European shares rose on Wednesday, unwinding two days of declines. Data showing the lowest rate of unemployment in the UK since 2005 and well-received earnings helped modest gains on the FTSE 100.
The rise on the UK benchmark was led by TalkTalk but gains were capped by a drop in Anglo American shares after the miner lowered its production guidance.
The positive labour market data surprise coupled with the Bank of England saying it sees “no evidence of a sharp slowing of activity” after the referendum triggered gains in the British pound. The ONS was careful to point out that data was collected before the vote was known, but it now seems undeniable that there was no slowdown in economic activity as a result of uncertainty before the referendum. The question that remains unanswered is whether the economy has begun to slow afterwards. Still, based on available data, the Bank of England has scant evidence to justify a big easing of monetary policy. Retail sales on Thursday will be the next test.
UK unemployment fell to 4.9%, the lowest since 2005 while average earnings excluding bonuses rose at a slightly slower pace of 2.2% m/m versus 2.3% expected. The claimant count rose by 400, less than the 3.5k expected but nonetheless the fourth monthly rise.
Airlines IAG and Easyjet shares dipped after budget carrier rival Wizz Air said it was halving intended second half growth to the UK because of the weaker British pound and diverting it to other routes. The slump in the pound is naturally creating a new set of winners and losers in British industry. The UK’s domestic airlines would naturally prefer a stronger pound to encourage Brits travelling abroad with more foreign money in their pockets. IAG is a bit more insulated since the lower pound should also generate more tourists coming to Britain on British Airways and Iberia flights.
US stocks look set for a higher open with Nasdaq leading the charged encouraged by stronger earnings from Microsoft, one of the index’s largest components. Microsoft’s cloud business is going from strength to strength, offsetting the tech company’s attachment to the declining PC market.
USA pre-opening levels
S&P 500: 9 points higher at 2,172
Dow Jones: 71 points higher at 18,559
Nasdaq 100: 26 points higher at 4,603
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