UK markets were little changed this week, with the FTSE 100 Index falling 0.1% to trade at 8,420 points at the time of writing.
UK wage growth remained strong in the three months to March, with the annual growth in average weekly wages, including bonuses, remaining steady at 5.7%, defying expectations of a slowdown to 5.5%. Excluding bonuses, average wages were 6% higher than a year earlier over the same period. Despite a slowing jobs market, wages increased, painting a mixed picture that will likely reinforce divisions at the Bank of England over when to cut interest rates.
UK unemployment increased to 4.3% between January and March, from 4.2% in February, marking the highest rate since last May to July, according to figures released by the Office for National Statistics on Tuesday. The data showed further signs that the jobs market is cooling, which should be good news for the Bank of England’s monetary policy committee, who plan to cut interest rates as early as June.
Monetary policymakers view the strength of the jobs market as critical to the inflation outlook, because rapid wage growth in areas where workers are scarce has been a big factor fuelling prices in the labour-intensive service sector over the past year.
UK Chancellor Jeremy Hunt spoke today in London ahead of the official inflation data due next week, expressing hope that it will show inflation falling below the Bank of England’s 2% target.
In his speech, Hunt also defended the UK’s record tax levels, stating that they were necessary to fund initiatives such as the furlough scheme and the energy price cap. However, he insisted that the Conservatives are the only party committed to reducing the tax burden if they win the next general election.
Commodity markets
In the commodity markets, Brent crude futures traded around $83 per barrel on Friday and are set for a moderate decline this week, as the International Energy Agency reduced its forecast for 2024 oil demand growth, widening the gap between its outlook and that of producer group OPEC.
Global demand will grow by 1.1 million barrels per day, the International Energy Agency said, down 140,000 barrels per day from its previous forecast, largely due to weak demand in developed nations of the Organization for Economic Co-operation and Development.
However, US crude stockpiles declined by 2.5 million barrels last week to 457 million barrels, according to the Energy Information Administration, reversing a trend of rising stockpiles that had weighed heavily on oil prices in prior weeks.
Signs of slowing inflation and stronger demand also supported oil prices, as did geopolitical risk which remains elevated. In the Middle East, Israeli troops battled Hamas militants across Gaza, including Rafah, which had been a civilian refuge. Ceasefire talks mediated by Qatar and Egypt are at a stalemate, with Hamas demanding an end to attacks and Israel refusing until the group is dismantled.
Gold traded around $2,380 an ounce on Friday to trade near a one month high, as signs of inflation stabilising in the US increased the likelihood of rate cuts by the Federal Reserve as early as September.
Equity markets
US equity futures fell on Friday, although remain close to all-time highs, after the release of softer consumer price inflation readings this week. In Thursday’s regular session, the Dow Jones Industrial Average lost 0.10%, the S&P 500 declined 0.21%, while the Nasdaq Composite retreated by 0.26%.
US consumer price index inflation fell to 3.4% in Apil, down from March’s rate of 3.5%, according to data released by the US labour department on Wednesday. The figures were in line with economists’ expectations and end a four-month streak in which inflation outstripped expectations. Following the release, US major averages reached record highs, as investors increased their bets on Federal Reserve interest rate cuts this year. Investors are now fully pricing in the possibility that the Federal Reserve will lower interest rates twice this year, having priced in between one and two cuts before the data.
Core consumer prices, which strip out volatile food and energy costs, rose 3.6% last month compared with the same period last year. This marked the lowest rate since April 2021. The cooler inflation data follows labour market figures for April that showed a slowdown in job creation, which will also give the Federal Reserve more confidence that the US economy is not experiencing new acceleration.
Elsewhere, US manufacturing output unexpectedly declined in April, driven by a decrease in motor vehicle production. Manufacturing output dropped 0.3% last month, following a downwardly revised 0.2% increase in March, the Federal Reserve said. Economists polled by Reuters had forecast factory output to rise by 0.1%, after a previously reported 0.5% increase in March. Production at US factories fell 0.5% year-on-year in April with manufacturing, which accounts for 10.4% of the economy, remaining constrained by higher borrowing costs.
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