Must read: UK unemployment, China GDP, Diageo, Hays

Wages have grown at the fastest pace in over 20 years, but not as fast as inflation. Our head of investment talks through the latest UK jobs data and more of today's headlines.

GLOBAL MARKETS

The FTSE 100 index is trading in the red, underperforming a mixed performance across broader European bourses. The UK index is weighed down by Ocado Group (LSE:OCDO) which has sunk more than 10% after sales fell short of expectations. High level conversations at the World Economic Forum in Davos continue to dominate the business headlines with focus on slowing global growth, elevated inflation levels, the war in Ukraine and climate change.

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Germany’s inflation rate hit a four-month low of 8.6% in December, driven by smaller increases in food and energy prices, partially offset by higher services and rent prices. This echoes last week’s inflation figures from France and Spain which together support the view that price levels across the euro zone may have peaked.

US markets get set to reopen after the three-day weekend, with earnings from The Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) set to take centre stage.

UK UNEMPLOYMENT

UK unemployment in the three months to November hit 3.7%, 0.2 percentage points higher than the previous three-month period and 0.3 percentage points below pre-Covid levels.

Wages grew at the fastest pace in over 20 years, with regular pay up 6.4% excluding bonuses between September and November. However, after accounting for inflation, average pay fell by 2.6% in the year to September to November both including and excluding bonuses. This is slightly lower than the record fall in real regular pay between April and June at 3%, but remains among the largest falls in growth since records began in 2001. Job vacancies hit 1.161 million between October to December, down by 75,000 versus the previous quarter and the redundancy rate increased to 3.4 per thousand but remains low.

While the headline unemployment rate remained largely steady, job vacancies fell, and redundancies increased reflecting the uncertain macroeconomic backdrop with businesses becoming more cautious in terms of their staffing plans. Inflation continues to weigh on pay, with wages which are falling in real terms, negatively impacting employees’ affordability of goods and services.

CHINA GDP

China’s fourth quarter GDP hit 2.9%, slowing from 3.9% in the previous quarter but beating forecasts for 1.8%. Annual growth came in at 3%, the second slowest pace since 1976. Retail sales fell for the third straight month dropping by 1.8% in December, but improving month-on-month and topping estimates. Industrial production expanded by 1.3% in December year-on-year, ahead of estimates for 0.2% but slowing from 2.2% in November to mark the weakest reading since May.

Meanwhile, China’s population declined in 2022 for the first time since the early 1960s as the pandemic negatively impacted fertility demand, raising concerns that this could weigh on China’s long-term growth potential.

Although today’s economic readings topped expectations, official estimates are generally taken with a pinch of salt. China’s economy is clearly slowing with its annual growth reading coming in sharply below its official target for 5.5%, as Beijing’s strict zero-tolerance to Covid approach hampered economic activity in 2022. It also damaged population growth as couples pushed back their decisions to have children amid the unprecedented period of strict lockdowns. The pick-up in retail sales and industrial production could reflect China’s long overdue economic reopening with the potential release of further pent up demand this year.

Asian markets fell overnight, reflecting China’s shaky economic backdrop with the Hang Seng down by more than 1%. Chinese equities have largely been in rally mode since the start of November when indications of its draconian anti-Covid policy unwind first emerged.

DIAGEO

Diageo (LSE:DGE) has reached a deal to acquire Don Papa Rum for 260 million euros with a further potential consideration of up to 177.5 million euros through to 2028 subject to performance. Don Papa is made in the Philippines and is owned by the UK-based Bleeding Heart Rum Company. It was launched in 2012 by the company’s founder Stephen Carrol, a former Remy Cointreau executive.

While Diageo owns over 200 brands, it has just one rum brand, Captain Morgan, so Don Papa will add to its rum portfolio and allow the drinks giant to focus on premiumisation within the rum category, which it says is still ‘in the early stages’. Premiumisation has been a major theme for Diageo which aims to focus on quality over quantity to tie in with drink awareness campaigns and to appeal to increasingly health-conscious consumers.

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Hand-in-hand with this is the explosion of low and no-alcohol drinks which is the fastest growing segment of the drinks market. Today’s acquisition will add to Diageo’s already extensive and varied brand offering that should help it weather the economic downturn.

Shares in Diageo are little changed over a one-year period but have kicked off the year on a strong footing.

HAYS

Hays (LSE:HAS) reported like-for-like net fees in the final three months of 2022 up 8%, with a 9% increase in its temporary and contracting segment.

Post pandemic, recruiters have benefited from tight labour markets and the release of pent-up demand for goods and services. However, with a slowing economic backdrop and inflationary pressures including on wages, businesses have become more cautious about their hiring plans. Hays has been channelling this cautiousness to its advantage, focusing on temporary staff hiring which businesses are looking more towards as they shy away from full-time offers and increasing fee margins, capitalising on wage inflation. Hays has also benefited from sterling’s weakness versus the euro and the Australian dollar in particular, which it says will be a tailwind for full-year 2023 group operating profit.

Shares in Hays have largely struggled since before the pandemic, but price action has turned more positive since the start of October and the stock is extending gains today.