Must read: FTSE 100 under pressure with UK jobs data in focus

GLOBAL MARKETS

The FTSE 100 is leading the declines amid a lacklustre start to trade in Germany and France. Marks & Spencer Group (LSE:MKS) is staging impressive gains up over 8% after raising its outlook, lifting other retailers such as Next (LSE:NXT) and B&M European Value Retail SA (LSE:BME) to the top of the FTSE 100.

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The Nikkei rallied overnight after Japan’s second-quarter GDP grew by 1.5%, ahead of analysts’ expectations for 0.8% and up from 0.9% in the previous quarter. In China, the central bank unexpectedly cut its key policy rates in a monetary boost aimed at bolstering its stuttering economy. It reported weaker industrial production and retail sales data while the unemployment rate ticked up to 5.3% in July, underscoring the impact of its economic headwinds.

Russia’s central bank hiked interest rates from 8.5% to 12% after the rouble’s sell-off to 17-month lows yesterday. The Bank of Russia said, ‘inflationary pressure is building up’ and ‘inflation expectations are on the rise’. The decision has helped to boost the rouble today which is regaining ground against the US dollar.

UK UNEMPLOYMENT

The UK unemployment rate for April to June rose by 0.3 percentage points to 4.2%, the highest level since late 2021. Inactivity due to long-term sickness rose to a record high and job vacancies fell by 66,000, dropping for the 13th consecutive period. Average wages excluding bonuses in the UK grew by 7.8%, a record high, outpacing expectations for 7.4%. Industrial action in the UK resulted in 160,000 lost working days in June.

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Amid the macroeconomic storm clouds, businesses have become increasingly cautious about their hiring plans, reducing the level of vacancies which has made it more difficult for workers to find jobs, raising the unemployment rate. On top of that there’s a record number of people unable to work due to long-term sickness, perhaps pushed up patient backlogs and other pressures on the NHS. While the labour market is starting to show signs of slack with the unemployment rate ticking up, wages are still powering ahead, partly due to worker shortages as well as strike action. If inflation figures, due out tomorrow, cool to below 7.8% as expected, then average wage growth would finally be in positive territory in real terms, helping to support living standards in the UK. However strong wage growth raises the risk of second round inflationary effects if businesses continue to pass on these additional costs to consumers in terms of higher prices.

Strong wage growth has boosted the pound this morning, which is trading higher against the US dollar. All eyes turn to the latest UK inflation figures on Wednesday for clues into the Bank of England’s next move.

KANTAR GROCERY INFLATION

According to Kantar, grocery inflation in the UK has eased for a fifth consecutive month in August, hitting 12.7% versus 14.9% in July. While food prices are still rising, encouragingly, the pace of growth is beginning to slow as the Bank of England’s aggressive stream of rate hikes take effect. Plus wet weather conditions reduced demand for sales of summer staples such as BBQ items and ice creams. Other essentials continue to face heavy food inflation pressures such as eggs and frozen potato products, highlighting the burden on consumers from hefty price hikes among staple items. But other items such as milk and sunflower oil have become cheaper as supermarkets battle it out to draw customers into their stores.  

Consumers continue to seek bargains amid the cost-of-living crisis. This has helped to drive strong sales growth at the German discounters, Aldi, and Lidl. Tesco (LSE:TSCO) remains the UK’s leading supermarket with 27% of the overall market share, a long way ahead of Sainsbury’s which in second place with 14.8%.

The significant cooling in Kantar’s grocery inflation rate could pave the way for lower headline inflation figure from the ONS on Wednesday as price pressures finally show signs of easing, albeit from very high levels.

MARKS & SPENCER

Marks & Spencer has raised its full-year earnings outlook – it now expects profit growth for this year, up from its previous guidance for a decline. It also reported 11% growth in like-for-like food sales in the first 19 weeks of the year while clothing & home sales increased by 6%.

Despite the uncertain economic outlook, M&S has enjoyed strong sales both in clothing and home as well as its longstanding outperforming food division.

Shares are trading sharply higher, thanks to its improved profit outlook, lifting the stock’s year-to-date gain to over 70%, making it a standout winner on the UK stock market this year.

The brutal demise of the high street has separated the winners from the losers with a number of high-profile casualties and some standout gainers. Next and M&S are among those in the latter category, allowing both to up their outlooks. M&S has been undergoing a fruitful turnaround under the watch of CEO Stuart Machin, involving revamping its store estate and investing in new technologies.