FTSE lower in calm trading ahead of NFP
The FTSE has kicked off the final trading session of the week on the back foot. The index struggled after a mixed finish in the US and a choppy session in Asia. Meanwhile a stronger pound overnight also weighed on the FTSE on the open.
Construction activity to have slowed in January
The morning session is expected to be a relatively muted affair ahead of the highly anticipated US Labour Department jobs report at 13:30 GMT this afternoon. Prior to the release in the US, investors will be looking out for the UK construction PMI this morning. Construction activity is forecast to have fallen in January to 52, down from 52.2 in December. Given the miss in the manufacturing PMI yesterday and the general struggles of the construction sector in the face of Brexit uncertainties, a miss today might not be so surprising.
Bargain hunters pick up Capita
Capita (LON:CPI) is back on radar of some investors this morning, after its huge selloff on Tuesday, amid concerns over profits and the complexity of the business. Shares in Capita were up 5% in early trading as bargain hunters took note of an upgrade from Morgan Stanley (NYSE:MS). Despite to move to equal weight by the investment bank, this trade certainly still has a fair amount of risk attached to it. There is a nervousness in the sector as a whole, but CEO Jonathon Lewis is perhaps considered best placed to turn this ship around after similar experience at Amec Foster Wheeler. The fact that Lewis is wasting no time is leading investors to believe that Capita may have been caught just in time.
US non-farms in focus
Looking ahead to the US, the non-farm payroll report will be the central focus. Analysts are expecting a further 180,000 jobs to have been added in January, up from 148,000 in December. However, given that unemployment is forecast to remain at the historically low level of 4.1%, investors are more likely to once again focus on the average earnings growth.
One of the big surprises last year was that wage growth softened despite low and falling unemployment. Wages are beginning to gain some traction, but very slowly. Average wage growth is forecast to tick up on annualised basis to 2.6%, from 2.5% in the previous month. Earnings in January could get a boost from the increase in minimum wage in many states at the beginning of the year. This should result in a strong reading today.
Potential dollar reaction
The dollar has continued on its downward trajectory for much of the week, coming under pressure despite strong data, rising inflation expectations and a slightly more hawkish Fed. After another selloff in the previous session the dollar appears to have bounced off a low of 88.65 versus a basket of currencies, and is on the rise heading towards the NFP release. Whilst we are not expecting a surprise to the downside, should the jobs data disappoint then a hard sell off into the weekend will almost certainly be on the cards. On the other, a solid NFP could see the dollar push back towards 89.00.
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