- FTSE 100 closes a shade lower
- US non-farm payrolls rose 263,000 in November, ahead of forecast
- Average earnings increase 0.6%, topping expectations of 0.3%
4.45pm: FTSE closes down
FTSE 100 closed slightly lower at the end of the trading week after a strong US monthly jobs report dented investor sentiment and added fuel to fears over rising inflation.
Footsie finished down around two points, or 0.03%, at 7,556.
On Wall Street, the Dow Jones Industrial Average lost around 0.58%, the Nasdaq shed 1.03%, while the S&P 500 slipped 0.79%.
"Up until lunchtime, this week had been about a weakening dollar and a steady shift by the Fed away from the hawkishness of much of 2022. But today’s job and wage numbers have given the greenback a lift, while sending stocks into retreat in the US," said Chris Beauchamp, the chief market analyst at online trading firm IG.
"After such a tough year, it might seem foolish to hope for a bounce, but the year-end rally remains a reliable feature most of the time, even if what happens beyond 31 December is a return to 2022’s selling," he added.
3.45pm: Britain, Japan and Italy close to agreement on new jet
Britain, Japan and Italy are close to announcing a political agreement on a new jet fighter, joining forces to fund a multi-billion dollar program capable of competing with the next generation of warplanes from the US and elsewhere according to the Telegraph.
A deal on the project, to be called the Global Combat Air Program, is expected next week.
Britain and Italy have been developing the Tempest warplane to rival France and Germany’s so-called Future Combat Air System plane for some years.
London and Rome have been working on bringing Japan into the group, with Sweden another prospective partner.
Adding Japan would bring a global dimension, potentially aiding worldwide sales, while bolstering funding after Germany chose to partner with France on the rival aircraft.
3.15pm: Capital expects disruption to Russia's crude output to support oil prices in 2023
Capital Economics forecast disruptions to Russia’s oil trade and production from the expected next round of EU sanctions will help support the oil price next year.
Despite the global economy tipping into recession Capital expects prices to remain historically high with a drop in Russia’s production one of the reasons behind this view.
They expect Russia’s crude output will steadily fall to 9.6mln bpd by end-2023, compared with an estimated 10.3mln bpd in quarter four 2022.
The EU’s latest round of sanctions, yet to be finalised, come into force on 5 December with a sizeable chunk of Russia’s export capacity at stake.
There are important details around the sanctions package left to be finalised but recent reports suggest that the EU is very close to an agreement on a price cap of $60 per barrel, well below the current and long-run average price of Russia’s Urals crude.
2.42pm: US markets slump after hot US data
As expected US stocks have tanked at the open after the hotter-than-expected November jobs report which has reiterated the strength of the US labor market.
The tech-laden Nasdaq Composite was trading sharply lower down 140 points or 1.2% at 11,342 points just after the market opened, with the Dow Jones Industrial Average shedding 243 points or 0.7% at 34,152 points and the S&P 500 down 39 points or 1% at 4,037 points.
The strong jobs number combined with above forecast average earnings figures left investors questioning whether the Federal Reserve would slow its aggressive rate rising measures which its chair, Jerome Powell, had signalled earlier in the week.
Most economists were still expecting the Fed to slow the recent pace of rate increases at the next FOMC meeitng with an increase of 50bps forecast after the recent 75bps hikes.
2.22pm: US rate rise still seen at 50bps
Capital Economics said “The resilience of the labour market and the resurgence in wage pressures don’t change our view that core price inflation is going to fall more rapidly than the Fed believes, and we still expect officials to slow the pace of tightening, with a smaller 50bp hike later this month.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said “Immediate attention will focus on the above-consensus payroll number - which was in line with the Homebase data - but much more important from the Fed's perspective is the hefty rebound in hourly earnings and the upward revision to prior data.”
“It is now much harder to argue that the trend in wage growth is slowing” he said.
“Wages rose at an annualised 4.8% rate in three months to November, much too fast for the Fed. The trend rate of increase seems to be about stable but we had been hoping to see a clear softening” he added.
