more money into people’s pockets.
"But there is more to do, and we will continue to build on our achievements through our employment programmes and the work of Jobcentre Plus."
Unfortunately that extra money in people pockets is being pinched by high inflation.
Real (excl. bonuses) pay fell -0.4%y/y in July using CPIH. If you prefer CPI, then the fall was -0.7%y/y. Total pay 3.2% below 2008 peak pic.twitter.com/h6IAEqlKA4— Rupert Seggins (@Rupert_Seggins) September 13, 2017
Job figures reaction: high inflation and weak wage growth muddies BoE decision
UK real wages down 0.5% YoY in July, set to decline faster in August after y'days 2.9% CPI. Continued strong employment growth: +181,000 QoQ pic.twitter.com/068T4vKKKd— Simon French (@shjfrench) September 13, 2017
Av earnings miss changes the conversation for the Bank of England after inflation was higher than exp.— Richard Perry (@HantecRich) September 13, 2017
Real wages negative and worsening.
The Bank of England is stuck between a rock and a hard place ahead of tomorrow's monetary policy meeting after wage growth failed to keep up with inflation.
While high inflation boosts hopes that the central bank will soon take a hawkish turn, today's poor wage growth figures in a tight labour market has added another layer of uncertainty.
Ranko Berich, head of market analysis at Monex Europe, believes today's figures have put the central bank in an uneviable position:
"Looking at the across the board inflation increase reported in August and low unemployment rate, you’d be forgiven for thinking that the BoE’s policy decision will be a no brainer in favour of higher rates at some stage in the next 12 months. But today’s miss on average earnings highlights the fact that this is just not the case: wage growth remains sluggish, and real wages are in deep contraction in the UK.
"The BoE is in an unenviable position heading into tomorrow’s MPC meeting, given that inflation is above target but the latest wage and investment data show that the economy is hardly going through a demand driven boom that needs an immediate monetary response."
Wage growth failing to keep pace with inflation has muddied the decision at the Bank of England, according to ETX Capital analyst Neil Wilson.
"At the same time inflation is exchange rate rather than demand driven and therefore expected to retreat soon enough. Hopes of a hike by year-end may well be dashed on the rocks of economic uncertainty.
"In the short-term, cable may find it hard to hold onto gains if there is no additional indications from the Bank that it is prepared to hike this year. Today’s wage growth data would appear to temper any hawkish inclination, proving bearish for sterling in the near-term."
Wage growth reaction: today's disappointing figures pull down early interest rate hike hopes
Has today's disappointing wage growth wounded hopes of an early interest rate hike?
The chance of an early rate rise have been dealt a blow this morning, according to Jake Trask, FX Research Director at OFX.
"Before this morning’s data, there had been some speculation that the Bank of England’s Chief Economist would switch tack tomorrow, and address above-target inflation by voting for a rate hike.
"But this morning’s sluggish reading will likely see him sit on his hands a while longer, to avoid adding pressure to consumers already facing rising prices."
Pantheon Macro UK economist Samuel Tombs agrees that today's job figures weaken the argument of monetary policy hawks.
"The latest labour market data are, on balance, a setback for the hawks on the MPC arguing for higher interest rates. Admittedly, employment rose by 181K, or 0.6%, in the three months to July, the fastest growth since the end of 2015.
"But the three-month average number of job vacancies in August was 0.9% lower than in the previous three months, pointing to a slowdown in employment growth ahead."
Gap between wages and inflation widens
UK economy in a bad place. Rising inflation, wages going nowhere and a BoE that cannot raise interest rates. !!?? stuck— Mark Shapland (@spencershapland) September 13, 2017
UK:CPI at highest level since 2013, Unemployment is at 42yr low but real wages still negative.Does Haldane bite the hawkish bullet tomorrow?— Joumanna Bercetche (@CNBCJou) September 13, 2017
Today's wage growth figures will reignite concerns that the tightening labour market is still failing to feed through to wage growth.
Wage growth was expected to nudge up to 2.2pc but the figures remained steady at 2.1pc.
The figures mean that the gap between wages and inflation, which rose to 2.9pc yesterday, has widened even further to tighten the squeeze on UK households.
London Capital Group analyst Ipek Ozkardeskaya believes the pound's retreat following today's data could be short-lived, however.
"The widening price-wage inflation gap is becoming a serious headache for the Bank of England (BoE) policymakers as lower wages require a dovish monetary policy, but only as long as the inflation allows.
"Despite the slow improvement in wages and street protests from several sector workers, the rising inflationary pressures could encourage some Monetary Policy Committee (MPC) members to vote in favour of an interest rate hike in the coming months."
Job figures key takeaways
- Wage growth remains steady at 2.1pc, lower than expectations. The disappointing figures widen the gap between pay and rising prices.
- Unemployment nudges down to 4.3pc, its lowest rate since 1975.
- 32.14m people were in work in the three months to July, 181,000 more than the period between February to April.
- Pound retreats back to flat territory on the currency markets following sluggish wage growth data.
Wage growth disappoints; unemployment nudges down to 4.3pc
Wage growth disappoints, remaining steady at 2.1pc to widen the gap between rising prices and pay.
Unemployment nudges down to 4.3pc, a 0.1 percentage point drop.
