FTSE slips as strong labour data points to rate hike

The main market slipped this morning as ONS data revealed UK employment is back to pre-Covid-19 levels, sparking speculation that a rate hike is on the way.

The FTSE 100 slipped back as the latest release of UK labour figures showed a sharp drop in unemployment levels, but a record number of job vacancies sparking speculation that a hike in interest rates is on the way.

The main market shed 0.69%, or 49 points, to 7,097 as the Office for National Statistics (ONS) figures revealed unemployment dropped to 4.5%, with the number of employees back to pre-coronavirus levels, but a record 1.m jobs still unfilled over the three months to August.

AJ Bell analyst Laith Khalaf said the ‘dials in the labour market are pointing towards an interest rate rise’.

‘The only sign that tightness in the labour market might be easing was the continued fall in average earnings, as base effects start to fall out of the equation,’ he said.

‘The record number of job vacancies suggests even this moderation may peter out as employers find themselves competing for workers with cold hard cash.’

The market has been pricing in an interest rate rise in recent weeks and the chances of a hike this year is now two in three. While the Bank of England monetary policy committee unanimously agreed to hold rates at the last meeting, it is also expecting elevated inflation this winter as gas and oil prices soar - Brent crude hit $84 a barrel this morning, which Khalaf said ‘will test their resolve’.

Mining stocks pulled the blue chips lower, with Anglo American (AAL) dropping to the bottom of the index, losing 2.4%, or 69p, to £27.62 and followed by Rio Tinto (RIO), which fell 2.2%, or 113p, to trade at £49.87.

Travel-related stocks also struggled, with British Airways owner International Consolidated Airlines (IAG) down 2.1%, or 3p, at 178p and aerospace engineer Rolls-Royce (RR) losing 1.9% to change hands at 142p.

The FTSE 250 added to yesterday’s losses, dropping 0.5%, or 116 points, to sit at 22,371.

Darktrace (DARK) was the biggest loser for the second day running, sinking 5.1%, or 42p, to 788p despite analysts at Berenberg increasing their target price yesterday.

Mid-cap energy stocks also took a hit, with Endeavour Mining (EDV) down 3.6At at £18.30 and Diversified Energy (DEC) lost 3.3% to trade at 122p.

Easyjet (EZJ) fell 2.5% to 631p despite a positive trading update. The budget airline saw a 50% reduction in losses during the final quarter of the year when the group generated around £40m of positive operating cashflow. Although it will not be recommending a dividend in its full-year results.

Hargreaves Lansdown analyst Nicholas Hyett said commercial flights were ‘slowly emerging from the deep freeze of the last 18 months’.

‘The return of passengers to planes, together with a brutal cost-cutting regime, hasn’t been enough to push profits back into the black, but is set to deliver a vast improvement on last year and full year results look likely to come in better than the market expected,’ he said.

In investment trust news, Princess Private Equity (PEYS ) was up 1.2% at £11.74 despite the valuation of Foncia, a European residential property management group, being 6.7% below the August carrying value after private equity firm TA Associates agreed to acquire a 25% stake.  

Invesco Perpetual UK Smaller Companies (IPU ) ticked up 0.3% to 590p after reporting 5% outperformance in the first half of the year. The net asset value (NAV) total return of the fund was 23.3% against the 18.8% return from the Numis Smaller Companies index. The fund benefited from positioning in more economically sensitive areas such as construction materials, media, and financials.


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