UK markets rose again this week, with the FTSE 100 Index gaining 0.9% to trade at 7,930 points at the time of writing. Figures from the Office for National Statistics released on Tuesday showed average wages in the private sector, excluding bonuses, were 6.9% higher in the three months to February than a year earlier, down from growth of 7.3% in the final quarter of 2022.
Public sector wage growth still lagged the private sector but by a slimmer margin, with average wages excluding bonuses up 5.3% on the year. The slowdown in wage growth, a key indicator that monetary policymakers are tracking, was more gradual than expected, owing to revisions to January’s figures and a fresh acceleration in pay in February.
The unemployment rate edged up 3.8% from 3.7% in the previous quarter. The number of vacancies fell for a ninth consecutive month and the number of people choosing to not work or seek a job fell, as students returned to the workforce.
UK inflation remained in double digits in March, with annual consumer price inflation easing to 10.1%, down from 10.4% in February but higher than market expectations of 9.8%. Despite fuel prices falling in the month, further rises in the cost of food, recreation and culture left the index in double digits.
The price of groceries alone leaped 19.1% in March, the fastest annual rate of growth since 1977. Officials had hoped that there would be the first signs of a significant drop in inflationary pressure, but core inflation, excluding food and energy prices, remained unchanged at 6.2%, which remains too high for comfort.
With inflation remaining above 10% for the seventh month in a row, this will put pressure on the Bank of England to press ahead with more interest rate rises. Investors are now pricing in three more rate increases to a peak of about 5% in September, a sharp increase from last week’s expectations of 4.6%, before the stubbornly high inflation figures took the market by surprise this week.
Commodity markets
In the commodity markets, Brent Crude futures traded around $81 per barrel on Friday, as worries of higher interest rates dampening growth kept investors on edge. The US Federal reserve is set to deliver the final rate hike, whilst the European Central Bank is expected to raise borrowing costs three times over the next few months.
Meanwhile the latest Energy Information Administration report showed crude oil stocks in the US fell by 4.581 million barrels last week, far exceeding forecasts of a 1.088 million barrel drop and offering a somewhat bullish outlook for short-term demand. Furthermore, expectations that demand from China will remain strong were bolstered this week after better than expected first quarter GDP figures pointed to a sharper recovery in the Chinese economy.
Gold traded around $1,985 an ounce on Friday and is set for a weekly decline, weighed down by firm expectations that the Federal Reserve will raise interest rates in May. However, a weaker US dollar and falling treasury yields pointed to the economic toll of the Federal Reserve’s interest rate hike cycle, strengthening the case for a pause, after expectations of a further 0.25% rate hike next month.
US equities
US equity futures were relatively flat on Friday as investors continued to assess this earnings season for signs of the global economy’s health while contemplating the future path of interest rate rises. In Thursday’s regular trading session The Dow Jones Industrial Average fell 0.33%, while the S&P 500 Index dropped 0.59% and the Nasdaq Composite declined 0.8%.
The number of Americans filing for unemployment benefits rose by 5,000 to 245,000 last week, the most in one month and above market expectations of 240,000. The result was in line with recent economic data which pointed to some softening in the US labour market. So far this earnings season, about 16% of companies in the S&P 500 have reported results, with about 76% beating earnings per share expectations.
However, a general lack of profit forecasts has begun to concern some investors. Earnings season is set to continue to ramp up next week, with a slate of results from big technology companies. Elsewhere, the Philadelphia Fed manufacturing index fell more than expected, to its lowest level since May 2020.
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