- Jobs miss not enough to delay a US rate hike
- Stock market recovery from “Black Monday” fading fast
- Retail stocks tumble as FTSE eyes 6000
- Pound drops for ninth day in a row
- Gold back below $1,200 per oz
UK & Europe
It was already a pretty ugly start for UK & European stocks and things got worse after the US jobs report. The miss in the US jobs report wasn’t seen as enough to delay a September rate hike by the Federal Reserve. The lingering chance of a US rate hike dents the demand for risky assets that have been boosted under the regime of zero percent rates.
Very disappointing factory orders for Germany served to reinforce the downgrade to growth and inflation forecasts from the ECB at Thursday’s policy meeting. There was also a slowdown in German retail and construction PMIs for August. President Draghi highlighted the Oil price as the main reason for the ECB’s forecast downgrades but the European economy recovery does appear to have lost steam.
Weak economic data increases the odds of more ECB stimulus which should be good for stocks, but the quick evaporation of the gains that came after the ECB policy meeting suggests there’s a question mark over the ECB’s capacity to do more.
The FTSE 100 gave back all of Thursday’s ECB-induced gains the very next day. Every sector was in the red on the UK’s benchmark index as broad-based risk aversion kicked in. The usual suspects led the decline as lower commodity prices drove the basic resource sector lower.
Investors were battening down the hatches on retail stocks after broker downgrades followed a survey showing August was the worst month for UK retail sales since the 2008 financial crisis. Shares of Next PLC (LONDON:NXT), Burberry Group PLC (LONDON:BRBY) and Dixons Carphone (LONDON:DC) were all top fallers after the report from accountancy firm BDO released its monthly high street sales tracker. The wet weather could maybe explain the 5.5% drop in fashion sales but together with a 3.3% drop in homewares, it’s more likely consumers were scaling back on non-essentials.
GVC Hldgs Plc (LONDON:GVC) shares dropped on news it has come out on top in the battle for the acquisition of rival Bwin.Party Digital Entertainment (LONDON:BPTY).party with a £1.1bn deal. Bwin’s shares rose after the board switched its recommendation to the higher bid from GVC away from 888 Holdings. The two offers were quite finely split but the move to merge and fend of competition from the traditional gambling companies who are beginning to consolidate is the right one.
US
US stocks plunged on the open with the Dow Jones starting down by 150 points, leaving the benchmark index well in the red for the week.
The full U-turn on Thursday that saw the Dow turn a 198 point gain into 23 was already a strong signal of lost momentum. The generally strong jobs report might be the nail in the coffin of the stock market recovery since “Black Monday”.
The US produced 173k jobs in August, lower than the expected 220k expected while the unemployment rate fell to 5.1% and average earnings rose by 0.3% when a rise of 0.2% was forecasted.
The number of jobs created was less than anticipated but wasn’t deemed enough by itself to delay a hike in September. The higher than expected wage growth and drop in the unemployment rate make it on balance a strong report despite the fall in the headline jobs number.
FX
After a brief wobble following the miss to the headline jobs number, the dollar rallied across the board as the unemployment rate dropped and wage growth increased.
The pound dropped for the ninth day against the US dollar with GBP/USD falling sub-1.52 after a survey showed the lowest retail sales since 2008.
A strong dollar and falling commodity prices sent the Australian and New Zealand dollars into a tailspin, with AUD/USD and NZD/USD both down over 1%.
Commodities
Following a volatile seven days, oil prices stabilised on Friday, showing small losses due to strength in the US dollar.
Gold slipped below $1,200 per oz despite risk-off sentiment as a strong dollar sent most precious and industrial metals lower.
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