“With only one employment report due before the January FOMC meeting, we have to raise our forecast to 50bp from 25bp. We still think this will be the final hike in the cycle, but that is contingent on wage growth slowing.“
2.15pm: US jobs data strong but economists question for how much longer
Reaction to the US non-farm payrolls and average earnings numbers is coming in thick and fast:
ING Economics said the strong job creation and a big increase in wages underscore the Federal Reserve's argument that a lot more work needs to be done to get inflation under control.
“It has certainly jolted the market. But with recessionary fears lingering, market participants will remain sceptical over how long the strong performance can last.”
John Lieper, chief investment officer at Titan Asset Management agreed. He described the figures as remarkably resilient but noted “withering liquidity, falling and contractionary PMIs, rising layoffs, depleted savings and the lagged impact of monetary policy on aggregate demand point towards a dour 2023.”
“The uptick in average hourly earnings today contribute to that narrative pushing back against a potential easing in near term rate hike expectations.”
He felt “It’s now a question of the hard data catching up with the leading indicators. We are more inclined to fade, than chase, the equity relief rally and to gradually increase our exposure to bonds over time.”
Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank felt that whilst the above forecast jobs data is a sign that demand for new workers remains relatively resilient “much is going on under the surface and we suspect these underlying changes will allow The Federal Reserve to slow the pace of rate hikes later this month.”
He explained the weakening macro data suggests that this may be an opportune time for the Federal Reserve to take the first step in its pivot process.
“Flash PMIs for November had already fallen into contraction territory, and the ISM manufacturing followed suit” he pointed out.
“Not quite the clear-cut evidence of easing labour market pressures that the Federal Reserve may have hoped for, but it shouldn’t deter them from slowing to a 50-bps hike in two weeks’ time” he concluded.
Victoria Scholar, head of investment, interactive investor suggested “In terms of the Fed’s conundrum, this piece of data muddies the picture for a possible slowdown in rate hikes ahead, given that it suggests the employment market is slowing less than anticipated, adding to price pressures facing the economy.“
1.50pm: FTSE and sterling fall after strong US jobs report and above forecast average earnings
The FTSE 100 fell back after the stronger-than-expected US jobs report which combined with above forecast increases in average earnings figures have dampened hopes that inflationary pressures have peaked giving scope for the Federal Reserve to keep raising interest rates.
The lead index is now down 40 points at 7,518 while Dow futures are down 400 points in the US indicating some hefty opening falls across the pond.
The pound tumbled around 1% against the US dollar, after being higher earlier, as investors took the number to mean the trajectory on US interest rates would remain upwards.
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1.35pm: US non-farm payrolls rose 263,000 in November, average earnings top forecasts
US non-farm payrolls rose 263,000 in November well ahead of market expectations for a rise of 200,000 showing the Fed's rate rising strategy is still not hurting the jobs market yet.
But average hourly earnings rose 0.6% ahead of forecast of 0.3% while the jobless rate remained unchanged at 3.7%.
US Change In Nonfarm Payrolls Nov: 263K (est 200K; prevR 284K)
- US Unemployment Rate Nov: 3.7% (est 3.7%; prev 3.7%)
- US Average Hourly Earnings (M/M) Nov: 0.6% (est 0.3%; prevR 0.5%)
- US Average Hourly Earnings (Y/Y) Nov: 5.1% (est 4.6%; prevR 5.6%)
— LiveSquawk (@LiveSquawk) December 2, 2022
US futures fell and the dollar rose after the report and the FTSE 100 slipped back further.
October’s payroll number was revised up to show 284,000 new jobs were created, not the 261,000 first reported.
12.50pm: FTSE slighlty lower ahead of non-farm payrolls
The FTSE 100 is still lower but has recovered some ground this monring, now trading 11 points lower.
All eyes now on the US non-farm payrolls with market forecasts for a rise of around 200,000. Investors will be watching to see if the Fed's rate rising strategy to tackle inflation is hitting the jobs market.
Craig Erlam, senior market analyst at OANDA said: "Jerome Powell’s comments on Wednesday made clear the direction of travel that Fed policymakers are keen to undertake but ultimately, the data must allow for it. So far, that has very much happened with inflation falling more than anticipated in October, the manufacturing sector softening, supply chains improving and labour market performing less well."
