Stocks End Up As Strong UK Jobs Data Boosts Pound

Stocks ended higher on Wednesday, with the FTSE 100 benefiting from a strong performance from miners and oil firms, while the pound was helped by upbeat reports on UK unemployment and wage growth.

The FTSE 100 index of large caps ended up 1.2%, or 87.17 points at 7,416.93. The FTSE 250 index closed up 0.3%, or 52.47 points, at 19,267.86 points. The AIM All-Share index closed 0.4% higher, or 3.59 points, to 958.04.

The BATS UK 100 index rose 1.3% to 12,587.442, and the BATS 250 ended up 0.2% at 17,487.00. The BATS Small Companies rose 0.1% to 11,924.78.

Data from the Office for National Statistics showed that the UK unemployment rate declined to the lowest since 1975. The ILO jobless rate came in at 4.5% in the three months to May versus 4.9% in the same period a year earlier. The expected rate was 4.6%.

Including bonus, average weekly earnings for employees increased by 1.8% in May on a yearly basis, in line with expectations. Meanwhile, average earnings excluding bonus rose 2% compared with a year earlier, above estimates for a 1.9% growth.

The pound was quoted at USD1.2889 at the London equities close, firm compared to USD1.2850 at the London equities close on Tuesday.

"We doubt that this month's wage increase will be enough for the majority of Monetary Policy Committee members to hike rates on August 3, the next Bank of England meeting," said Kathleen Brooks, research director at City Index.

"However, if we get another month of decent wage data, even if jobs growth falls back, then it could set the scene for some BoE tightening late this year, something that the market is not expecting," noted Brooks.

The pound took back earlier losses, having taken a hit prior to the UK job report, as BoE Deputy Governor Ben Broadbent said he is not ready to support a lift to UK interest rates, Scottish newspaper The Press & Journal reported following Broadbent's visit and speech in Aberdeen on Tuesday.

The newspaper cited Broadbent saying there are currently too many "imponderables" in the UK economy. Nevertheless, the Monetary Policy Committee member said "there is reason" to see the MPC moving toward voting for higher interest rates, although not just yet.

"Broadbent this morning appears to have joined Governor Mark Carney in stating that it's not the time to raise interest rates. Broadbent was being seen as the proxy for whether the consensus has shifted and his comments today... suggest there may still be some way to go, although future votes are likely to be very close," said Oanda market analyst Craig Erlam.

In mainland Europe, the CAC 40 index in Paris ended up 1.6%, and the DAX 30 in Frankfurt closed 1.5% higher.

Eurostat data showed that eurozone industrial output grew 1.3% on a monthly basis in May, faster than the revised 0.3% increase seen in April and ahead of the expectation for a 1% gain by economists. This was the fastest growth since November 2016, when output grew 1.6%.

On a yearly basis, industrial production growth accelerated to 4% in May from 1.2% in April. Economists had forecast 3.5% increase in production.

The euro was quoted at USD1.1413 at the European equities close, barely changed from USD1.1427 at the European equities close on Tuesday.

In the US, Federal Reserve Chair Janet Yellen's closely-watched testimony before the US Congress was a non-event.

Yellen, in prepared remarks, reiterated that "with further gradual adjustments in the stance of monetary policy, the [US] economy will continue to expand at a moderate pace over the next couple of years".

"The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices," said Yellen.

Following the strong employment report seen on Friday, Yellen noted the "improving conditions" in the US job market.

The Fed Chair reiterated that the US central bank intends to gradually reduce its balance sheet, although she said the Federal Reserve does "not intend to use the balance sheet as an active tool for monetary policy in normal times".

Wall Street was higher at the London equities close, with the Dow Jones Industrial Average and the S&P 500 index both up 0.6% and the Nasdaq Composite up 0.9%.

Back in London, mining and oil companies helped the FTSE 100 recover the ground lost on Tuesday.

Mining stocks benefited from higher base metals prices, with the FTSE 350 Mining sector index up 1.6%. Meanwhile, BP closed 1.9% while Royal Dutch Shell 'A' shares ended 1.8% higher as they both rose on higher oil prices.

Crude oil prices got a boost overnight after data from the American Petroleum Institute showed late Tuesday an 8.1 million barrel fall in US inventories in the week ended July 7.

The North Sea benchmark was quoted at USD47.68 a barrel at the London equities close compared to USD47.16 a barrel the same time Tuesday.

In addition, BP Chief Executive Bob Dudley said the oil market is "pretty much" in balance. Speaking at an industry conference in Istanbul, Turkey, Dudley added that while he expects inventories to fall towards the end of the year, a big rise in the oil price can't be expected, the New York Times reported.

The gold price stood at USD1,220.57 an ounce at the London equities close, compared to USD1,214.32 late Tuesday.

Meanwhile, Burberry Group gained ground after closing up 2.3%, as the luxury fashion retailer reported first quarter results that beat Swiss bank UBS's expectations.

Burberry's retail revenue in the three months to June 30 rose by 13% year-on-year to GBP478.0 million, boosted by favourable foreign exchange rates when overseas sales were translated back into the weak pound. On an underlying basis sales grew by 3%, while like-for-like sales increased by 4%.

Meanwhile, Micro Focus International ended at the bottom of the blue-chip index, down 7.0%, after the software firm's annual results failed to impress the market ahead of its USD8.80 billion reverse takeover of Hewlett Packard Enterprise Co's software arm.

Pearson shares took another hit, down 4.2%, following the 5.9% decline on Tuesday, when the education giant announced the sale of a 22% stake in its Penguin Random House joint venture to partner Bertelsmann for net proceeds of USD1 billion, of which it plans to return GBP300 million to shareholders.

Liberum analyst Ian Whittaker had highlighted the fact that Pearson is "only" returning GBP300 million, sending "a signal that it is concerned over its future balance sheet position, despite its statements to the contrary".

Panmure Gordon cut its rating on Pearson to Sell from Hold, saying the education giant's updated dividend guidance "takes away any yield support for the stock" and its valuation looks expensive compared to peers in the media sector.

Helliwell said Pearson's updated dividend guidance suggests a payout of around 15 pence for 2017, rising to an estimated 18p at the most by 2019. Pearson declared a dividend for 2016 of 52p, flat year-on-year.

In the FTSE 250 index, Carillion shares nosedived for a third consecutive session, down 10%. The stock has more than halved since the facilities management and construction services company issued a profit warning on Monday and reported the departure of Chief Executive Officer Richard Howson.

Highlights in the UK corporate calendar on Thursday are trading statements from Babcock International Group, online fashion retailer ASOS and Premier Oil.

In the economic calendar, Japan industrial production is at 0530 BST, while the eurozone trade balance is at 1100 BST. In the US, retail sales are at 1330 BST, together with consumer price index. Industrial production is at 1415 BST while the Michigan consumer sentiment index is at 1500 BST.