FTSE 100 ends higher but Wall Street dithers after mixed jobs report

  • FTSE 100 adds 18 points
  • Travel stocks lifted by red list news
  • Wall Street mixed after jobs report

5.10pm: Footsie still positive at the finishing line

The FTSE 100 index ended the week firmer but off its highs after the much-watched monthly non-farm payroll numbers showed the US economy only added 194,000 jobs in September, although the unemployment rate fell to 4.8% as the coronavirus Delta variant and a tight labor market held back hiring.

US employers were expected to have added 490,000 jobs in September, up from 235,000 in August, which was also a big miss on the forecast last month.

At the close, the UK blue-chip index was 18 points, or 0.25% higher at 7,096, after peaking at 7,109 earlier in the session.

The more UK plc focused FTSE 250 shed 23 points, or 0.1% to 22,536.

“Some of the rampant bullishness of earlier in the week has been checked after yet another stumble for US job creation in today’s non-farm payrolls,” IG chief market analyst Chris Beauchamp said.

“Once more the big number has come in well below forecasts, proving that attempting to predict the flight path of an economy recovering from a pandemic is quite the tricky thing.

“Unfortunately for markets, a miss like today’s was the outcome least desired, since the Fed is on course to taper anyway, and it doesn’t look like today’s figure comes anywhere close to the kind of scary figure that might provoke Powell into swerving course at the last minute.

On Wall Street by London’s close, after a shaky, start the Dow Jones Industrials Average was 14 points, or 0.04% higher at 34,769, with the broader S&P 500 index down 0.02%, while the tech-laden Nasdaq Composite lost 0.31%.

4.05pm: Footsie running out of breath

London is the pace-setter for global markets, a position it’s not that used to in recent times, with the FTSE 100 just breaching a one-week high but starting to run out of breath already, up 25 points at 7,102.

Markets in Europe are mixed, while in New York, the Dow and S&P 500 are just dragging their heads above water, while the heavy metal of the Nasdaq tech giants keeps them submerged.

The Footsie’s own heavy commodities headbangers are what’s driving things, with Shell and BP topping the leaderboard, and miners Anglo American, BHP and Antofagasta all doing their bit, further down the list.

After bouncing back strongly yesterday, oil prices are trading back near their highs from earlier in the week.

“Clearly, energy traders don’t view the crisis as being magically resolved as a result of Putin’s comments on Wednesday,” said market analyst Craig Erlam at Oanda, with the Russian leader having suggested his country can stabilize the energy market, though the comments were far from a firm commitment.

“Natural gas is still a little over 10% off its highs but it had made extraordinary gains in the weeks leading up to Wednesday, so this is a little more understandable.

“Ultimately, the decision by OPEC+ not to increase output targets at the meeting earlier this week is a major tailwind for the rally and we’re not seeing any loss of momentum at this stage. With the energy crisis contributing an additional 500,000 barrels in daily demand for crude, it’s hard to imagine prices not hitting higher levels.”

Overall, though Erlam felt it was a bit of a flat end to an otherwise eventful week, where investors have whipsawed between panic and optimism.

“Massive vulnerabilities remain in the markets and even the two big success stories this week – debt ceiling and Russia’s gas offer – are far from a solution. That hasn’t stopped investors from celebrating them like a major victory, of course, while blissfully ignoring the multiple other downside risks to the outlook. Some things never change.”

Other risers in London include BA owner IAG, hotel operators Whitbread (LSE:WTB) and InterContinental Hotels (LSE:IHG), DIY retailer Kingfisher (LSE:KGF), and seemingly everyone’s bargin stock pick in recent months, Rolls Royce.

The FTSE 250 meanwhile is still mooching around on the back foot, with tour operator TUI (LSE:TUI) bottom of the list after its EUR1.1bn rights issue.

3pm: London outpacing New York

The Footsie is reaching its highest points of the session, topping 7,070 in the past few minutes, while Wall Street’s main indices have opened in the red.

