UK and Europe
It hasn’t been the best start to the new quarter for European shares which fell to the lowest in a month, matching a similar decline in the price of oil.
Markets made back some of the early losses as nervousness before the US jobs report turned to relief once the data was released, but remained well lower on the day.
It may have taken April Fools’ Day for investors to question whether we’re in a fool’s rally. The greater fool theory states posits that investors will often buy overpriced stocks in the belief they can sell it to the “greater fool” at a higher price.
Markets have been reassured by the dovish tone of Fed Chair Yellen and the resulting weakness in the dollar. The US labour market is in good shape and the strong US jobs report has for now wound back some of the dollar’s recent sharp decline by bringing June back on the table for a rate hike.
The FTSE 100 outperformed its mainland counterparts which are suffering the added blow of the strongest euro in five months against the dollar and since 2014 against the pound, a blow to Europe’s export-orientated economies.
Shares of Sainsbury’s (LON:SBRY) dropped, but rebounded off the lows after Home Retail Group (LON:HOME) accepted the supermarket’s £1.4bn takeover offer. The “multi-product / multi-channel” idea of a combined Sainsbury / Argos (LON:ARGR) as well as some favourable financing has seen markets react favourably in the lead up to the deal. The sell-off in Sainsbury’s shares today is really just a function of a weak broader market and a bit of buy the rumour, sell the fact.
Royal Mail (LON:RMG) was one of the biggest fallers as the delivery service prepares to face another stand-off with unions after talks came to no conclusion.
US
US stocks were essentially unchanged after a better than expected jobs report lifted hopes of an acceleration in the US economy but also made June back into a “live” meeting for the Federal Reserve and a possible rate hike.
The US produced 215k jobs in March, a slowdown from the 240k in February but higher than the 205k expected. Average earnings gained 0.3% month-over-month, stronger than the 0.2% expected. The positive data belies a worrying trend beneath the surface as manufacturing jobs dropped by the biggest amount since 2009. It the low-paid service jobs which are replacing high-skilled manufacturing jobs that goes a long way to explain the sluggish US wage growth.
Shares of Tesla (NASDAQ:TSLA) jumped as much as 5% after the company revealed its new electric car designed for the masses. Tesla has the brand and the technology, investors are hoping this new lower priced model will bring the volume of vehicle sales to bring about a profit.
FX
The US dollar mostly strengthened on Friday after the March non-farm payrolls beat expectations. The data painted a picture of a US economy which is ticking along nicely but not at any rate that’s likely to have Fed Chair Janet Yellen second-guessing her recent dovish commentary.
The euro touched 0.80 to the pound for the first time since December 2009 after PMI data showed European manufacturing slowing less than expected whilst growth in UK manufacturing was beneath expectations.
Commodities
The suggestion that Saudi Arabia will not freeze oil production if Iran doesn’t do the same coupled with a stronger dollar has taken a sledge hammer to the two pillars of recent oil market strength. The price of Brent crude dropped to a three-week low, adding credence to the idea of a short-term top at $42 per barrel.
The comments from the deputy crown prince of Saudi Arabia are some of the clearest yet that his nation is going to take a very hard-line approach to Iran and its planned output expansion. It’s becoming increasingly apparent that Saudi Arabia’s desire not to give up market share to Iran trumps any desire to cooperate with other nations on a production freeze.
The return of dollar strength sent gold and silver lower by over 1.5% and 3% respectively.
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