FTSE 100 analysis: Record wage growth fuels inflation fears – Top UK stocks

FTSE 100 analysis

The FTSE 100 is trading marginally higher this morning.

We discovered this morning that the UK unemployment rate rose to 4% in May from 3.8% the month before. That was higher than expected considering economists thought it would stay flat from last month. The number of job vacancies available also fell for the 12^th consecutive quarter.

Average earnings, including bonuses, rose 6.9% in the three months through to May from the year before. That accelerated from the 6.7% rise we saw last time and was faster than the 6.8% rise pencilled-in by economists. Stripping out bonuses, earnings grew 7.3% in the three months through to May, equalling the highest readings on record we saw last month and during the pandemic while defying hopes of a slowdown to 7.1%.

The faster than anticipated rise in earnings will only encourage the Bank of England to keep raising interest rates despite signs the labour market is loosening. Markets currently see UK interest rates peaking at 6% early next year. BoE governor Andrew Bailey said yesterday that ‘price and wage increases at current rates are not consistent with the inflation target’ considering the CPI is currently running at 8.7%, well ahead of the central bank’s 2% goal.

The remainder of the economic calendar this morning is comprised of economic sentiment data out of the euro area. In the US this afternoon, we have economic optimism data and a speech from the St Louis Fed president Jim Bullard.

FTSE 100 forecast: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, is rebounding this week after closing at eight month lows on Friday, having found some support after the RSI sank deep into oversold territory.

The index’s immediate upside target is to return above 7,300 and recapture the 2023-lows before it can eye 7,450 and look to test the falling trendline. Any renewed pressure could see it continue to slip toward 7,180.

Top UK stocks to watch

Retailers such as Next, Dunelm, B&M and Pets at Home are on the radar today after the British Retail Consortium revealed retail sales rose 4.2% year-on-year in June. That accelerated from the last reading of 3.7% but came in short of the 4.6% forecast by economist. The rise was mostly driven by a 9.8% jump in food sales, with demand for other goods rising just 0.3%!

BAE Systems is up 0.4% after securing new orders from the UK government to boost production of munitions, according to the Financial Times. The £280 million deal could rise to £400 million and will see the defence giant increase production capacity for artillery shells eight-fold.

Centrica is up 0.4% after it said it will take delivery of over 1 million tonnes of liquified natural gas per year over the next 15 years under a long-term sale and purchase agreement signed with Delfin Midstream. That will see it take delivery of around 14 LNG deliveries each year, which could be enough to heat 5% of households in the UK. Centrica said the deal has a market value of around $8 billion. The deal follows on swiftly from an agreement with Equinor that will help it heat 4.5 million homes and the reopening of the Rough gas storage facility.

British Land is up 2.1% after revealing it has continued to experience ‘strong operational momentum’ despite the challenging macroeconomic conditions ahead of its annual general meeting today. The real estate firm said it has seen ‘good leasing activity’ after striking deals for 552,000 square foot of space in the first quarter, with another 1.2 million square feet under offer.

Crest Nicholson’s finance director Duncan Copper is stepping down to become the chief financial officer of Travis Perkins. He has been with the housebuilder since 2019 and will stay in his role until January 2024, with a search for his successor underway. Travis Perkins said the appointment is being made as existing CFO Alan Williams announced he is retiring after seven years in the role. Crest Nicholson is trading marginally lower today while Travis Perkins is up 0.1%.

Pennon Group is up 0.8% after buying three renewable energy projects in the UK. These are solar projects with 95GWh of capacity based across Buckinghamshire, Aberdeenshire and Cumbria. It said this means it can generate around 40% of its own electricity as it works toward a 50% target. It is expected to spend around £85 million on completing the projects, which should come online in 2025.

Mondi has been upgraded to Overweight by ABSA Securities and given a target price of 1,437p. The stock is up 1% today at 1,222.6p.

Redde Northgate has been given a Buy rating by Panmure Gordon, which has a 500p price target on the fleet rental company. The stock is up 1% at 345.52p.

Dowlais Group has been initiated at Sell by Citigroup and given a price target of 97p. The stock is down 3.8% at 120.23p this morning.