London open: Housing stocks pull FTSE lower on rate-hike fears

dl bank of england boe b of e interest rates pound sterling gbp building city of london pb — Bank of EnglandSharecast / PeterRoe from Pixabay

The FTSE 100 dropped in early trade on Tuesday as investors reacted to an unexpected acceleration in UK wage growth and a surprise interest rate cut in China.

Household Goods & Home Construction

12,655.79

08:19 05/11/24

0.19%

24.12

Real Estate Investment & Services

2,357.52

08:20 05/11/24

0.26%

6.10

Savills

1,074.00p

08:20 05/11/24

0.00%

0.00p

By 0831 BST, the UK benchmark index was down 0.4% at 7,481, after closing at a one-month low the day before.

Average weekly earnings excluding bonuses rose 7.8% year-on-year in the three months to June – the highest since records began in 2001 - the Office for National Statistics said, putting more pressure on the beleaguered Bank of England to lift interest rates again in its fight to quell inflation. Economists had pencilled in a slowdown to 7.3% from 7.5% the previous month.

Meanwhile, the unemployment rate increased to 4.2% from 4%, its highest since October 2021 and ahead of expectations, while soaring wages mean more interest rate pain could be on the way.

The news means that a rate hike at the next policy meeting in September now looks highly likely, according to economists.

In other news, the People’s Bank of China made a surprise cut to interest rates on Tuesday as it looked to stimulate economic demand amid a sputtering recovery. Defying expectations, the central bank cut the rate on 401 billion yuan ($55.25bn) worth of one-year medium-term lending facility loans to some financial institutions by 15 basis points to 2.50% from 2.65% previously.

The cash injection was to counteract factors including tax payments in order to "keep banking system liquidity reasonably ample", the PBOC said in a statement.

In the US, retail sales figures for July will be out on Tuesday, and are expected to show that growth picked up from 0.2% to 0.4% last month.

Property stocks slip after wage data

A host of building and real estate stocks were in the red on the back of concerns about how the Bank of England will react to the latest wage data. Higher interest rates have depressed market activity over the past year, with many property companies reporting falling profits and declining portfolio valuations in recent results. Persimmon, Land Securities, Savills and Derwent London were all trading lower early on.

On the other hand, a host of retailers were making gains, including Next, Frasers Group and Curry's.

Marks & Spencer was the standout performer on the FTSE 350 with shares jumping 8% after the retailer lifted guidance for half-year profits after strong sales growth in the first 19 weeks of its financial year. "We now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations," M&S said.

Legal & General slipped after reporting an operating profit of £941m for the first half, slightly below the £958m recorded in the first six months of 2022.

Market Movers

FTSE 100 (UKX) 7,480.81 -0.35%
FTSE 250 (MCX) 18,734.75 -0.14%
techMARK (TASX) 4,326.24 -0.30%

FTSE 100 - Risers

Next (NXT) 7,040.00p 1.03%
Pershing Square Holdings Ltd NPV (PSH) 3,030.00p 1.00%
Associated British Foods (ABF) 1,995.00p 0.66%
BAE Systems (BA.) 1,024.00p 0.59%
Burberry Group (BRBY) 2,241.00p 0.45%
Frasers Group (FRAS) 808.00p 0.44%
B&M European Value Retail S.A. (DI) (BME) 556.40p 0.43%
Smurfit Kappa Group (CDI) (SKG) 3,142.00p 0.38%
JD Sports Fashion (JD.) 146.95p 0.34%
Shell (SHEL) 2,401.00p 0.31%