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U.S. Payrolls Underwhelm Despite Unemployment Hitting A 16 Year Low

Published 05/05/2017, 16:10
Updated 09/07/2023, 11:32

Europe

It’s been another positive week for European equity markets, despite some big declines in commodity prices this week.

The FTSE 100 has underperformed but it has still managed to post a positive week for the second week in a row, in spite of a stronger pound, while the DAX and CAC 40 have also gone from strength to strength, with new record highs for the DAX and the CAC 40 pushing up to levels last seen at the end of 2007.

Publishing house Pearson (LON:PSON) appeared to be gaining a temporary reprieve from its recent problems after posting a 6% gain in Q1 sales

Airlines don’t appear to be suffering from a slowdown in passengers judging by market reaction to their recent numbers. EasyJet (LON:EZJ) posted a double digit increase in passenger numbers for April, with British Airways owner IAG (LON:ICAG) saw operating profits rise 10% over the same period a year ago.

On the downside Barclays (LON:BARC) is amongst the worst performers after being downgraded to “sell” by Goldman Sachs (NYSE:GS), while ITV (LON:ITV) has continued to slip back in the wake of the announcement of the departure of Adam Crozier, its CEO, after 7 years at the helm.

US

US markets opened higher after a rather mixed bag of a US jobs report which showed that April jobs grew at 211k, slightly above expectations. This was somewhat tempered by a revision in the March number to 79k, down from 98k, while wages showed a surprise fall to 2.5% to 2.7%.

Even though the standout number was a headline unemployment rate that fell to 4.4%, its lowest rate since May 2001, it came about as a result of a drop in the labour participation rate from 63% to 62.9%. While this should be seen as a welcome development it also needs to be put into context, in that in May 2001 there was a lot more people in the workforce with the participation rate at a much healthier 66.7%.

With unemployment at such low levels it still remains a significant conundrum as to why wage growth remains so lacklustre. The weakness of these sorts of wage numbers are not the numbers associated with an economy firing on all cylinders but nonetheless investors continue to price in the likelihood of a June rate rise with a 100% probability, which is quite amazing given we are five weeks away from that meeting. A lot can change in the space of five weeks.

As a result of the rather mixed nature of today’s data it’s difficult to assess where the next move for US markets is likely to come from. While tech stocks have led the gains, the S&P 500 and Dow continue to struggle to get through the peaks that we saw earlier this year.

FX

It’s been a mixed week for the US dollar, despite the increase in odds of a rate rise next month, with this weeks Fed meeting and today’s payrolls report offering little in the way of support. Today’s rebound in oil prices has helped support the commodity currencies with the exception of the Australian dollar, which has continued to come under pressure.

The euro has had another cracking week on the back of further evidence of a strengthening European economy and the likelihood of a Macron presidency. Could confirmation of a Macron win push the euro threw the 1.1000 level? If it does, as seems likely that is unlikely to be well received in some of the weaker European countries, or for that matter the European Central Bank.

The pound has held up well despite all the political hullabaloo between EU and UK government officials, with economic data surprising to the upside, but it is still struggling to get above the 1.3000 level. Could next week act as the catalyst for further gains with the next inflation report due?

Commodities

After an awful few days and hitting their lowest levels since last November, oil prices appear to have found some respite ahead of the weekend. This may well be as a result of some profit taking or position adjustment in a week which has seen oil prices slide over 5%. It would appear that a number of speculative long positions threw in the towel after markets dropped through the March lows, which suggests that any pullbacks may well struggle in or around this region.

The rout also increases the pressure on both OPEC and non-OPEC members to try and agree something when they meet later this month if only to try and put a floor under prices.

The bigger concern is whether this sell-off is part of a wider deflationary wave about to ripple out through the global economy, given the big declines also being seen this week in copper and iron ore.

Disclaimer: CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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