London close: Stocks tumble on interest rate, China concerns

Investors were exercising caution amid growing apprehension that stronger-than-anticipated wage growth could lead the central bank to continue its trajectory of interest rate increases in a bid to combat inflation.

The FTSE 100 bore the brunt of the day's bearish sentiment, slipping 1.57% to end at 7,389.64, while the FTSE 250 declined 0.54% to settle at 18,659.75.

On the currency front, sterling was last up 0.42% on the dollar to trade at $1.2736, while it advanced 0.27% against the euro to change hands at €1.1661.

“The UK's wage growth hit a record high as the number of job vacancies fell by 66,000 while unemployment rose to a higher-than-expected 4.2%, pushing the pound up but the FTSE 100 and 250 sharply lower on Tuesday,” said IG senior market analyst Axel Rudolph.

“All eyes are now on Wednesday's UK inflation data which most investors hope will come in lower than expected.”

UK and global economies navigate complex tides

In economic news, fresh data showed UK wage growth for the quarter through June surging to its highest level since 2001.

Data from the Office for National Statistics (ONS) revealed that average weekly earnings, excluding bonuses, climbed by 7.8% during the period.

The increase, which was boosted significantly by one-off bonus payments to NHS staff in June, surpassed forecasts which pegged earnings growth at 7.3%.

Unemployment, meanwhile, unexpectedly jumped to 4.2%, hitting its highest level since October 2021.

That uptick, which analysts attributed in part to recent interest rate hikes, resulted in a decline of 66,000 in the employment count between April and June.

“There was always the likelihood that today’s unemployment and wages numbers would give the Bank of England a headache when it comes to deciding what to do when it comes to further rate increases, and this morning’s numbers have not just given the central bank a headache, but a migraine,” said CMC Markets chief market analyst Michael Hewson.

“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.

“This trend is likely to continue in the coming months as wage growth starts to slow and falling CPI starts to find a base, offering consumers some relief from the squeeze of the last 18 months.”

In a respite for British consumers meanwhile, food price inflation in the UK took a dip for the fifth consecutive month.

Market research group Kantar's latest report suggested that grocery price inflation settled at 12.7%, a marked 2.2 percentage point drop from the prior month.

The reprieve was aided by a decline in prices of staple goods like milk, pasta, and bread due to reduced global commodity costs.

“Prices are still up year-on-year across every supermarket shelf, but consumers will have been relieved to see the cost of some staple goods starting to edge down compared with earlier in 2023,” said Fraser McKevitt, Kantar head of retail and consumer insight.

“Shoppers paid £1.50 for four pints of milk last month, down from £1.69 in March, while the average cost of a litre of sunflower oil is now £2.19, 22p less than in the spring.”

Across the pond, US retail sales in July witnessed their fourth consecutive monthly increase.

The Commerce Department's data indicated seasonally-adjusted growth of 0.7% for July, surpassing the expected 0.4% rise.

A noteworthy contributor to the boost was Amazon Prime Day, which significantly spurred consumer spending.

Looking east, Japan’s economy displayed resilience in newly-minted data as it expanded for the third straight quarter.

Riding on a weak yen, which favoured exports, the economy grew by 6% annually in the second quarter, outstripping the anticipated 3.1% growth.

On a quarterly basis, the GDP increment of 1.5% nearly doubled economists' forecasts.

China, on the other hand, was navigating a complex economic scenario, as the People’s Bank of China unexpectedly slashed interest rates on one-year medium-term lending facility (MLF) loans by 15 basis points, to 2.5%.

That strategy, aimed at ensuring ample banking system liquidity, came in the face of factors such as looming tax payments.

China's economic indicators for July meanwhile painted a less-than-rosy picture.

Retail sales growth stood at a modest 2.5% on an annual basis, significantly trailing the anticipated 4.5% hike.

Additionally, other metrics such as industrial production and fixed asset investment fell short of projections.

Housebuilders and financial stocks struggle, M&S soars

On London’s equity market, fears surrounding the impact of potential interest rate hikes weighed heavily on housebuilders and real estate stocks.

