London close: Stocks lower as wages pressure interest rates

(Sharecast News) - London stocks closed below the waterline on Tuesday, after jobs data earlier showed wages rising at their quickest pace in more than 20 years in the November quarter, adding pressure on the Bank of England to hike rates. The FTSE 100 ended the session down 0.12% at 7,851.03, and the FTSE 250 was off 0.67% at 19,948.04.

Sterling was meanwhile in positive territory, last rising 0.49% on the dollar to $1.2254, as it strengthened 0.85% against the euro to change hands at €1.1364.

"Ocado squats unhappily at the bottom of the index following its poorly-received numbers today, but it is weakness in AstraZeneca and Unilever that has been the reason for today's drop," said IG chief market analyst Chris Beauchamp.

"This looks like a temporary interruption to the index's victorious progress however - the trading statement season has gone well so far for UK firms, providing a foundation for further gains in the near-term."

In economic news, UK wages grew at their fastest rate in more than 20 years in the three months to November, further fanning the flames for higher interest rates from the Bank of England.

According to the Office for National Statistics, regular pay excluding bonuses was up 6.4% on an annual basis.

Excluding the Covid-19 pandemic, it marked the biggest jump since records began in 2001, although when adjusted for inflation, wages were down 2.6%.

The data also showed that the unemployment rate ticked up to 3.7% in the three months to November, from 3.5% in the previous quarter.

In addition, the number of job vacancies declined by 75,000 between October and December, versus the previous three months.

"Consistent with the economy proving to be more resilient than expected, November's labour market data show that conditions remain tight and wage growth stayed strong," said Ashley Webb, UK economist at Capital Economics.

"This will only add further weight to the case for the Bank of England to raise interest rates from 3.50% now, perhaps to 4.50% in the coming months."

On the continent, German inflation continued to ease in December according to official data, as energy prices softened.

The Destatis federal statistical office reported that the annual consumer price index fell to a four-month low of 8.6% in December, compared to 10.0% in November and in line with consensus.

Its harmonised index of consumer prices also eased, to 9.6% from 11.3% a month earlier, also in line with forecasts.

An 11.6% month-to-month decline in energy prices helped bring down inflation in December, with household energy prices down 12.9%.

Investor sentiment bounced back in Germany meanwhile, according to a closely-watched survey, beating expectations.

The January ZEW indicator of economic sentiment came in at 16.9, up from -23.3 in December and well above consensus for -15.0.

It was the first time since February 2022, when Russia invaded Ukraine, that the indicator was in positive territory, and the biggest month-on-month increase since April 2020.

The index for current economic conditions also strengthened, though it remained firmly in negative territory, nudging ahead 2.8 points to -58.6, against expectations for -58.0.

Across the pond, factory sector activity in the New York area fell sharply at the start of 2023, according to another closely-followed survey in the region.

The Federal Reserve Bank of New York's factory sector index plummeted to -32.9 in January, from a reading of -11.2 in December.

Economists had pencilled in a print of -8.7.

A sub-index linked to new orders dropped from -3.6 to -31.1, while that for shipments fell from 5.3 to -22.4.

Price pressures also retreated, however, with the sub-index that tracks the prices paid by companies declining from 50.5 to 33.0.

Finally on data, China's economy grew by just 3% last year according to official data, well below government targets and one of the slowest rates since the 1970s.

Beijing had been targeting GDP growth of around 5.5% for 2022 - already a marked reduction on 2021, when the economy grew by 8.4%.

Excluding 2020, when the economy was rocked by the first Covid-19 outbreak, it was the weakest growth since 1976.

China has been hit hard by Beijing's long-stand policy of zero-Covid, with stringent restrictions, including widespread rolling lockdowns and mandatory testing, affecting both production and consumption for most of 2022.

The policy was abruptly abandoned in December, however, after unprecedented public protests, leading to a wave of infections.

But the fourth quarter was not as bad as feared, as GDP growth slowed to 2.9% year-on-year, from 3.9% in the third quarter, but above consensus for growth of just 1.6%.

Also coming in above expectations was December's retail sales and industrial production data.

Retail sales fell 1.8% year-on-year, improving on November's 5.9% decline and well above forecasts for -9.0%.

Industrial production grew by 1.3%, down on November's 2.2% but sharply higher than the consensus expectations for growth of just 0.1%.

"The decision to drop the zero-Covid, while welcome, is likely to prompt an uneven recovery for the Chinese economy in the coming months," said Michael Hewson, chief market analyst at CMC Markets.