"Today’s jobs report will offer further insight into whether this last point continues to be the case. Jobs growth around 200,000 would continue the trend since earlier this year and, alongside rising jobless claims, point to a cooling in the labour market."
"But it’s the wages that the Fed cares most about. A moderation in earnings growth is essential to get policymakers on board and perhaps even bring down the terminal rate over the coming months. It’s not just about putting inflation on a better trajectory, it’s about ensuring it can return to target on a sustainable basis and that requires earnings to rise at a more modest rate to ensure inflation doesn’t become entrenched."
12.05pm: Modest falls seen in the US
US stocks are expected to open modestly lower on Friday ahead of the closely watched non-farm payrolls data for November which will give a snapshot of the labor market in the world’s biggest economy at a crucial time in the current interest rate cycle.
Futures for the Dow Jones Industrial Average were down 0.1% in pre-market trading, while those for the S&P 500 were 0.1% lower, and contracts for the Nasdaq-100 shed 0.2%.
James Hughes, chief market analyst at scopemarkets.com said: “After the ADP payroll survey fell well short of expectations on Wednesday, further disappointment here is likely to heighten fears that the Fed may have played too hard a line in terms of rate hikes and that the pivot may have come too late.”
The US non-farm payrolls forecast is for 200,000 jobs to have been added last month, a slowing from 261,000 in October, while the unemployment rate is seen steady at 3.7%.
Investors will also be eyeing the average hourly earnings figures in the US labor market report, which is due out at 8.30am ET. Wage growth is seen at +0.3%.
“This number is expected to contract again and remain well below inflation, although given the broadly positive signals coming from retailers, the market may be willing to look beyond any meaningful slowdown here,” noted Hughes.
As ever, the overall focus will be on how the data could impact interest rate expectations especially as the strength of the labor market is also a key factor underpinning the wider US economy.
Earlier in the week, Federal Reserve chief Jerome Powell said that the pace of rate hikes will slow but that interest rates will stay higher for longer.
The Fed has delivered four 75 basis point interest rate hikes in as many meetings this year as it tries to curb runaway inflation levels. Investors are counting on rate setters to scale back on hikes amid the early signs that inflation may be starting to ease.
In data out on Thursday, the Fed’s preferred gauge of inflation, the annual core PCE price index, declined to 5% in November from 5.2% in the previous, in line with expectations.
Back in London and the FTSE 100 remains lower, down 16 points.
11.25am: Retail footfall slips in November - BRC
Footfall at UK shops fell again in November as the cost-of-living crisis put consumers off Christmas spending.
Total UK footfall was 13.3% below pre-pandemic levels last month and 1.5 percentage points worse than October, according to BRC-Sensormatic IQ data.
Strikes on the railways, and the lure of watching football at home, may also have deterred shoppers. British Retail Consortium chief executive Helen Dickinson said:
“Footfall took another stumble as the cost-of-living crisis put off some consumers from visiting the shops in November. Others opted to stay home due to the scattering of rail strikes or chose the World Cup over shopping visits” she commented.
“Rising inflation and low consumer confidence continue to dampen spending expectations in the run up to Christmas.”
“Despite retailers doing their best to keep prices as low as possible for their customers, financial concerns are trumping spending for many households.”
High street footfall was down 13.6% on November 2019, two percentage points worse than last month’s rate and worse than the three-month average decline of 12.3%.
Retail parks saw a relatively shallow decline of 4.2% but shopping centres saw 23.2% fewer visits than November 2019.
10.50am: John Lewis strikes £500mln property deal with Abrdn
The John Lewis Partnership has agreed a £500mln deal with Abrdn to build 1,000 residential rental homes, redeveloping three sites it already owns.
The retailer said it intends to redevelop Waitrose shops in Bromley and West Ealing, and a vacant John Lewis warehouse in Reading, as the first part of a plan to build a total of 10,000 new homes over the next decade.
UK retailer John Lewis links up with Abrdn to build homes for rent https://t.co/Ft70lK7PZh
— Financial Times (@FT) December 2, 2022
The locations for the new homes have been chosen because of their close proximity to transport links and central location.
