Markets wrap: Pound pares wage growth-inspired gains
The pound's rally following today's wage growth figures has dissipated this afternoon with sterling now 0.1pc down against the dollar for the session.
The ONS' figures released this morning showed that wage growth rose to 2.1pc, closing the gap with inflation currently putting the squeeze on UK households. The data also showed that unemployment fell to 4.4pc, its lowest level since 1975.
European equities have continued to claw back territory lost during last week's North Korea sell-off with buoyant metal prices helping the FTSE 100 record a 0.7pc gain.
Zinc hitting a 10-year high lifted global miner Glencore to the top of the blue-chip index while Admiral has suffered most as profits were hit by increasing personal injury costs.
David Madden, CMC Markets analyst, said this on today's play:
"European stock markets remain strong as the bullish sentiment that returned to the markets at the beginning of the week is still with us. The upward move in stocks has been attributed to the easing of political tensions between the US and North Korea.
"We have recouped a lot of the ground that was lost because of the tensions that escalated last week, but we have not fully recovered. The rate at which the markets are gaining ground has cooled somewhat, so it may take us a while to get back to pre ‘fire and fury’ levels."
Eurozone economy ‘firing on all cylinders’
Growth in the eurozone picked up to its fastest pace since 2011 in the second quarter of this year, with GDP over the past 12 months rising by 2.2pc.
In the three months to June the economy grew by 0.6pc, matching the same healthy number from the first quarter of the year.
German GDP grew by 0.6pc in the quarter, Spain’s by 0.9pc, France’s by 0.5pc and the Netherlands by an unexpectedly strong 1.5pc.
By contrast British GDP only increased by 0.3pc in the second quarter.
Economist Bert Colijn at ING called the growth “stellar” and praised the economies for “firing on all cylinders”.
Brent crude largely unchanged despite 8.9 million-barrel drawdown in US stocks
The latest US stocks data from the EIA showing a drawdown for a seventh consecutive week has garnered a muted reaction on the oil market.
Brent crude remains just above $51 per barrel after a brief spike despite a 8.9 million-barrel reduction.
Charlottesville: how have business leaders responded to Trump?
Six members of Donald Trump's manufacturing council have quit following his remarks about the "alt-right" rally in Charlottesville, Virginia last weekend.
The President of the United States failed to denounce white supremacists immediately after the incident, which left one protester dead and others injured, before giving a seemingly reluctant statement two days later condemning racism as evil.
On Tuesday, however, Mr Trump reverted to his original response to the violence, blaming both sides. He said: “I think there is blame on both sides. You had a group on one side that was bad. You had a group on the other side that was also very violent. Nobody wants to say that. I’ll say it right now.”
Markets update: US equities rally after yesterday's misstep; European indices hold onto gains
A quick markets update for you. US stock markets have opened brightly and continued to rally following yesterday's misstep. The Dow Jones is pushing back towards its all-time high and European equities are holding their morning gains.
On the FTSE 100, very little has moved from this morning with only a handful of stocks in the red. Old Mutual and Sage are still buoyant from broker notes while Glencore has gained 3.5pc as the price of zinc advances to a 10-year high.
Ahead of the latest EIA report on US oil stocks data this afternoon, Brent has stabilised at just over $51 per barrel.
Thirst for craft beer helps profits flow at Carlsberg
Demand for more expensive craft beers has helped Carlsberg brew up a rise in sales and profits so far this year.
The Danish brewer said the thirst for its more upmarket drinks such as Tuborg and Grimbergen meant that even though it sold less beer by volume, its revenues and profits both rose in the first six months of the year.
Craft beers - pricier ales with a greater emphasis on quality ingredients and taste - have been the fastest growing segment of the brewing industry for a number of years.
Cees ’t Hart, Carlsberg's chief executive, said its craft and specialty division saw a 25pc rise in volumes during the six months to June 30 thanks in part to developments such as launching craft versions of existing brands and extending its distribution agreement with craft favourite Brooklyn Brewery to new territories.
Wage growth reaction: Employers still lack confidence
Here are the last little bits of comment on this morning's wage growth figures, starting with Crowley Woodford, employment partner at law firm Ashurst, on why wages still lag behind:
"Given this record employment rate it is surprising, at first glance, that wage growth has not kept pace with inflation. However, employers are still lacking in confidence about the longer term future and workers still feel insecure in their jobs.
