Must read: UK unemployment, Vodafone, Imperial Brands

GLOBAL MARKETS

After a strong start to the week, the FTSE 100 has opened Tuesday’s session in the red, underperforming the DAX and the CAC, which are trading higher. Vodafone is languishing near the bottom of the UK index following its half-year report.

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Focus turns to US inflation data out today with US futures modestly higher ahead of the release after a mixed session for Wall Street on Monday. Inflation stateside is expected to drop to 3.3% in October, down from 3.7% in the previous month. UBS is forecasting deep rate cuts from the Fed next year, beginning in March. It also believes the US will tip into recession in the second quarter of 2024.

UK UNEMPLOYMENT

According to the Office for National Statistics (ONS), the UK unemployment rate remained unchanged at 4.2% between July and September. Annual growth in regular pay hit 7.7% without bonuses, down versus the previous periods, but it is still among the highest readings since records began. There were 229,000 working days lost because of labour disputes in September. Between August and October, job vacancies fell by 58,000 to 957,000, the 16th consecutive drop.

While the headline unemployment rate remains unchanged, there are some signs of slack in the labour market with a fall in job vacancies across 16 out of 18 industry sectors, highlighting the cautiousness among businesses across the economy towards hiring. Plus, the UK employment rate decreased by 0.1 percentage points during the quarter to 75.7%. However, wage growth remains very strong, with real pay rising at the fastest rate in two years partly driven by the fall in inflation.

These are the last UK labour market statistics ahead of the Chancellor’s Autumn Statement on 22 November. Jeremy Hunt said he plans to get people back into work and deliver growth for the UK. He also said its heartening to see inflation falling and real wages growing.

The government and the Bank of England continue to prioritise bringing inflation down, even if it comes at the expense of economic growth. The central bank will be keeping a close eye on the UK’s strong wage growth and potential upward impact on inflation.

VODAFONE

Vodafone Group (LSE:VOD) reported a 4.2% increase in half-year group service revenue and a 0.3% rise in adjusted core earnings. CEO Margherita Della Valle said the company delivered revenue growth in nearly all its markets and returned to growth in Germany in the second quarter.

Vodafone has been focusing on simplifying and right sizing the business as part of a transformation programme. So far this has included exiting the Spanish market and merging its UK unit with Hutchinson’s Three. However, Vodafone has been grappling with adverse foreign exchange rate movements which resulted in a group revenue decline of 4.3% as well as a significant increase in energy costs.

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While Vodafone’s share price performance has been disappointing this year with the stock shedding over 10% since the start of January, its strong dividend yield continues to appeal to income investors. The stock is under pressure today, reflecting the weak core earnings growth and group revenue decline.

IMPERIAL BRANDS

Imperial Brands (LSE:IMB) reported full-year adjusted operating profit of £3.89 billion and said it expects revenue and profit growth next year. The cigarette maker raised its dividend by 4% and said its share buyback would increase by 10% next year to £1.1 billion. It enjoyed market share growth in the US, Australia, and Spain but weakness in Germany and the UK. While tobacco prices rose by 11% on average, volumes fell by 10.4% driven by its exit from Russia and weakness in US mass market cigars.

Its net generation products (NGP) net revenue rose by 26.4% with Europe up 40.4% but adjusted losses in this division soared by 48.3% to £135 million because of market launches which led to higher investment.

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The company is three years into its transformation. CEO Stefan Bomhard said it expects a further acceleration in adjusted operating profit growth in the final two years of its five-year plan.

Shares in Imperial Brands have struggled this year, down nearly 15% but have been rebounding over the last six weeks. While NGPs are clearly the next growth frontier as traditional cigarette demand faces long-term structural decline, there are significant investment costs required to scale the business which are weighing on the bottom line.

The stock is little changed in today’s trade as investors digest the mixed report. Traders are weighing up the positives around its dividend, share buyback and rosy outlook versus weak volumes and a sharp increase in NGP adjusted losses.