Both the broad-based S&P 500 and the tech-powered Nasdaq jumped both sides of the flat line in early trading but by the end of the first half hour, they and the Dow Jones were not much moved from where they finished last night, as investors read the runes of the NFP report.

Reactions to the US jobs data are flowing in, to help them.

“This swing and miss for the US will come as a real disappointment to the Fed,” said Robert Alster, chief investment officers at Close Brothers Asset Management. “Consumer confidence is low and the leisure, hospitality, and retail sectors continue to struggle. All hopes were pinned on a substantive recovery in hiring close to the 500k market consensus to get the economy back on track. Instead, hiring is a mere 194K. However, health data has improved since the middle of September, and the benefit of earnings growth of 4.6% will be felt once inflation slows from current super-high levels. Nonetheless, this data print undermines the case for the Fed had of scaling back its stimulus programme this side of Christmas.”

With Fed head Jerome Powell having said he believes the economy is one “decent” jobs report away from meeting the US central bank’s threshold for tapering its quantitative easing programme, Andrew Hunter at Capital Economics said while “disappointing”, the payrolls number “probably still counts as ‘decent’ enough for the Fed to begin tapering its asset purchases next month”.

“But alongside signs that activity growth is slowing sharply, at the same time as worsening labour shortages are putting serious upward pressure on wage growth, the report looks set to leave Fed officials in an uncomfortable position.”

But delving deep into the data it was “a very mixed bag,” said Ian Shepherdson at Pantheon Macroeconomics, noting that the headline non-farm payrolls number was depressed by a 123K drop in government employment, all in the education sector, while private payrolls rose 317K, with an upward revision of 107K, making 424K net, which is still almost 200K less than expected, which “well within the margin of error”.

He said the hit to jobs from the Delta variant is “clear and substantial”.

2.23pm: ‘Feeble’ data

Stocks in London and around Europe are mostly positive, with US stock futures wavering ahead of the Wall Street market open, following the less-then-expected US jobs report.

Overall, the non-farm payrolls report, one of the biggest items of global macroeconomic data for the month, was mixed, with the top-line figures coming in short but other measures, notably wage growth, suggesting the labour market is tightening.

In an instant reaction, Naeem Aslam, chief market analyst at Avareade.com said: “Today’s US NFP data has made it clear that tapering isn’t necessary currently as the country’s labour market is still massively fragile. The data has broken the back of the dollar index and this pushed the gold price higher.

“As for the equity markets, the feeble economic reading isn’t so much of good news but at the same time traders will find some comfort in the fact that Fed isn’t going to tighten their belt anytime soon.”

Tech stocks on the Nasdaq are expected to enjoy the best start, with a 0.5% rise on futures markets, while the S&P 500 and Dow Jones are seen rising 0.3% and 0.1% respectively.

The FTSE 100, however, is showing some are taking confidence from the news, with the index up 20 points or 0.3% to 7,098.

1.39pm: NFPs not as good as hoped

The NFP data is out and it’s well short of expectation.

Last month saw the US economy add 194,000 jobs, down from the 366,000 a month earlier and also comparing badly with the average forecast of around 500,000.

The US Bureau of Labor Statistics revealed that the unemployment rate improved to 4.8% from 5.2%, which was better than the 5.1% predicted.

Average earnings were 0.6% higher than the preceding month, which was also stronger than the 0.4% consensus and up from a revised 0.4% in August. Compared to last year, average hourly earnings were up 4.6%, as estimates indicated.

The dollar has improved slightly against the pound but forex traders are not really sure what to make of it all yet, with the EUR/USD dancing this way and that.

FTSE traders are also undecided, it seems, and will probably wait until Wall Street shows them what to do.

1pm: Crouching markets, hidden data

In the very best tradition of non-farm Friday, traders are keeping their powder extremely dry, with the FTSE 100 and 250 both pretty much flat as a dodo.