"This dampens the pressure on employers to offer higher pay and employee representative bodies to demand it."
Seamus Nevin, Head of Employment and Skills Policy at the Institute of Directors, commented on the growing risk of such a gap between inflation and wage growth:
"One concern is that household incomes continue to be squeezed with a 0.5% fall in real terms pay.
"Nominal wages are up 2.1% but with the weakness in sterling, higher input costs are filtering through to consumer prices for clothing, food, energy and other household goods. Businesses will feel worried if consumer demands starts to falter as a result of subdued real wage growth."
PwC hit with largest ever fine by financial watchdog for RSM Tenon audit
PricewaterhouseCoopers has been slapped with the largest ever fine issued by the financial watchdog after admitting misconduct in its auditing of the accounts of corporate finance firm RSM Tenon.
PwC has been fined £5.1m and “severely reprimanded” following an investigation into the 2011 accounts of RSM, which went bust in 2013.
PwC must also pay £500,000 in costs, while accountant Nicholas Boden has been given a fine of £114,750.
Mr Boden and PwC admitted their conduct “fell significantly short of the standards reasonably to be expected”.
The Financial Reporting Council said the admitted acts of misconduct included “failures to obtain sufficient appropriate audit evidence and failures to exercise sufficient professional scepticism”.
Number of zero hours contracts dropped by 20,000 in latest labour stats
Food for Thought as the number of UK workers on Zero Hours Contracts falls... https://t.co/9G61yD5eCK— Shaun Richards (@notayesmansecon) August 16, 2017
Today's labour market figures featured a modest 20,000 drop in zero hours contracts with 883,000 people in the UK still on the controversial contracts.
Peninsula employment law director Alan Price believes the storm surrounding the contracts has helped to lower their usage:
"Zero hours contracts have received mass negative publicity regarding their use and the unfair treatment of staff working under these contracts.
"Large companies, such as McDonalds, have been seeking a move away from these contracts by giving staff the opportunity to request a contract with guaranteed hours, calculated as an average of the hours worked under their previous zero hours contracts.
"It is likely many other companies are recruiting on similar contracts containing a small number of guaranteed hours and then requesting staff to work extra hours as and when to meet business demands."
Balfour Beatty continues turnaround as profits go into the black
Balfour Beatty has made further progress in its plan to transform the business, pushing pre-tax profits into the black for the first half of the year.
The construction company said that being more selective about the contracts it picks and “simplifying the group” by selling core assets meant its performance was improving.
Chief executive Leo Quinn has embarked on a comprehensive plan to revitalise the ailing business under his “build to last” programme, which has involved cutting costs across the board.
Pre-tax profits were £12m in the six months to June 30, up from a loss of £15m a year previously.
Revenues for the company were up 8pc at £4.2bn, and Balfour lifted its interim dividend by a third to 1.2p.
The results are in stark contrast to the summer of 2015, when the company issued its seventh profit warning in a two-and-a-half year period.
Wage growth reaction: Data reveals a pretty strong picture
Today's labour market figures reveal a pretty strong picture, according to Capital Economics. Its UK economist Ruth Gregory provided this analysis:
"Delving below the surface revealed a pretty strong picture too. Indeed, the rise in employment was driven by a 97,000 quarterly increase in the number of employees working full-time. Meanwhile, annual employment growth ticked up to 1.1% – a rate that survey evidence suggests should be maintained in the coming months.
"There were some tentative signs that the tight labour market is translating into stronger pay gains, with annual growth in headline weekly earnings including bonuses ticking up from 1.9% to 2.1%. Admittedly, that was partly due to a pick-up in bonus payments.
"But the excluding bonuses measure also rose to 2.1%. And despite a rise in average weekly hours worked in June, average hourly earnings growth also increased for the second month in a row."
And why has wage growth not risen already as unemployment has continued to fall?
Investec analyst Philip Shaw has this answer:
"One reason is probably that simple unemployment rates hide a degree of spare capacity in the economy, as we have hinted above. This is a phenomenon which is common to the US, the Euro area and Japan.
"Also our suspicion is that subdued cost trends in Emerging Markets may be adding to low wage pressure at home. The bottom line though is that we doubt that we are set to see a material increase in wage growth over the next year or two, especially as unemployment may begin to tick up over the latter half of the year as the economy remains sluggish."