John Lewis said that £500mln represents the planned development value of the properties but would not give a breakdown of the level of investment being committed by each partner.
10.10am: Deutsche upbeat on Kingfisher, home improvement to prove more resilient
Kingfisher PLC (LSE:KGF) bucked the weaker market as Deutsche Bank reiterated its buy rating despite lowering its price target to 275p from 280p. Shares rose 1.35% to 249.70p.
“Sales trends have held up better than expected for Kingfisher both in the UK and France especially given the reversal of COVID trends” according to Deutsche analyst Adam Cochrane.
He accepted that the pressure on disposable income from inflation and the slowdown in housing transactions is still likely to weigh on the sales outlook for the fourth quarter and the fiscal year 2024.
But although the consensus view is that Kingfisher profitability will not be able to stand up against this tide he believes “that the current valuation already reflects the risk of a sales slowdown and management is focussing on cost control whilst investing for future growth.”
He forecast that Home Improvement will prove to be more resilient than investors expect and also pointed out Kingfisher has the benefit of geographic diversity and a strong balance sheet.
9.40am: Vue eyeing Cineworld ahead of possible IPO - Times
Britain's third-biggest cinema chain is ready to swoop on a rival in a “huge consolidation play” ahead of a possible stock market flotation, according to The Times.
The report said Tim Richards, who founded Vue International in 1999, has confirmed the company was ready to take advantage of any opportunities that presented themselves as speculation mounts that Cineworld could be broken up.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown pointed out: “It’s only recently that Vue went through a protracted and painful £1bn restructuring, so this brazen M&A attitude may not sit well with its rescuers.”
“Vue’s aspirations are certainly heady and include a potential stock market flotation within the next couple of years.”
“As and when a listing occurs, the market will certainly need some convincing that Vue has the strength and stamina to excel over the long-term after the systemic changes that have occurred in entertainment” she felt.
9.10am: Footsie lower led by falls in oil majors
FTSE 100 down around 37 points, or 0.5%, early on with oil majors leading the way.
Shares in BP PLC (LSE:BP.) were down 2.94%, Shell PLC (LSE:SHEL, NYSE:SHEL) fell 2% and Harbour Energy PLC (LSE:HBR) slipped 2.8% dragging the lead index lower.
Plenty of news flow in the sector with reports that the EU is closing in a $60 oil price cap for Russian oil while BP itself was warned by the chief economic adviser to Volodymyr Zelensky that it stands to receive "blood money" from its investments in Russia.
Oleg Ustenko has written to BP's chief executive, Bernard Looney, demanding that the company cut ties with state-controlled oil giant Rosneft (LSE:ROSN).
In his letter he wrote: "This is blood money, pure and simple, inflated profits made from the murder of Ukrainian civilians."
BP had a 19.75% stake in the Russian company before the invasion of Ukraine, although it said it no longer receives any profits from its links.
The sector is also in focus ahead of the OPEC + meeting on 4 December with analysts split as to what the cartel will do.
Ahead of that the oil price, which has been strong all week, reflecting hopes that China might loosen its strict Covid rules, has slipped a touch today.
Brent crude was down 0.11% at $86.78/barrel while WTI crude was 0.36% lower at $80.93/barrel.
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8.51am: AJ Bell put on the buy list at Jefferies
AJ Bell PLC (LSE:AJB) shares pushed 7.5% higher as Jefferies put the company on its buy list.
“Although uncertainties remain, AJ Bell has demonstrated the resilience of its business model and we think its strategy will succeed” the broker said in a note following yesterday’s results.
Analysts at the broker took confidence from both platforms achieving positive net flows in a tough environment and felt longer-term benefits should flow from higher brand awareness and a bigger market footprint.
Forecasts for 2023 have been increased by around 14% to 15% and the broker pointed out that management commented that there would be upside to revenue margin guidance.
Jefferies has raised its price target to 450p alongside the rating upgrade.