“Markets anxiously await today’s NFP employment report from the US which is expected to show an increase of 500K jobs and could be crucial for the next Fed decision,” says Walid Koudmani, market analyst at XTB.

However, Wall Street futures are pointing to all the indices continuing their rises from yesterday, which doesn’t seem that anxious with just over half an hour to go before the big reveal.

Assuming the NFP number come in close to consensus, says ING’s James Knightley, “we can be pretty sure that the Federal Reserve will announce the tapering” of its quantitative easing programme’s purchases at the next meeting on 3 November.

“Indications from officials suggest they want this concluded by the summer, which implies a reduction in asset purchases of $15bn each and every month starting from December. The coming week’s data shouldn’t change this outlook,” he added.

12.10pm: More pain for UK households

British households are likely to see a further “significant” rise in energy prices when the new price cap is set in April next year as a result of the unprecented increase in gas prices, the power regulator has warned today.

Domestic customers are already facing a GBP139 increase to their annual energy bill following the latest cap, which came into effect on 1 October.

Gas prices are six times higher than a year ago and have more than doubled in the last month, noted Ofgem’s chief executive, Jonathan Brearley, speaking at the Energy UK annual conference.

“It is hard to predict how long gas prices will stay high, but we do expect continued significant upward pressure on prices as a result,” he said.

Brearley said the price cap will have to adjust over time to reflect the recent changes to fuel costs (read more here).

Meanwhile, and not totally unrelated, Drax Group’s renewable energy plant in Yorkshire is the biggest single emitter of carbon dioxide in the UK, according to new research.

Climate think tank Ember said the Selby biomass plant is among the biggest sources of carbon dioxide and PM10 air pollution of all EU power stations, when biomass emissions are included (read more here).

11.31am: Searching for direction

The FTSE has climbed back into positive territory despite a cautionary report from the Bank of England‘s Financial Policy Committee.

Some asset valuations “appear high relative to historical norms”, the report said and “could correct sharply” if investors review prospects for economic growth, inflation or interest rates.

“There are signs of continued loosening in underwriting standards and increased risk-taking in some investment banking businesses,” it added.

The committee said there was “evidence that investors are taking higher levels of risk in some global markets”, citing an example of fewer protections being in place when investors lend to companies with high levels of debt in ‘leveraged loan’ markets.

“We are monitoring these risks closely. We are also working with UK and other international authorities to make market-based finance more resilient to shocks, so that financial markets can support the economy in bad times as well as good.”

Cryptocurrencies also got a shout-out from the FPC, though they said while crypto markets continue to grow rapidly they “currently pose limited risk to UK financial stability”.

Crypto regulation “needs to develop quickly”, however, the committee said, to address the risks digital assets “could pose in the future”.

The Footie is up 5 points at 7,084, while sterling mounts a rally, up 0.1% against the dollar at 1.3633, reversing earlier losses.

10.37am: FTSE flips into the red

The Footsie has dropped into the red, as the early momentum in London has well as truly disappeared back to bed.

Similarly, UK consumer confidence had sunk to the lowest level since February as confidence in economy drops, according to the Bank of America (NYSE:BAC) survey just out.

“European markets are struggling to maintain the positive momentum seen yesterday, with stocks largely treading water ahead of the latest US jobs report,” said Joshua Mahony, market analyst at IG.

“While payrolls figures typically serve to highlight how willing businesses are to hire new employees, this time around is it less about their willingness but more their ability to find candidates at a time when vacancies are at a record high. The business environment is understandably tough when looking at the availability and cost of materials, but labour appears to be a similar story of late.”

Fellow analyst Neil Wilson at Markets.com, wondered if market momentum was “flipping in favour of bulls” and whether the supply chain-stagflation worry might have peaked.