Glencore lifted by zinc hitting a decade-long high
Rising commodity prices have lifted the FTSE 100 today with zinc hitting a decade-long high making miner Glencore one of the star performers on the index today.
Elsewhere, Brent crude has stabilised at just below $51 per barrel to push oil shares up ahead of the latest EIA stocks data. The market is expecting a 3.1m barrel decline in the latest release but recent figures have surprised on the upside.
Activist investor Elliott shelves legal battle against Dulux maker Akzo Nobel
Activist investor Elliott Advisors has shelved its legal battle against Dulux maker Akzo Nobel after its bid to oust the company’s chairman was last week rejected by a Dutch court.
After months of aggressively pushing for the removal of Akzo chairman Antony Burgmans, Elliott has now said it will put all litigation on hold for at least three months.
The court defeat was Elliott’s second setback of the summer in its battle with Akzo. Earlier this year, Elliott was leading the charge in pushing for Akzo to accept a takeover bid from US rival PPG Industries. But PPG walked away from the bid after Akzo mounted a months-long defence.
Lunchtime update: Pound pushes back over €1.10 against the euro following wage growth data
Economics data has been the main catalyst on the currency markets this morning with the pound popping after the ONS revealed that the gap between wage growth and inflation is narrowing .
However, sterling has now eased off its morning highs against the dollar despite unemployment falling to 4.4pc and wage growth rising to 2.1pc. The pound has held onto its gains against the euro, however, rising 0.4pc to €1.1002.
On the FTSE 100, software publisher Sage is the top gainer after UBS gave it an upgrade while Admiral has sunk lowest following its disappointing first half results.
A broad-based rally in Europe is keeping the blue-chip index firmly in positive territory despite the pound's gains with the volatile mining stocks lifting the FTSE 100 on the back of higher metal prices.
Here's the current state of play in Europe:
FTSE 100: +0.65pc
CAC 40: +1.03pc
Unemployment drops to new record low amid hints that wages are starting to rise
Unemployment fell to a new 42-year low as employment increased by another 125,000 people in the three months to June.
An additional 338,000 people are in work now compared with last summer, with a total of 32.07m people employed, the Office for National Statistics said.
The employment rate is at a record high of 75.1pc, while unemployment is at 4.4pc, its lowest level since 1975.
Economists had not expected such strong figures as the economy has grown only at a muted pace this year.
But companies are still hiring workers, sending the total number of unemployed down to 1.48m, a fall of 57,000 over the past three months and the lowest absolute figure since 2005.
FTSE 100 update: Miners and broker notes help the blue-chip index offset the pound's rise
With all the economics data dropping this morning, the FTSE 100 has taken a back seat but things are ticking along quite nicely despite the strengthening pound.
Excluding the volatile mining stocks rising on higher metal prices, insurer Old Mutual and software publishing company Sage have been lifted by positive analyst notes while Admiral has slumped to the bottom of the blue-chip leaderboard following its interim results.
IG market analyst Josh Mahony believes that the relief rally following the North Korea war of words is still lifting European equities:
"The risk-on rally has continued apace this morning, with the FTSE hitting a new high for the week, although the gains have been pared in response to a sterling rebound.
"Fears of a conflict between the US and North Korea appear to have been left behind for now and the focus is clearly upon the positives. European markets are benefiting in particular from the recent dollar strength."
Admiral shares slide despite rise in profits
Insurer Admiral fell to the bottom of the FTSE 100 in early trade after disappointing analysts with its results for the first half of the year.
Shares plunged 7pc to £20.25 after the company posted a slight rise in pre-tax profits of £193m in the six months to June 30, up from £190m last year.
Analysts noted that Admiral was facing increased competition from price comparison websites and had had to increase its marketing spending, as well as identifying falling margins in its car insurance business.
In its results, Admiral downplayed the impact of a change to the way personal injury pay-outs are calculated, saying the impact was largely seen in its results for the second half of last year, announced in March.
Admiral is currently 5.5pc down for the session.
Wage growth reaction: Pound closes in on $1.29; growth will hover round 2pc for rest of 2017
UK wage growth closing the gap with inflation and thus easing the pressure on households has given the pound a helping hand against the dollar this morning.
