The shaky initial reaction to the much stronger than expected US payrolls has continued with mixed progress for equities on Monday. The EM-focus amongst top flight UK stocks is helping the FTSE 100 edge out small gains but European benchmarks are all lower.
The raised prospect of a US rate-rise in December has so far affected the internals of the major averages more than the overall direction. Financials including UK banks Barclays (L:BARC) and HSBC Holdings PLC (L:HSBA) are rallying as investors expect better lending margins once rates rise. Property companies such as Intu and utilities like Severn Trent (L:SVT) are sinking since higher rates will increase the cost of purchasing a mortgage and the cost of servicing high levels of corporate debt will rise.
The surprisingly stable reaction in Asian markets to the idea of a US rate-rise brought on by the strong jobs report has helped Asian-focused Aberdeen Asset Management and Standard Chartered (L:STAN) top the FTSE 100. Mining companies are also amongst some of the top risers. Chinese regulators announcing a resumption of IPOs appears to have outweighed concerns over a US rate hike. The strong dollar has weakened the Japanese yen in a boost to the exporters listed on the country’s benchmark Nikkei stock index. Nobody wanted to touch stocks exposed to emerging markets heading into Friday’s NFP, so with Asian markets holding up post-report, traders are piling back in.
US stocks look set for a weaker start on Friday. With a 2015 rate hike now looking more likely than not and after six straight weeks of gains for the Dow Jones and S&P 500, there’s a lot to be said for taking some profits off the table. The relatively calm initial reaction to the strong jobs report suggests the uptrend can remain intact but is just due a correction. There just needs to be enough confident dip-buyers to match those taking profits to stop a minor correction turning into another August-style rout.
USA pre-opening levels
S&P 500: 8 points lower at 2,091
Dow Jones: 71 points lower at 17,839
Nasdaq 100: 13 points lower at 4,694
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