“Maybe, but rising rates could undermine the big weighted tech sector in the near-term and it is unclear whether there is enough appetite among investors to go more overweight cyclicals when the macro outlook still seems somewhat cloudy in terms of growth, policy and inflation.

“Next week is earnings season so we either get more bullish conference calls for the coming quarters or a bit of sandbagging re supply chain issues, inflation – for the index a lot will depend on whether the C-suite is confident or cautious about their outlooks.”

Top fallers on the FTSE are currently AVEVA Group (LSE:AVV), the industrial software specialist, and cardboard box makers Mondi (LSE:MNDI) and DS Smith (LSE:SMDS).

9.44am: Royal Mail pushes the envelope

The early gains for London’s benchmark index have mostly been wiped away as traders hunker down for the big US jobs report later.

“On Friday the FTSE 100 consolidated its gains from yesterday but investors appeared to be marking time ahead of the key US jobs report later,” says AJ Bell investment director Russ Mould.

“A really weak number might just put the US Federal Reserve off tapering its support for the economy as expected in November.

“However, its scope to do so is being rapidly narrowed as inflation rises more quickly than expected, driven by soaring energy costs and post-pandemic shortages, and also proves to be more entrenched than the consistent message from central banks about ‘transitory’ inflationary pressures suggested.”

Like the FTSE, Royal Mail PLC (LSE:RMG) has seen its early gains fizzle away, having initially received a warm welcome for its latest overseas acquisition, a GBP210.5mln swoop for one of Canada’s largest freight carriers.

Rosenau Transport, which will be integrated into Royal Mail’s GLS business, owns 24 owned facilities in four provinces, which will almost double GLS’s number.

Royal Mail also launched a drive to take on 20,000 Christmas workers in the UK.

Of the Canadian deal, Mould said: “Arguably this is the part of the group with the most potential and it is not faced with the same level of structural issues as its UK-based business.

“As GLS becomes an increasingly significant part of the business the case for demerging it from the UK letters and parcels operation may gather strength.

“While the UK arm has benefited from Covid and an increase in the volume of parcels being sent due to the e-commerce boom, it is lumbered with a structurally challenged letters operation, large pension liabilities and substantial cost base.

“Costs are likely to see upwards pressure in the near-term as the company launches its seasonal recruitment drive, with the business impacted by wider staffing shortages in the economy.”

8.34am: Solid start to session

The FTSE 100 surprised to the upside in early trading on Friday, skipping 17 points or 0.25% higher to 7094 rather than making the subdued start expected.

Leading the gains were blue-chip stocks related to travel and energy themes, with British Airways owner IAG (LSE:IAG) top of the leaderboard and aeroplane engine supplier Rolls-Royce (LSE:RR.) not far behind.

The sector was being lifted as the number of countries on the UK’s red list was slashed, with only Panama, Colombia, Venezuela, Peru, Ecuador, Haiti and the Dominican Republic now facing the toughest quarantine restrictions.

Royal Dutch Shell (LSE:RDSB), a day after saying that soaring gas and power prices will significantly boost its cashflow in the third quarter, and rival BP (LSE:BP.) were also near the top.

After wild swings earlier in the week, gas prices have retreated to levels that are “still insanely high” but at least lower, says market analyst Marshall Gittler at BDSwiss.

“Despite the fallback in gas prices, oil managed to climb even further after the US Energy Department said that it has no plans ‘at this time’ to tap the nation’s oil reserves nor to ban exports of crude oil.

“That followed remarks the day before from Energy Secretary Granholm that “all tools are on the table” to counter surging gasoline prices.”

Among the main fallers were miners Antofagasta (LSE:ANTO) and Glencore (LSE:GLEN), together with housebuilders Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV).

However, London’s positive mood follows similar upbeat sentiment in Asia, as China returned from its long holiday and the Caixin services PMI printed a surprise expansion in activity in September.