It has pared some of the losses it made after yesterday's inflation figure but still has some way to go. It's currently trading at $1.2890, still nearly 1pc down for the week.
Back to the wage growth reaction and here's how ING believes wage growth will perform for the rest of the year:
"We expect wage growth to hover around the 2% level for the rest of this year. With inflation likely to inch closer to 3%, that means real incomes will continue to be squeezed.
"We expect the Bank of England to increasingly "look through" rising inflation and focus instead on the muted outlook for growth. A 2017 rate hike looks very unlikely."
Ann Francke, chief executive of the Chartered Management Institute, said this on the productivity figures:
"It should be a real cause for concern that the UK’s productivity has fallen again, especially considering we still lag well behind our G7 peers in this area.
"UK productivity per hour is now 35% below the German level, and 30% below the US, and it’s becoming increasingly clear that decisive action is needed if we are to end this downward trend."
Euro knocked by report that Draghi will not signal a change in policy at his Jackson Hole speech
Although the euro enjoyed a strong start to the morning, things quickly deteriorated after Reuters reported that European Central Bank president Mario Draghi will not use the Jackson Hole conference in the US later this month to announce a change in policy. He was expected to provide further details on how the ECB will begin winding down its balance sheet.
Here's what the Reuters report said:
"An ECB spokesman said that Draghi will focus on the theme of the symposium, fostering a dynamic global economy, in his Aug. 25 remarks, while the sources added that he was keen to hold off on the policy discussion until the autumn, as agreed at the last rate-setting meeting in July.
"Expectations for the speech had been building in recent weeks with investors pointing to next Friday's event as the likely kick off in the ECB's debate how to recalibrate monetary policy given solid growth, rapidly falling unemployment but persistently weak underlying inflation."
The pound is currently 0.2pc higher for the session against the euro, trading at €1.0986.
Wage growth reaction: Retail data may provide more clues on wages
Decent set of UK labour market stats. PT workers seeking FT work still stubbornly above 1m but real wage compression showing signs of easing pic.twitter.com/AljVt9MpUv— Simon French (@shjfrench) August 16, 2017
Here's some more expert insight on the wage growth figures released this morning starting with Nomura's George Buckley:
"All in all this is a strong report. Though it is worth remembering that labour market news lags the economy, and the weaker GDP outturns in the first half of this year could yet mean a slowing in jobs growth going forward.
"Still, with the surveys suggesting growth should recover, and the BoE expecting an upward revision to Q1’s weak growth outturn, we remain optimistic that labour market tightness will be with us for some time, with upside consequences for wages."
Kathleen Brooks, an analyst at City Index, believes retail sales data might have provided some clues to today's figures:
"The pick-up in wage growth in June could be one reason why retail sales bounced at the start of the summer. Thus, a decent reading on Thursday for the July figures for retail sales could give us a clue about potential wage growth in July.
"So far this data hasn’t had any impact on UK consumer discretionary stocks like M&S or Next, we may need to get confirmation of decent July retail sales figures before these stocks make a move."
Although real wages are still negative in UK, suddenly the picture is improving with CPI flat yesterday and today wage growth rises.#Forex— Richard Perry (@HantecRich) August 16, 2017
Eurozone grows at 0.6pc in the second quarter, in line with expectations
BREAKING! The Eurozone economy grew 2.2% YoY in Q2! pic.twitter.com/eO9Z95Y36n— jeroen blokland (@jsblokland) August 16, 2017
It seems the Netherlands beat earlier this morning was a red herring with figures just released showing that the eurozone region grew by 0.6pc in the second quarter, in line with expectations.
With the figures failing to surprise, the currency markets have largely ignored the latest data release.
Wage growth snap reaction: Pick-up could be a sign of things to come
UK real wages still falling, but not as fast as feared as inflation eases & nominal wage growth picks up. Earnings still being squeezed tho. pic.twitter.com/rmpI8pEIJH— Jamie McGeever (@ReutersJamie) August 16, 2017
Is today's pick-up in wage growth a sign of things to come?
Possibly, according to Capital Economics' UK economist Ruth Gregory:
"The latest labour market figures provided some signs that the tightening in the labour market may be leading to a recovery in wage growth at long last.
