FTSE slumps after record UK wage growth, Marks & Spencer sparkles, Legal & General beats expectations but investors are unconvinced

“Alarm bells are ringing on UK inflation once more as the latest figures from the Office for National Statistics show record wage growth,” says AJ Bell Investment Director Russ Mould.

“This builds pressure on the Bank of England and has prompted an increase in sterling and gilt yields, as well as a big fall in UK stocks, as it suggests inflation is becoming increasingly entrenched in the economy. However, it is a fine balance. Other elements of the ONS data show signs the labour market could be cooling, with an increase in unemployment and a drop in the number of vacancies.

“Previous rate hikes are likely to have a lagged impact and this data covers an April to June period which is very much in the rear-view mirror now. It all adds up to a very tricky situation for the brains trust in Threadneedle Street which might only be further complicated by the CPI release tomorrow.”

Marks & Spencer

“There have been so many false dawns for Marks & Spencer over the years that it would be understandable if some observers remain sceptical, but its latest unscheduled update upgrading guidance is further evidence that something real is happening at the retailer.

“The food side of the business has generally performed well over several years but the big transformation is in clothing. Like a dowdy middle-aged dad who gets made over to a sharp new look – Marks & Spencer has really upped its game.

“The company has been steadily taking market share, helped by the failure and even collapse of some rivals over recent years.

“It may also be being supported by the fact its traditional demographic is likely doing rather better out of rising interest rates thanks to owning their homes outright and potentially having meaningful cash savings.

“However, it has also been master of its own destiny, tailoring its offering to appeal to younger shoppers with a big expansion into athleisure, for example.

“In the background Marks has made meaningful progress on operating costs which could provide an ongoing tailwind to margins for some time to come. Current CEO Stuart Machin and his immediate predecessor Steve Rowe deserve credit for succeeding where others singularly failed.”

Legal & General

“Life insurer Legal & General may be on track from its own perspective as it beat expectations but the reaction of the market suggests investors aren’t fully on board. The company is one of the biggest investors in the UK stock market and what may be creating disquiet is the material drop in assets under management.

“This is a result of both market conditions but also net outflows. As a domestic facing stock Legal & General could also be vulnerable thanks to the latest wage growth data suggesting inflation is becoming more entrenched.

“Rising interest rates are a double-edged sword for Legal & General. Higher rates have led to an improvement in the funding situation of final salary pension schemes and this has enabled them to offload their pension risk to insurers like Legal & General through what is known as a bulk annuity agreement more readily. This is helping to generate growth in this part of Legal & General’s business.”

These articles are for information purposes only and are not a personal recommendation or advice.