US labour market data reverses early European gains
Insurers lead FTSE 100, Experian a drag
Dollar slumps on reduced chance of a US rate hike
Gold rallies, crude dumps after US jobs miss
UK & Europe
Early gains in Europe swiftly turned to losses at precisely 1.30pm London time when the US unemployment report disappointed expectations of an acceleration in jobs growth. The weak US jobs report reinforces the pervasive fear across the market of a slowing global economy. Even emerging markets weren’t that impressed despite the reduced chance of a US rate hike this year that could stem capital outflows from the likes of South Africa and Brazil.
Strength amongst basic resource and insurance shares shielded the FTSE 100 from the kind of US unemployment-induced weakness seen on the continent. Gold-mining shares Randgold (LONDON:RRS) and Fresnillo (LONDON:FRES) were notable risers alongside the precious metal itself which rose as the US dollar fell.
The 180 degree reversal in stock prices was best seen in banking shares which went from leaders of the FTSE to laggards.
Early on the financial sector led the gains on the FTSE 100 with banks bolstered by a proposal by the FCA to put an end date on PPI claims. The various legal settlements for the share price of banks are like holes in the hull of a ship; every time one gets plugged up, it has a better chance of moving again. There are probably plenty more settlements to come for banks with Barclays (LONDON:BARC) about to pay $175m for CDS mis-selling, but PPI is a big one shareholders would be glad to see the back of.
The US jobs report leaves banks faced with the prospect of a longer period of low interest rates which reduces margins on the traditional lending business.
Legal and General led gains across insurers after it announced a bulk annuity contract to provide retirement payments with a US subsidiary of Royal Philips.
Experian was bottom of the FTSE after the credit agency announced its servers containing details of T-Mobile customers were hacked. Data breaches and hacks are now a fact of life but Experian’s leak is particularly disturbing because it has lost another company’s data. The scary thing is that when you share your personal data with a company, not only do you have to trust they won’t lose it, but you have to trust all the companies they share your data with too.
US
US stocks plunged on the open with the Dow Jones falling triple digits and the 10yr treasury yield falling below 2% after a weaker than expected US jobs report.
US non-farm payrolls saw 142k jobs created in September, lower than the average 203k forecasted and on par with the downwardly revised 136k in August. Average earnings were flat on the month against expectations of a 0.2% rise, down from a 0.3% rise last month. The unemployment rate remained at 5.1% but the participation rate fell to a fresh 38 year low.
While FOMC voting members including Fed Chair Yellen insist on saying there will be a rate hike as early as this year; markets can’t look to loose monetary policy in the future as a reason to move higher. If rates are to move higher, the only justification for a rising stock market is higher corporate earnings which typically come along with a stronger economy. These latest job figures show a weakening economy just as the Fed intends to hike rates.
Bank shares were some of the worst performers with Bank of America (NYSE:BAC) down over 4% as the idea of higher margins in a rising interest rate environment was eroded.
FX
The dollar collapsed against most major currencies after the September jobs reports missed expectations.
The pound strengthened after UK construction data came in ahead of expectations, going someway to offset the slowdown in manufacturing.
The euro fell early on after producer prices in the Eurozone were reported to have fallen by -2.6% YoY in September versus expectations of a -2.4% drop. The bigger than expected negative PPI data comes just after a surprise negative print for CPI and will put more pressure on the European Central Bank to ease monetary policy further. The US data however undid early losses to put the euro almost 1% higher as the dollar weakened.
It was notable that the euro rallied against the pound on the weak US jobs data that reduced the chance of a rise in US interest rates. Strength of the pound is being diminished on the idea that the Bank of England is waiting for the Federal Reserve to hike first.
A rise in Japanese unemployment sent the yen slightly lower against the pound and euro but weak US economic data put USD/JPY back below 119.
Commodities
Having seen a big bearish one day reversal on Thursday, oil prices were weak with both Brent and WTI lower after a US jobs report that darkens the outlook for global growth and oil demand.
Gold prices soared, coming off a five-day losing streak, erasing losses from the past three days, as demand for yielding assets sunk on the reduced chance of a US rate hike following the surprise deceleration in US job creation.
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