"That said, earnings growth still needs to gather more pace in order to match the rise in CPI inflation – which we expect to peak at about 3% later this year. But at least CPI inflation is likely to fall back next year as the impact of the drop in the pound dwindles.
Jake Trask, forex research director at OFX, said this on the data's impact on the prospect of a rise in interest rates:
"Those hoping for an interest rate hike from the Bank of England are likely to be waiting a while longer, however, as wage growth is still subdued compared to historical standards. Rates are likely to stay put for 2017, and possibly next year too."
Labour market data key takeaways
- Wage growth closed the gap with inflation and rose to 2.1pc in the three months to June, ahead of expectations.
- Unemployment fell to 4.4pc, its lowest rate since 1975.
- There were 32.07m people in work in the three-month period, a 125,000 increase from the period of January-March.
- Pound pares morning losses and jumps 0.25pc against the dollar, trading at $1.2897.
Wage growth beat expectations to rise to 2.1pc; unemployment falls to 4.4pc
Wage growth rose to 2.1pc in June while unemployment dropped to 4.4pc, both beating expectations. Pound pares morning losses against the dollar and rises to $1.2895 as a result.
Wage growth preview
Wage growth data due very soon is today's UK economics highlight with yesterday's inflation figure holding at 2.6pc giving the opportunity for wages to provide some relief to squeezed households.
Here's CMC Markets analyst Michael Hewson's preview:
"With employment levels at record highs any signs of a tighter labour market could well offer the pound some significant support which means that a strong wages number today could offer the Bank of England that “goldilocks” scenario of falling inflation and rising wages and potentially move the debate back to the timing of a possible rate rise, given Bank of England chief economist Andrew Haldane’s recent comments about wage growth."
Pound returns to positive territory as Italy GDP figures dampen eurozone excitement
Italy's GDP figures just released have pooped the party somewhat. Italy's economy grew at 0.4pc in the second quarter, in line with expectations, to send the euro straight back to where it started the day against the pound.
The pound did flicker to a seven-year low against the euro at €1.0938 but it really was only a few moments and sterling's now actually in positive territory for the session, trading at €1.0982. It's looking like a bumpy one today.
Netherlands GDP growth smashes expectations; hints at stronger eurozone figures due later today
I must admit I didn't have the Netherlands' second quarter GDP growth underlined in the diary but the figures that have just dropped could be a taster of what's to come for the eurozone later this morning.
If the Netherlands' figures are anything to go by it will be quite the second quarter for the currency region. It smashed expectations in the second quarter, growing by 1.5pc compared to forecasts of 0.6pc.
It has sent the euro soaring and its advance on the pound has left sterling perilously close to the seven-year low it flirted with yesterday.
Agenda: Wage growth data in focus; expected to hold at 2pc
Welcome to our live markets blog.
With inflation unexpectedly holding at 2.6pc yesterday, wage growth, which has lagged behind CPI figures of late, can close the gap today to ease the pressure on households. The latest figure, which is due at 9.30am, is forecast to stagnate at 2pc, however.
The pound is stuck at the lows it hit yesterday as weaker-than-expected inflation dashed hopes that the Bank of England will hike interest rates before the end of the year. This morning, sterling is trading flat against the dollar at $1.2869.
Elsewhere on the economics front we have eurozone GDP figures scheduled to drop at 10am and this evening we may get a few more clues on the US Federal Reserve's next move in the minutes from the latest FOMC meeting.
Asia stock mkt posting mild gains led by Tech. China is underperforming after IMF debt warning. Bonds underperforming following good US data pic.twitter.com/9FeLGwAZw6— Holger Zschaepitz (@Schuldensuehner) August 16, 2017
Overnight, the relief rally on Asian and US markets over the cooling of tensions on the Korean peninsular came to end, the major indices stateside dipping into the red.
This morning, however, European equities have opened buoyantly yet again with the FTSE 100 gaining 0.5pc early on. BHP Billiton is among the top risers after activist investor Elliott raised its stake in the miner to 5pc.
Interim results: CLS Holdings, Admiral Group, Balfour Beatty, Foresight Solar Fund, Lookers
AGM: John Laing Environmental Assets Group, Reabold Resources
Economics: Claimant count change (UK), Average earnings index 3m/y, Unemployment rate (UK), Housing starts (US), Building permits (US), FOMC meeting minutes (US), Flash GDP q/q (GER)