UK markets made marginal gains this week with the FTSE 100 Index rising by 0.12% to trade at 8,240 points at the time of writing. UK wage growth slowed in the three months to July, with annual earnings growth, excluding bonuses, declining to 5.1%, down from 5.4% in the three months to May, data from the Office for National Statistics showed.
Including bonuses, wage growth slowed to 4%, but this figure was skewed by large, one-off payments to public sector workers last year. The Office for National Statistics also said that tax records showed payrolled employment fell by 6,000 in July and by 59,000 in August, with vacancies declining.
The Bank of England’s Monetary Policy Committee wants to see clear evidence that pay pressures driving service price inflation are easing before they cut interest rates again, following their decision in August to reduce the bank rate to 5%.
Whilst the data showed that labour market conditions are continuing to cool, it is probably not enough to prompt an immediate 0.25% cut at September’s Monetary Policy Committee meeting. Markets are currently expecting another interest rate cut in November as inflation rose less than expected to 2.2% in July. In the prior two months, UK inflation had hit the Bank of England’s 2% target.
The UK economy unexpectedly stagnated for a second consecutive month in July, held back by drops in construction and manufacturing, with a mere 0.1% expansion in the key services sector, according to figures released on Wednesday from the Office for National Statistics. Economists had expected overall growth of 0.2% in July. The weakness comes after the economy also failed to grow in June and underlines the challenge facing the Chancellor, Rachel Reeves as she prepares for Labour’s first budget next month.
Commodity markets
In the commodity markets, Brent crude futures traded around $72 per barrel on Friday after a volatile week, sparked by output disruptions in the US Gulf of Mexico, where Hurricane Francine forced producers to evacuate platforms before it hit the coast of Louisiana.
Hurricane Francine has likely disrupted about 1.5 million barrels of US oil production, which is estimated to reduce September production in the Gulf of Mexico by around 50,000 barrels per day according to forecasts from UBS analysts. Official data showed nearly 42% of the region’s oil output was shut-in as of Thursday. The supply shock helped oil prices recover from a sharp selloff earlier in the week, after prices closed at their lowest level since December 2021 on Tuesday, with demand concerns dragging benchmarks to multi-year lows.
Both OPEC and the International Energy Agency lowered their demand growth forecasts this week, citing economic struggles in China, the world’s largest oil importer. A shift towards lower-carbon fuels is also weighing on China’s oil demand, speakers at the APPEC conference said this week. Demand concerns have grown in the United States as well. US gasoline and distillate futures traded at multi-year lows this week, as analysts highlighted weaker than expected demand in the top oil consuming country.
Gold prices traded around $2,570 an ounce on Friday, hitting a record high this week, helped by expectations of an interest rate cut by the Federal Reserve next week after US data signalled a slowing of the economy.
Equity markets
US equity futures were little changed on Friday after a positive week, driven by strong performances in technology and semiconductor stocks as investors processed inflation and labour data. In Thursday’s regular session, the Dow Jones Industrial Average rose 0.58%, the S&P 500 gained 0.75%, while the Nasdaq Composite advanced 1%. US consumer price inflation fell to 2.5% in August, compared with July’s 2.9% pace, and marginally below the estimate of 2.6% from economists polled by Reuters. Core consumer price inflation, which excludes volatile food and energy prices, held steady at 3.2%, according to data published by the Bureau of Labor Statistics on Wednesday.
The inflation data marks one of the last major economic releases ahead of the Federal Reserve’s next meeting on September 18th, when it is expected to lower interest rates from their current range of 5.25% to 5.5%.
The monthly jobs report for August showed that US employers had added 142,000 new jobs that month, up sharply from a downwardly revised figure of just 89,000 for July, but still below consensus forecasts.
The Federal Reserve has been seeking assurance that inflation is cooling substantially before lowering interest rates. However, evidence of a sharper deterioration in the jobs market could push the central bank to cut rates more aggressively. The Federal Reserve faces a close call on whether to cut US interest rates by a larger than expected half-point next week or go with a quarter-point move as officials wrestle with how quickly to ease monetary policy.
Top Federal Reserve officials have backed a series of interest rate cuts amid signs inflation is easing and as they focus on preventing undue economic damage from keeping borrowing costs higher than needed. A 0.5% rate cut in September would let the US central bank return borrowing costs to normal levels more quickly, removing restraint on the economy and protecting the labour market form further weakness.
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