Europe
Europe’s markets have enjoyed a decent end to the week today despite a disappointing start, helped on their way by a fairly decent jobs number for June out of the US, which saw the best monthly jobs gains since October last year at 287k.
Despite the bumper number, expectations about a rise in US rates still remain uncertain due to the May number being revised even lower and raising questions about what is really going on in the US labour market.
Until that becomes clear, and while the Fed ponders the risk of the deflationary effect of a falling pound and a falling Chinese yuan, it seems likely that the Fed will remain on hold until such times the skies clear with respect to these two significant factors. This is likely to keep any US dollar upside fairly limited, but also be broadly supportive of stock markets, but it is also giving the Federal Reserve fewer and fewer excuses to avoid pushing back the prospect of a possible rate rise.
With respect to the pound this won’t be before September 9th due to the protracted nature of the next part of the Conservative party leadership process, which given the current circumstances is a little concerning, given the urgency of the situation now. At this rate we’ll know the contestants for this year’s Strictly Come Dancing before we know who our next Prime Minister is, what a shambles!
Today’s rebound in Europe has seen the FTSE100 lag behind the rest of its peers with the DAX rebounding strongly along with the FTSEMib, which given that both of these indexes have borne the brunt of this week’s selling is not too surprising.
The best performing sector today has been the beleaguered banking sector and this has been driven by reports that authorities are working intensely with the various Italian banks to find solutions to the problems of bad loans.
Banca Popolare d’Emilia Romagna has been the best performer after it stated that its own stress tests showed it was resilient to adverse shocks, though given the history of Italian banks in overstating their fiscal health, I would probably prefer to get a second opinion on that particular claim.
Royal Bank of Scotland (LON:RBS) and Lloyds Banking Group (LON:LLOY) have also enjoyed a welcome respite, but are still likely to finish the week lower for the sixth week in succession.
House builders have also had a decent day with Taylor Wimpey (LON:TW), Berkeley Group (LON:BKGH) and Persimmon (LON:PSN) leading the way, but here again it’s been a disappointing week.
Despite this morning’s data that showed a sharp fall in UK consumer confidence, and a BDO report that saw reduced retail sales in June, Marks and Spencer (LON:MKS) has had a decent day after an upgrade from Credit Suisse (SIX:CSGN).
The more defensive sectors have underperformed with the pharmaceuticals sector lagging behind, while gold and silver miner Fresnillo (LON:FRES) has also lost ground on a slightly weaker gold and silver price.
US
US markets opened higher and hit their highest levels this month after a surprisingly good jobs report which saw 287k new jobs added in June. What was more surprising was the downward revision to May to 11k, giving us the worst and best jobs number this year in the space of a month, and raising more questions than answers about the health of the US labour market.
For example how is it possible that the May numbers can be so poor and yet the June number is so good? When you see such sharp anomalies in such a short space of time it sometimes pays to take a slightly longer view and smooth out the numbers which gives us a three month average of just below 150k and a slightly better outlook, but nonetheless evidence that we may be starting to see a tightening in the US labour market, though wage rises aren’t yet reflecting it as yet.
On the companies front clothing retailer Gap (NYSE:GPS) reported a 2% increase in store sales for June, confounding expectations of a sharp fall.
FX
In the wake of this afternoons US jobs report the US dollar surged higher but it was unable to sustain those gains simply because markets don’t believe that the report was robust enough to shift expectations of an imminent Fed move on rates.
A slightly weaker number on the wages front and a three month jobs average of 147k points to a labour market that is still resilient but may still have a fair amount of slack in it, and as such we saw the US dollar quickly give up its gains.
The pound has managed to stabilise after another week to forget but is still struggling to push much above the $1.30 level against the US dollar as we head into the weekend and look towards next week’s Bank of England rate meeting..
Commodities
Gold and silver prices have slipped back after this afternoon’s bumper payrolls report assuaged some concerns about how well the US economy is faring. Earlier this week gold prices hit a two year high, but have slipped back since then on the back of some better than expected US economic data
Oil prices have rebounded from two month lows after last night’s sharp sell-off, on reports that Nigerian militant launched new attacks on installations in the Nigeria delta region. We’re still set to finish the week sharply lower over concerns that the inventory overhang could well take longer to work off at a time when inventories are declining at a much slower rate than anticipated.
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