Equities
European equities finished the week on a downbeat note, with most major indices ending both the day and the week lower. Rising political risk in Europe is seeing funds flow to the US where companies potentially stand to benefit from lower taxes and regulation under Donald Trump.
After substantial gains this week, the energy sector dropped on Friday, weighing on the FTSE 100, though gains in homebuilders and REITS limited the damage after well-received results from Berkeley Group.
Berkeley Group shares rose by over 4% after the homebuilder reported profits rose by over a third. Any concern over the 20% drop in property reservations, which Berkeley is blaming on the rise in stamp duty on buy-to-let landlords, was offset by revamped share buyback plans.
Some of the perceived ‘haven’ areas of the stock market saw some interest as protection against the possibility of volatility brought on by the Italian referendum. Tobacco shares including Imperial Brands (LON:IMB) and BAT (LON:BATS) saw gains, coinciding with the release of new vaping devices to compete in the growing e-cig market.
US stocks were mixed in early trade after a disappointing November unemployment report that is nonetheless unlikely to stop the Federal Reserve from raising interest rates this month.
There have been some clear signs of sector rotation in the US stock market from growth to value and more specifically from tech to financials. Just this week, shares of Bank of America (NYSE:BAC) have risen over 3% while shares of Facebook (NASDAQ:FB) are down over 4%.
FX
US dollar was slightly weaker on Friday after a disappointing US unemployment report that saw the number of jobs created in November come in slightly below expectations while the October figures were revised lower. Wages also saw a surprising drop over the month. Payrolls jumped by 178k in November, up from the downwardly-revised 142k in October but below the 180k average forecast. Average earnings fell -0.1% when a rise of 0.2% was expected after a 0.4% rise in October.
The euro was the notable laggard as traders sold temporary strength after the US unemployment report ahead of this weekend’s Italian referendum. EUR/USD has dropped 3.1% since October 31 which compares with a 2.3% drop in the US dollar index. Most of the decline in the euro has been a reflection of dollar strength, not uncertainty over the Italian referendum.
The British pound and Japanese yen were up in equal measure after the US data, with a bigger than expected improvement in UK construction data helping pound strength at the margins.
Commodities
An afternoon rally helped the price of oil recoup some the correction that began yesterday afternoon. News from OPEC and non-OPEC producing countries with regard to the output cut remains fairly positive. The price is teetering around one-year highs before the deal is finally signed off with the commitment from non-OPEC producers next Friday. Once the non-OPEC producers sign-up, it should be clear blue skies towards $60 per barrel.
Gold recovered slightly from its lowest levels since January on Friday after a mixed US unemployment report. Gold is looking oversold but when sentiment shifts in precious metals that can persist surprisingly long.
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