Must read: results season, UK jobs, Bellway, Rolls-Royce

GLOBAL MARKETS

European markets have opened higher following gains in Asia and a rally on Wall Street, with the Nasdaq, S&P 500 and Russell 2000 finishing the session up by over 1% each as earnings season stateside gets into full swing. Results are due from The Goldman Sachs Group Inc (NYSE:GS) and Bank of America Corp (NYSE:BAC) today followed by Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) tomorrow. 

In the UK, housebuilders have slumped to the bottom of the FTSE 100 following a disappointing full-year update from Bellway (LSE:BWY), while Rolls-Royce Holdings (LSE:RR.) is outperforming on the back of plans to cut staff.

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After shares in Shell (LSE:SHEL) hit a record high on Monday, the stock is in the green again today, lifted by rising underlying oil prices. The Israel-Hamas war sparked nervousness about supply constraints from the Middle East, resulting in Brent Crude’s best week since February last week. But oil prices fell on Monday reflecting the possibility that the US could ease sanctions on oil producer, Venezuela, which would likely provide the market with a boost to supply.

UK AVERAGE EARNINGS 

Annual growth in regular pay (excluding bonuses) hit 7.8% in June to August, one of the highest growth rates since comparable records began in 2001. However, the figure dropped from 7.9% in the previous period, marking the first fall since January. Total pay including bonuses rose by 8.1% in the three months to August year-on-year. 

Job vacancies in July to September hit 988,000, down 43,000 on the previous three months. They fell by 256,000 versus a year ago but remain 187,000 above pre-Covid levels. The ONS has rescheduled some of its other labour market statistics such as the unemployment rate to 24 October. 

Although today’s figures don’t paint a full picture of the state of the UK labour market, the fall in job vacancies and slight drop in wage growth suggests that signs of slack continue to emerge. That highlights the fragility of the economy as elevated inflation and the Bank of England’s stream of rate hikes take their toll on the jobs market. With vacancies continuing to decline, businesses are clearly becoming much more cautious about their hiring plans, less willing to take on the fixed costs of full-time staff as a time of economic uncertainty. At the same time, wage growth remains strong by historic standards, something the central bank will be paying close attention to in terms of its battle against inflation.

BELLWAY 

Bellway reported an 18% slump in annual profit. Underlying pre-tax profit for the year ending 31 July hit £532.6 million, just shy of analysts’ expectations for £533.4 million. The housebuilder said it is aiming to build 7,500 homes in fiscal 2024 versus 10,945 last year, a decrease of more than 31% year-on-year. It said customer demand continues to be affected by mortgage affordability constraints, but the shortage of high-quality energy efficient homes suggests that the industry’s fundamentals remain attractive. Average selling prices this year are expected to hit £295,000, down almost 5% from £310,306 last year. 

Shares in Bellway have slumped nearly 3% this morning, extending their recent decline, with the stock down by over 10% in the past six months. Since the peak in May, shares have been under pressure, weighed down by falling house prices, build cost inflation pressures, and weak demand for properties amid the ‘higher for longer’ interest rate environment that has made mortgages considerably less affordable. Offsetting this to some extent is the chronic shortage of housing supply in the UK which is stemming an even steeper slide in house prices.

Following Bellway’s disappointing update, FTSE 100 housebuilders like Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV), and Berkeley Group Holdings (The) (LSE:BKG) are trading in the red. 

ROLLS-ROYCE 

Rolls-Royce is planning to cut up to 2,500 staff, which would equate to 6% of its workforce as part of a strategic overhaul at the engine maker spearheaded by CEO Tufan Erginbilgic, who previously described the business as a ‘burning platform’. Investors are welcoming its cost cutting plans which have lifted the stock in today’s session, extending its stellar year-to-date gain to almost 120%, making it a major UK outperformer and helping reverse some of its long-term underperformance. 

Over the summer, Rolls-Royce reported a sharp jump in first-half underlying profit and free cash flow, led by civil aerospace. Its transformation plan is faring well with improving operations, the post-pandemic rebound in international flying and increased defence spending. 

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Things couldn’t be going much better for Erginbilgic, who took to the helm at the start of the year. For years, the engine maker failed to rev up investor confidence with the stock sliding from the highs in 2014 to the trough during the challenging pandemic period. Now Rolls-Royce is the best performing stock on the FTSE 100 over a one-year period, up over 200%.