Pound slips back towards flat territory against dollar, trading 0.1pc higher at $1.3280.
Pound eases off morning highs; still firmly in positive territory against most major currencies
The pound's ascent on the currency markets has eased off a little as we approach the job figures at the bottom of the hour with sterling flirting with flat territory against the euro.
The FTSE 100 is continuing to suffer at the expense of the stronger pound, according to Spreadex analyst Connor Campbell.
"With the UK jobs report on the way the FTSE continued to suffer in the shadow of sterling’s September rise. The FTSE plunged more than 50 points after the bell, swiftly falling to a 7350-grazing near one week low. The miners have all moved lower, while BP and Shell are both down half a percent.
"However, the main reason for the UK index’s decline was the pound’s latest climb. Though only up 0.2%, that takes cable to a fresh, $1.33-plus one year peak; it has also risen 0.1% against the euro, cementing a 6 week high."
Job figures preview: what the experts say
4.The (rough) historical relationship between wage growth & unemployment may still be there. Sort of. Light at the end of the pay squeeze? pic.twitter.com/iDDXr8rmIi— Rupert Seggins (@Rupert_Seggins) September 13, 2017
Let's have a quick round-up of what the experts are saying ahead of today's job figures.
CMC Markets analyst Michael Hewson believes strong figures today will lift interest rate hike hopes.
"A solid wages number could shift the calculus on the MPC further towards a rate rise with Chief economist Andrew Haldane likely to join the other two hawks Michael Saunders and Ian McCafferty in pushing for a rate rise, given recent comments he made during the summer, when inflation ticked up to the same level it is now.
"He suggested that “beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second part of the year”, though the caveat was that the data supported such a move."
He added that it would have been a "delicious irony" if inflation had pushed past 3pc and Bank of England governor Mark Carney had been forced to write a letter to chancellor Philip Hammond to explain why the figures had so badly missed the central bank's 2pc target.
Many blame Mr Carney and co's emergency monetary policy change after the EU referendum for knocking down the value of the pound and pushing up inflation.
Disappointing wage figures will only complicate matters at the central bank, according to Accendo Markets head of research Mike Van Dulken.
"Following yesterday’s much hotter than expected inflation prints, the Bank of England will be hoping for a reciprocal surprise from wages too.
"A disappointment, however, will add yet another level of complexity to their current interest rate quandary, with policymakers hesitant to increase rates which consumers are subject to an extended pinch on their pockets."
For all the millenials in the queue to buy a £1,000 #iPhoneX don't forget you were moaning about student debt, low wages and rent yesterday.— Steve Sedgwick (@steve_sedgwick) September 12, 2017
Job figures preview: what to expect
Yesterday's jump in inflation reignited hawkish hopes of an interest rate hike before the end of the year, sending the pound soaring on currency markets.
There are concerns at the dovish end of the Bank of England's Monetary Policy Committee, however, that the UK economy is too fragile to withstand a rate rise. Could today's figures be enough to persuade wavering MPC members, such as chief economist Andy Haldane, to back a hike?
What to expect
Wage growth is expected to nudge up to 2.2pc in the three months to July, a 0.1 percentage point rise on last month's figures and lagging far behind inflation.
Meanwhile, unemployment will remain unchanged at 4.4pc, a 42-year low, according to economists.
Agenda: Pound pushes past $1.33 against dollar ahead of wage growth data
Lagging wage growth is the focal point for the markets this morning with the ONS' figures expected to show the gap between pay and rising prices continuing to widen.
Average earnings growth will nudge up to 2.2pc, according to the consensus of economists, cranking up the pressure on households and marking another knock-back for real wages.
The pound this morning has built on yesterday's post-inflation data gains against the dollar, rising 0.4pc at $1.3326, a one-year high.
Asia stocks extending gains as reflation trade takes hold. Global bond yields rebounded w/upside inflation surprises from CN, India, UK, SWE pic.twitter.com/RsCthL55GA— Holger Zschaepitz (@Schuldensuehner) September 13, 2017
The FTSE 100 under pressure from the buoyant pound missed out on the relief rally pulling up equities globally yesterday. This morning it has lurched into the red while European stocks' rally has stuttered with the CAC 40 in flat territory and the DAX nudging down.
Galliford Try's full-year results are the highlight on a slightly lighter corporate calendar. The housebuilder, which was hit by a £98m provision to cover legacy contract costs earlier this year, posted profits at the upper end of estimates, pushing its shares 1.3pc higher earlier on.
Interim results: Alliance Pharma, Ten Entertainment Group, Just Group, Soco International, Gaming Realms, Ingenta, Epwin Group, SQS Software Quality Systems AG, Advanced Medical Solutions Group, Columbus Energy Resources, MyCelx Technologies Corporation
Full-year results: Wilmington, Dunelm Group, Town Centre Securities, Galliford Try, Haynes Publishing Group
AGM: Marechale Capital, Versarien, Tricorn Group, Argo Group, Games Workshop Group, Intercede Group, Hardy Oil & Gas
Economics: Unemployment Rate (UK), Claimant Count Change (UK), Average Earnings Index 3m/y (UK), PPI m/m (US), Industrial Production m/m (EU)Employment Change q/q (EU)