Europe
The FTSE 100 is marginally in positive territory and even though it was buoyed along by the US non-farm payrolls report, it still hasn’t negated the downward move it has been in since late May. It has been largely a sideways week for the London benchmark and with few big name companies reporting their figures, traders haven’t had much to get excited about.
Eurozone equity markets are having a tougher time as it was revealed yesterday the European Central Bank (ECB) contemplated leaving out the promise to keep buying governments bonds. The extremely loose monetary policy of the ECB is aiding the eurozone economy, but it encouraged speculators to drive up asset prices, and now we are seeing some traders take money off the table.
The owner of British Gas, Centrica (LON:CNA), is higher on the day as there is talk of them being a target for a takeover. There is speculation that the offer price could be as high as 300p, which is a considerable premium to the current price of 208p. The prospect of a takeover will be welcomed by shareholders as the stock has been drifting lower since 2013 - when it was just over 400p.
EasyJet (LON:EZJ) was upgraded from neutral to outperform by Credit Suisse (SIX:CSGN), and the price target was raised from 1278p to 1583p. The stock is trading at 1413p, up nearly 5%.
US
The Dow Jones and the S&P 500 are up 0.2% and 0.3% respectively. US equities welcomed the June jobs report where 222,000 jobs were added, which easily exceeded the 179,000 that were expected. The May number was revised to 152,000 from 138,000. Unemployment rose to 4.4% from 4.3%.
it is slightly concerning that average earnings on a month on month basis rose by 0.2% while the consensus was for a 0.3% rise, and May’s figures was revised lower to 0.1% from 0.2%. A slowing of wage growth is not something the Federal Reserve want to see.
I suspect the weak ADP number yesterday got traders prepared for an equally disappointing figure today, and when it comfortably topped estimates, the bullish sentiment took over.
FX
The GBP/USD went from bad to worse. Tepid economic indicators from the UK this morning followed by a positive move in the US dollar on the back of the non-farm numbers drove the pound lower.
The UK revealed a sting of disappointing data today as the construction output, industrial production and manufacturing production reports for May all came in under analysts’ expectations. Overall it was a mediocre week for British economic announcements as the manufacturing and services reports on Monday and Wednesday respectively showed a slowdown in the expansion rate. The Bank of England will find it hard to justify their hawkish stance in light of recent data.
The EUR/USD is now trading below the pre-announcement level. The single currency gained ground against the greenback but the market swung around after the dust settled. It would appear that traders are placing more value on the headline number and the average workweek than the unemployment rate or the earnings numbers.
Germany and France had impressive industrial production numbers this morning. The two largest economies in the eurozone saw growth of 1.2% and 1.9% respectively. Traders are still thinking about the minutes from the recent European Central Bank meeting, where policy markets talked about leaving out the pledge to keep buying government bonds. Dealers took that as a sign the ECB are moving towards a less loose monetary policy.
Commodities
Gold has tested the May low of $1215 as the metal continues on its downward move. It initially moved higher after the jobs report was released as the US dollar was softer but when traders digested the figures, the stronger greenback put pressure on gold. Even though we have seen some risk-off activity over the week, we didn’t see any upward move in gold, so when the headline payrolls number was robust and the previous month’s number was revised higher, the metal was always going to be in trouble.
WTI and Brent crude oil moved higher in the wake of the US jobs data, but it was short lived. The rally in the US dollar caused problems for the energy market and it is now trading at its lowest level in over one week. The surge and the subsequent turnaround in the energy market yesterday is something we have seen a lot of recently. The initial reaction squeezes the shorter-sellers, but the realisation kicks in that even though US inventories dropped, the global glut is still in focus. Last week we saw the number of active rigs in the US decline by 2, and today traders will be keeping an eye out for the Baker Hughes active rig report at 6pm.
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