“All eyes are on today’s US jobs data,” says market analyst Ipek Ozkardeskaya at Swissquote, with the US ADP employment report earlier in the week giving investors hope that we may see a strong Non-Farm Payrolls report today too.

“The data is important because it will help with shaping expectations on what the Federal Reserve (Fed) could do next. We all know that the Fed is about to announce a start date for tapering its bond purchases, and reasonably soft data won’t get the Fed to change its mind. Only a shockingly low figure could do that – a figure below 100,000 for example, which would warn of an alarming slowdown in US labour market recovery.

“But even then, the Fed can’t do much, given that the latest spike in energy prices continues boosting inflation expectations, and the high inflation needs to be addressed quickly, perhaps more quickly than the depressed jobs market.”

6.40am: Subdued start predicted

US jobs data for September is due out later today and to the surprise of few, traders appear hesitant to commit ahead of the release.

Spread betting quotes indicate the FTSE 100 will open little changed, despite a storming session for US equities yesterday.

The Dow Jones average surged 338 points to close at 34,755 while the S&P 500 hit 4,400 with a 36 point gain.

Weekly jobless claims dropped to 326,000 last week from 364,000 the week before, reversing much of the increase in recent weeks, which Pantheon Macroeconomics thinks was triggered by Hurricane Ida.

Pantheon is expecting today’s jobs number for September to be +600,000, with the unemployment rate little changed, “though much depends on whether labour participation rebounded”.

The market consensus is for an increase in payrolls of around 500,000, with an unemployment rate of 5.1%.

The return of several hundred thousand relatively low-paid people into leisure and hospitality jobs should limit the increase in hourly earnings to 0.3%, according to Pantheon; the consensus forecast is for a 0.4% increase in hourly earnings.

In Asia this morning, Japan’s Nikkei 225 is up 483 points at 28,161 but Hong Kong’s Hang Seng is off 65 points at 24,636.

“Japan has formally pencilled in October 31st for a snap lower house election. Newly installed Japan Prime Minister Kishida has also announced instructions to his cabinet to compile economic stimulus measures for an extra budget to be submitted after the election. Following a positive debt sticking plaster session from Wall Street equities, news that the hoped-for fiscal goodie bag has been confirmed has seen the Nikkei 225 soar by over 2.0% this morning. I do note though, that the Nikkei is now as subject to the fast-money whims as US markets these days, and a very high Non-Farm print tonight could evaporate today’s rally on Monday,” opined Jeffrey Halley at Oanda.

“China markets have returned from a week-long holiday and inevitably Evergrande, and what to do with it, will resurface once again. Another medium-sized China property company defaulted on an offshore bond this week, and there is no sign of Evergrande or its subsidiaries, US Dollars for offshore holders of debt so far either. That said, the whole mess is likely to be overshadowed today by the Caixin Services PMI, which rebounded sharply in September to 53.4, as Covid restrictions were eased. The Composite PMI rising to 51.4 as a result. With markets this week having an investment horizon as far as their big toes, the short-term positives from the PMIs are lifting Mainland equities higher to start the day,” Halley reported.

The Shanghai Composite was up 9 points at 3,577.

On the corporate scene in the UK, Electrocomponents PLC (LSE:ECM) ends the week with a trading update coming after an impressive 37% jump in revenue in the first quarter.

The distributor of industrial and electronics products continued to see good market share gains across its key regions, thanks to its product availability, strong service solution and digital offer compared to the smaller competition.

“Management back in July was guiding to a slowdown in top-line growth in the balance of the year due to a combination of supply chain constraints reducing product availability and customer demand. We see no reason for this to have changed since then,” said Peel Hunt.

Around the markets

  • Sterling: US$1.3600, down 0.16 cents
  • 10-year gilt: 1.082%, up 0.65 basis points
  • Gold: US$1,757 an ounce, down US$2.20
  • Brent crude: US$82.92 a barrel, up 97 cents
  • Bitcoin: US$53,742, down US$463


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