London midday: Stocks off lows as banks shine; UK jobs data digested
London stocks had pared losses by midday on Tuesday thanks to a strong showing from the banking sector, as investors digested weak Chinese data and a mixed reading on the UK labour market.
The FTSE 100 was down 0.1% at 7,227.90, while the pound was 0.1% lower versus dollar at 1.2334 and steady against the euro at 1.1176 as figures from the Office for National Statistics showed the UK unemployment rate unexpectedly ticked lower in July while average earnings hit an 11-year high, but job creation slowed.
Average weekly earnings including bonuses grew by 4% in July, up from 3.8% the previous month and beating expectations for a 3.7% increase. This marked the highest reading since June 2008. After taking inflation into account, earnings were up 2.1%.
Excluding bonuses, earnings were up 3.8%, in line with expectations and down from 3.9% growth in June.
The unemployment rate fell to 3.8% in July from 3.9%, surpassing analysts' expectations for an unchanged reading.
The employment rate, meanwhile, was 76.1% in July - the joint-highest on record since comparable records began in 1971 and up from 75.5% a year earlier.
ONS head of labour market statistics David Freeman said: "The employment rate has remained fairly constant at a joint record high for some months now, while the unemployment rate was last lower at the end of 1974. Vacancies continue to fall back from recent record highs, with much of this decline coming from small businesses."
The ONS figures also showed that job creation slowed in the three months to July, with the number of people in work up by 31,000, down from a 115,000 increase in the three months to June. There are now 32.78m people in work compared to a record high of 32.81m in June.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the renewed fall in the unemployment rate distracts from an otherwise troubling labour market report. He said Brexit uncertainty undoubtedly has sapped firms’ enthusiasm for hiring new workers, but sharply rising unit labour costs also are playing a role.
Ruth Gregory, senior UK economist at Capital Economics, said small cracks are starting to appear in the labour market.
"The unambiguous robustness of just a few months ago has disappeared, bringing tentative evidence that the underlying weakness in economic growth is restraining labour market activity," she said.
Stocks had kicked off the session deeper in the red after data from China's National Bureau of Statistics showed that the producer price index fell 0.8% in August from a year earlier. This marked the worst year-on-year contraction since August 2016 and was steeper than the 0.3% decline seen in July. However, it was better than consensus expectations for a 0.9% drop.
Neil Wilson, chief market analyst at Markets.com, said: "The fear is not just that it signals weakness in domestic and overseas demand, but that China is exporting deflation by cutting prices and making it even harder for central banks like the ECB to achieve their inflation goals. It could be a tough session in Europe."
In politics, UK Prime Minister Boris Johnson suffered another defeat on Monday evening as his second call for a snap general election was rejected by MPs, meaning an election before the Brexit deadline of 31 October is no longer on the cards. Parliament is now prorogued for the next five weeks.
In equity markets, a solid performance from banks helped to bring the top-flight index off its earlier lows, with Barclays, RBS, Standard Chartered and Lloyds all higher. Barclays, RBS and Lloyds have all said recently that they will incur additional charges from a last-minute surge in payment protection insurance claims.
JD Sports was the standout gainer on the FTSE 100 as the sportswear retailer defied the high street gloom, reporting a 6.6% rise jump in interim pre-tax profit and saying that full-year results should come in at the mid-point of expectations.
Cairn Energy rallied after saying it swung to a profit in the first half on higher oil and gas output, as it upgraded full-year production forecasts.
On the downside, IP Group slumped as it reported a fall in first-half net asset value amid "challenging" conditions for the sector.
Equipment rental company Ashtead was on the back foot even as it posted a 9% jump in first-quarter pre-tax profit, with traders suggesting it could be down to profit-taking after a decent run.
Bovis Homes was in the red as it said it is back in talks with Galliford Try over a potential merger with its housing business, and posted record first-half profits. However, Galliford shares gained on news of the potential £1.1bn merger.
FTSE 100 - Risers
JD Sports Fashion (JD.) 670.00p 5.91%
International Consolidated Airlines Group SA (CDI) (IAG) 445.00p 5.08%
Barclays (BARC) 147.20p 4.56%
Royal Bank of Scotland Group (RBS) 201.10p 4.30%
Standard Chartered (STAN) 681.40p 3.37%
Lloyds Banking Group (LLOY) 51.79p 3.21%
Centrica (CNA) 69.66p 2.74%
Sainsbury (J) (SBRY) 205.90p 2.54%
Aviva (AV.) 383.90p 2.54%
WPP (WPP) 1,021.50p 2.33%
FTSE 100 - Fallers
Just Eat (JE.) 718.92p -5.41%
London Stock Exchange Group (LSE) 6,752.00p -4.63%
Rentokil Initial (RTO) 430.30p -4.08%
Experian (EXPN) 2,480.00p -3.69%
Spirax-Sarco Engineering (SPX) 7,820.00p -3.58%
Aveva Group (AVV) 3,531.82p -3.45%
Sage Group (SGE) 673.20p -2.83%
Relx plc (REL) 1,865.00p -2.64%
Rightmove (RMV) 524.90p -2.62%
Associated British Foods (ABF) 2,246.00p -2.56%
FTSE 250 - Risers
Galliford Try (GFRD) 656.00p 6.67%
Cairn Energy (CNE) 188.60p 6.37%
Daejan Holdings (DJAN) 4,981.41p 5.65%
Vivo Energy (VVO) 128.00p 4.58%
Intu Properties (INTU) 42.05p 4.29%
Wood Group (John) (WG.) 411.00p 4.24%
OneSavings Bank (OSB) 345.20p 3.91%
CYBG (CYBG) 120.70p 3.78%
Hammerson (HMSO) 255.54p 3.54%
Charter Court Financial Services Group (CCFS) 282.50p 3.29%
FTSE 250 - Fallers
IP Group (IPO) 65.12p -6.30%
Funding Circle Holdings (FCH) 105.00p -4.89%
Bovis Homes Group (BVS) 1,015.00p -4.15%
Network International Holdings (NETW) 555.00p -4.15%
Dechra Pharmaceuticals (DPH) 2,830.00p -4.07%
Sophos Group (SOPH) 375.80p -3.99%
Softcat (SCT) 962.00p -3.90%
Avast (AVST) 359.20p -3.85%
Ascential (ASCL) 368.38p -3.11%
Games Workshop Group (GAW) 4,463.62p -3.05%