Market report: China’s snap back unravelling, UK labour market eases and Greggs on a roll
- China’s industrial activity comes in lower than expected adding to concerns about global growth.
- Retail sales in China in double digits but still a bit weaker than expected.
- Debt ceiling worries in the US continue to weigh on minds.
- UK labour market eases, relieving some pressure on BofE
- Greggs on a roll as vegan bakes and chicken goujons prove a hit among cash strapped consumers.
- Crude oil prices led by supply concerns despite ongoing global growth worries
Susannah Streeter head of money and markets, Hargreaves Lansdown: “China’s pandemic snap back is losing elasticity, adding to worries about growth unravelling across the global economy. Concerns are also rising that not enough progress is being made to avoid a US default, which would send shockwaves through financial markets. Talks among political leaders to extend the debt ceiling are set to start, but expectations of an immediate breakthrough are low, with Republican House of Representatives speaker Kevin McCarthy outlining his concerns that big issues are still not close to being resolved. As the clock ticks down, volatility on markets is expected to tick up. The S&P 500 ended up in positive territory but weakness is set to pervade trading today amid nervousness about the precarious budget situation.
The FTSE 100 whipsawed on the open as investors assessed what the latest numbers from China bodes for global prospects. Industrial output in China rose for the 12th month in a row, but the pace of activity wasn’t as high as expected with growth of 5.6% in the year to April, instead of 10.9%. The figures were already skewed due to the sharp shrinking in output this time last year due to rolling lockdowns. Textiles was a particular weak spot, contracting by 3% over the year to April. This appears to be another data indicator in a growing pile showing that cheaper Chinese garments don’t have so much allure for consumers overseas squeezed by the cost-of-living crisis. Retail sales still jumped by 18.4% but they weren’t quite as strong as forecast. The urge to spend among Chinese shoppers is robust, with pent up demand seeing sales continue to shoot upwards even though the growth in spending has waned a little, with clothing growing 13.4% against 17.7% in March. Double digit growth in garment purchases bodes well for the luxury brands which rely on the huge Chinese market, and indicates the lure of the logo is still strong. Reflecting ongoing fragility in the housing and commercial property sectors, sales have continued to fall for home appliances, office supplies and communications equipment. With the Chinese economy beginning to sag, the expectation is that more monetary stimulus in the form of tweaks to interest rate policy will be injected, to try and plump up activity.
Bank of England policymakers are likely to look on today’s jobs data with relief given that is shows that the labour market loosened up a little bit more. Inactivity rates have dropped again, as more people are lured back into the workplace. Fresh dips in job vacancies, falling by 55,000 in the quarter, also eases the pressure on the monetary policy committee, and raise the chances it could press pause on rate hikes. But worries remain about wage growth, which remained at 0.6% in March compared to February so a lot will be riding on the next set of inflation data.
UK consumers may be proving a bit flaky when it comes to big ticket items but appetites are still strong for pasties, and sausage rolls on trips out to the shops, on lunchbreaks or trips away. Gregg’s value credentials are baked into the brand and that’s helped keep sales hot amid the cost-of-living crisis. The chain is on a roll, with underlying sales climbing 15.7% in the 10 weeks to May 13th. Widening the menu has drawn in new customers, with the vegan Mexican chicken-free bake range proving a hit while pizza lovers have been drawn in by the late-night offer. Hot snacks like wedges and have given sales extra wings and stolen the limelight from the great British sandwich and Greggs is adept at catering to changing tastes. Higher costs have still been eating into profits though and there will be a bit of disappointment that cost inflation is not dropping more steeply away, still on track to trend around 9-10% for the year,
Despite worries about the Chinese economy losing steam, Brent Crude is still hovering around $76 a barrel as supply concerns take centre stage. Wildfires are still raging in Alberta, Canada’s main oil province, with 23 blazes still out of control as the heatwave continues. Iran’s seizure of yet another oil tanker is also concentrating minds about tensions heating up in the Persian Gulf. The purchase of 3 million barrels of crude oil by the US to help refill the Strategic Petroleum Oil Reserve has also helped lift crude prices. The emergency reservoir had been pushed to the lowest level since 1983, as Biden’s administration tried to flood the market to lower prices, but priority now is on rebuilding supplies in case of a future supply shock. ‘’