Mining giants lift Footsie as UK jobs market remains stuck in low-hire, low-fire mode
Susannah Streeter, chief investment strategist, Wealth Club: “The Footsie is set to start the week on the front foot with a rise in metals prices lifting mining stocks. Investors are largely shrugging off the consequences of a renewed surge in hostilities in the Middle East and are instead focusing on hopes the Fed will keep interest rates on hold for longer. The dollar has slipped back against a basket of currencies, which have helped give a leg up to metals given they are priced in the currency. The commodity boost is giving the FTSE 100 some useful momentum, even as investors keep their eyes on the inflationary risks from the Middle East crisis.
Copper prices in particular are rising higher on expectations of constrained supply and resilient demand, given how sought after the metal is across multiple sectors from electrification to AI. The build-out of data centres is adding to the appetite for copper, but so are power grids, electric vehicles and the wider energy transition. However, supply can’t be switched on at the flick of a switch, and major new mining projects can take a decade or more to permit, finance and build, while existing operations are vulnerable to everything from extreme weather to ageing infrastructure.
The UK economic picture is still looking shaky given the latest snapshot of the jobs market in the CIPD Labour Market Outlook. Although the economy grew by more than expected in June, coming in at 0.3%, employers are super-cautious. They appear stuck in a low-hire, low-fire mode, with confidence close to record lows outside the pandemic. Just 62% of employers plan to recruit over the next three months, while private-sector hiring intentions remain at one of their lowest levels on record. The net employment balance, measuring the difference between firms expecting to increase and reduce staffing levels, is just +9.
It’s a sign that many businesses are still battening down the hatches as higher employment costs and economic uncertainty make management reluctant to take on new staff. The CIPD data comes ahead of tomorrow’s latest ONS labour market snapshot, but the previous set of official figures, released last month, already showed the cracks. Payrolled employees had fallen by 85,000 over the year to May, while the early estimate for June pointed to a further 71,000 annual decline. Vacancies had also slipped to 712,000 in the three months to June, while unemployment stood at 4.9% and the economic inactivity rate at 20.9%.
The latest CIPD figures suggest there may not have been much of a turnaround since that ONS snapshot, with employers still reluctant to open the hiring taps. The survey points to a labour market struggling to regain momentum, with businesses prioritising cost control over expansion and too many people remaining on the sidelines. Revitalising employment and jolting stubbornly high inactivity levels back into reverse will be a major test for the new Burnham administration. The jobs data will also be closely watched by Bank of England policymakers, weighing the options ahead for interest rates. If the labour market stays sluggish, the chances of secondary inflationary effects from the flash rise in energy prices may be more muted, which could keep borrowing costs on hold for longer.
There is at least some reassurance from the ratings agencies, with Fitch affirming the UK’s sovereign rating at AA- with a stable outlook. It’s not an upgrade, so it’s unlikely to trigger a major sentiment shift, but the decision does provide a degree of validation for the UK’s economic and financial foundations. Fitch points to the country’s large and diversified economy, credible policy framework and deep capital markets as key strengths. However, it is also warning that higher energy prices could restrain growth and add to inflationary pressures, so the reassurance comes with some sizeable caveats.
Energy prices remain a particularly uncomfortable part of the picture but Brent crude has slipped a little, even though US-Iran peace talks remain deadlocked and hopes of a swift reopening of the Strait of Hormuz fade. Traffic through the crucial waterway has fallen dramatically following recent tanker attacks, with just five commodity vessels passing through on Saturday and none on Sunday, compared with 31 the previous weekend. Crude is still largely hanging onto gains from the previous session, with Brent trading around $88 a barrel.
So there are still concerns that this prolonged energy pain will feed into inflation. It creates the awkward prospect of sluggish growth colliding with renewed price pressures, making the central bankers’ task of keeping inflation in check and the economy running healthily considerably more difficult. UK 10-year gilt yields have nudged back above 5%, reflecting concerns about inflationary risks.
Across the Atlantic, the yield on the 10-year US Treasury note is hovering around 4.67% after rising around five basis points in the previous session, reflecting concerns that the Federal Reserve may be complacent about how hot inflation may run. However, given the latest more subdued retail sales snapshot, markets now see roughly a 67% probability that the Fed will hold rates in September, up from below 50% a month ago, pointing to a growing belief that policymakers may prefer to wait for clearer evidence on inflationary prospects.
Hopes for a hold, rather than another rapid twist higher in the interest rates game, look set to spread more upbeat sentiment through Wall Street at the start of the week. S&P futures indicate a higher open, ahead of key quarterly reports from retail heavyweights including Walmart, Target and Home Depot. These results will act as another gauge for consumer sentiment and may highlight how the US remains a two-speed economy, with lower-income households feeling the pinch from higher living costs while wealthier consumers continue to enjoy the spoils of stock market ebullience.”