Given the dampened property market activity over the last year, the sectors had borne the brunt of declining profits and portfolio valuations.

Land Securities, Persimmon, Bellway, and Barratt Developments all closed in the red.

Elsewhere, some of the FTSE 100's largest constituents, including AstraZeneca, Shell, HSBC, Unilever, and BP, saw their stocks plummet.

The downturn in BP and Shell's stocks could also be partly attributed to a slump in oil prices.

Legal & General Group meanwhile experienced a slide after reporting first-half operating profit of £941m, slightly below the prior year's £958m.

Joining the decline were other financial firms including Abrdn, Phoenix Group, Hargreaves Lansdown, AJ Bell, and Ninety One.

Concerns about the Chinese economy, particularly in the wake of disappointing retail sales, industrial output, and fixed asset investment data, caused jitters in the mining sector.

Glencore and Antofagasta bore the brunt of these concerns, registering noticeable declines.

On a rather sparse upside was B&M European Value Retail, boosted by rumours that it was among the contenders to acquire its privately-held rival Wilko, which collapsed into administration last week.

Fellow retailer Marks & Spencer surged 8.26% after it announced enhanced guidance for half-year profits, following robust sales growth in the first 19 weeks of its financial year.

In a statement, M&S optimistically forecasted "profit growth on 2022-2023" and predicted that "interim results will show a significant improvement against previous expectations."

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,389.64 -1.57%
FTSE 250 (MCX) 18,659.75 -0.54%
techMARK (TASX) 4,295.44 -1.01%

FTSE 100 - Risers

B&M European Value Retail S.A. (DI) (BME) 565.20p 2.02%
JD Sports Fashion (JD.) 149.40p 2.01%
Frasers Group (FRAS) 811.00p 0.81%
Ocado Group (OCDO) 799.40p 0.40%
Kingfisher (KGF) 234.40p 0.30%
Fresnillo (FRES) 526.00p 0.11%
3i Group (III) 1,911.50p 0.08%
Flutter Entertainment (CDI) (FLTR) 14,020.00p 0.00%
Centrica (CNA) 142.00p -0.04%
Convatec Group (CTEC) 221.40p -0.09%

FTSE 100 - Fallers

Phoenix Group Holdings (PHNX) 520.60p -3.56%
HSBC Holdings (HSBA) 600.30p -3.41%
Glencore (GLEN) 419.05p -3.40%
Antofagasta (ANTO) 1,452.50p -3.36%
M&G (MNG) 188.40p -3.14%
Legal & General Group (LGEN) 226.10p -3.00%
Abrdn (ABDN) 177.40p -2.79%
Experian (EXPN) 2,790.00p -2.65%
Schroders (SDR) 423.80p -2.57%
Endeavour Mining (EDV) 1,635.00p -2.50%

FTSE 250 - Risers

Marks & Spencer Group (MKS) 221.60p 8.26%
Hill and Smith (HILS) 1,788.00p 3.71%
BH Macro Ltd. GBP Shares (BHMG) 351.00p 3.39%
Helios Towers (HTWS) 85.35p 2.65%
Vanquis Banking Group 20 (VANQ) 119.00p 2.06%
Bakkavor Group (BAKK) 103.00p 1.98%
Keller Group (KLR) 830.00p 1.97%
Coats Group (COA) 77.30p 1.71%
Just Group (JUST) 82.90p 1.10%
TBC Bank Group (TBCG) 2,825.00p 1.07%

FTSE 250 - Fallers

Baltic Classifieds Group (BCG) 198.80p -5.56%
Synthomer (SYNT) 78.35p -5.03%
Wood Group (John) (WG.) 157.30p -3.73%
TUI AG Reg Shs (DI) (TUI) 560.50p -3.45%
AJ Bell (AJB) 289.00p -2.82%
Fidelity China Special Situations (FCSS) 209.50p -2.78%
Ninety One (N91) 167.60p -2.73%
Jlen Environmental Assets Group Limited NPV (JLEN) 98.30p -2.67%
Syncona Limited NPV (SYNC) 147.60p -2.64%
Digital 9 Infrastructure NPV (DGI9) 55.40p -2.64%