"This is because of the unwelcome side effects of the inevitable explosion in infection rates and mortality in a largely unvaccinated population.

"[It] explains why December's retail sales numbers were better than November, as people restricted their movements and bought online instead: online retail sales rose by 17.2%."

On London's equity markets, Ocado Group tumbled 9.28% after it said that fourth-quarter sales at Ocado Retail - its 50-50 joint venture with Marks and Spencer Group - were more or less flat as customers shopped less and bought fewer items.

Retail revenues nudged up just 0.3% versus the same quarter a year earlier, coming in below the company's guidance for mid-single digit sales growth.

"A 2023 recovery in the shares of online groceries firm Ocado was snuffed out after the company reported sales growth which was dwarfed by inflation and by the performance of traditional supermarkets and offered an uninspiring forecast for the rest of the year," said Russ Mould, investment director at AJ Bell.

"While Ocado is winning new customers, people are buying less.

"This has an outsized impact on online deliveries which cost roughly the same to make whether the order is two potatoes and a block of cheese or a full weekly shop."

Elsewhere, Quilter fell 3.75% after a downgrade to 'underweight' at JPMorgan, while NCC Group tumbled 5.8% after Berenberg downgraded it to 'hold' from 'buy', as the company said it expected to be only slightly ahead of the previous year's operating profits for the first half.

On the upside, recruiter Hays rallied 2.1% after it posted an 8% increase in second-quarter fees.

Global distilling giant Diageo added 1.76% after saying it was buying Don Papa Rum of the Philippines for €260m up front.

Diageo added that it could pay out an extra €177.5m to 2028 subject to performance, "reflecting the brand's current growth potential".

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti, Abigail Townsend and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,851.03 -0.12% FTSE 250 (MCX) 19,948.04 -0.67% techMARK (TASX) 4,537.94 -0.48%

FTSE 100 - Risers

SSE (SSE) 1,718.50p 2.14% Diageo (DGE) 3,766.50p 1.76% National Grid (NG.) 1,037.50p 1.52% Weir Group (WEIR) 1,839.50p 1.46% BT Group (BT.A) 132.25p 1.46% Associated British Foods (ABF) 1,853.50p 1.37% Rolls-Royce Holdings (RR.) 108.54p 1.29% Compass Group (CPG) 1,933.50p 1.23% Anglo American (AAL) 3,587.50p 1.03% United Utilities Group (UU.) 1,039.50p 1.02%

FTSE 100 - Fallers

Ocado Group (OCDO) 733.00p -9.28% Berkeley Group Holdings (The) (BKG) 4,337.00p -2.69% JD Sports Fashion (JD.) 158.50p -2.01% Endeavour Mining (EDV) 1,930.00p -1.88% WPP (WPP) 924.40p -1.74% Fresnillo (FRES) 938.00p -1.72% Unilever (ULVR) 4,165.50p -1.52% Flutter Entertainment (CDI) (FLTR) 12,240.00p -1.49% Sage Group (SGE) 760.40p -1.48% International Consolidated Airlines Group SA (CDI) (IAG) 156.84p -1.36%

FTSE 250 - Risers

TUI AG Reg Shs (DI) (TUI) 183.55p 4.32% Aston Martin Lagonda Global Holdings (AML) 166.95p 3.86% Softcat (SCT) 1,249.00p 2.63% Abrdn Private Equity Opportunities Trust (APEO) 439.00p 2.57% Hiscox Limited (DI) (HSX) 1,112.50p 2.53% Hilton Food Group (HFG) 620.00p 2.31% W.A.G Payment Solutions (WPS) 80.00p 2.17% Hays (HAS) 121.50p 2.10% Clarkson (CKN) 3,060.00p 2.00% Syncona Limited NPV (SYNC) 178.40p 1.94%

FTSE 250 - Fallers

Currys (CURY) 59.95p -8.12% Ascential (ASCL) 208.20p -7.05% Crest Nicholson Holdings (CRST) 248.60p -6.40% NCC Group (NCC) 195.00p -5.80% ASOS (ASC) 739.00p -5.68% Volution Group (FAN) 383.50p -4.72% Investec (INVP) 512.40p -4.47% Mitchells & Butlers (MAB) 166.60p -4.25% Wetherspoon (J.D.) (JDW) 471.60p -4.22% BH Macro Ltd. GBP Shares (BHMG) 4,475.00p -3.76%