8.40am: EU closes in on $60 cap for Russian oil
European Union governments tentatively agreed on Thursday on a $60 a barrel price cap on Russian seaborne oil with an adjustment mechanism to keep the cap at 5% below the market price, according to diplomats and a document seen by Reuters.
The agreement still needs approval from all EU governments in a written procedure by Friday.
Poland, which had pushed for the cap to be as low as possible, had as of Thursday evening not confirmed if it would support the deal, an EU diplomat told Reuters.
Associated Press reported: "Still waiting for white smoke from Warsaw,” said an EU diplomat, who spoke on condition of anonymity because the talks were still ongoing."
Reuters pointed out EU countries have wrangled for days over the details of the price cap, which aims to slash Russia's income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on 5 December.
It will allow countries to continue importing Russian crude oil using Western insurance and maritime services as long as they do not pay more per barrel than the agreed limit.
“Since the price cap is lower than what has previously been bandied around, it raises the spectre of some form of Russian supply retaliation which should lend support for oil prices” Stephen Innes, managing partner at SPI Asset Management commented.
8.15am: Footsie slips in early trading
FTSE 100 took a downward turn on Friday with investors cautious ahead of the closely watched US non-farm payrolls numbers later today.
At 8.15am London’s blue-chip index was down 45 points to 7,513 while the FTSE 250 fell 26 points to 19,383.
Richard Hunter, head of markets at interactive investor said: UK markets had made "a tepid start as investors braced for the news from stateside later in the day.”
Associated British Foods PLC (LSE:ABF) was an early riser boosted by an upgrade by Goldman Sachs (NYSE:GS) to neutral from sell with an increased price target of 1,900p from 1,460p. Shares rose 1.9%.
But BT Group fell 0.8% as Citi lowered its price target to 130p from 185p keeping a neutral rating.
THG PLC (LSE:THG) fell 2.5% as JP Morgan downgraded the stock to underweight from neutral although it raised its price target to 54p from 42p.
AIM-listed Directa Plus PLC (AIM:DCTA, OTC:DTPKF) suffered with shares down 19% as it warned that €2mln of orders will be deferred into the next financial year reflecting supply chain issues across Europe and the impact of general macro and geopolitical factors.
8.07am: Euro keeps pressure on the dollar, Sterling inches back as week comes to a close
After reaching 15-week highs of 1.230 against the US dollar on Thursday, Sterling has cooled off slightly while still remaining in a leading position heading onto the week’s end.
As it stands, Cable is changing hands at 1.223, having dipped around 22 pips in the Asia trading window.
The pair’s cooling off aligned with tepid UK retail sales, which decreased 6.1% year on year according to this morning’s reading, marking a sixth consecutive month of falls in retail sales as the cost of living crisis and high prices continue to compress consumer budgets.
Sterling enters the 2022 come stretch in a strong position against the greenback – Source: tradingview.com
Losses on the GBP/USD pair may have been exasperated further if not for a weak US Dollar Index (DXY), which has plummeted nearly 200 basis points to 104.17 since Monday.
Sterling also cut back slightly against the euro this morning, with the EUR/GBP pair currently changing hands at 0.859p against an opening price of 0.858p.
UK 10-year gilt yields are sticking close to the 3.1% level, certainly an improvement on the 14-year highs experienced in October.
High-than-expected producer price inflation across the euro area pushed EUR/USD another 0.1% higher in today’s Asia session, bringing the pair to a four-month high of 1.053.
That PPI data will be used by the euro hawks to justify more jumbo interest rate hikes in the coming months.
US unemployment is expected to come in at 3.7% when the reading is released this afternoon but with no further headline readings scheduled on today’s economic calendar, price action could be relatively subdued as the week comes to a close.
7.50am: Wizz Air sees passenger numbers jump
On the company news front and low-cost airline Wizz Air Holdings PLC said it had seen passenger numbers jump in November.
A total of 3.68mln passengers were booked onto flights last month, up 70% hike on November 2021 while capacity was nearly 47% higher, at 4.18mln, with the load factor rising to 88.1% from 76.1%.
On a rolling 12-month basis, the airline carried 44.12mln passengers, up 123%, with a load factor of 86.1% compared to 74.3% as at 30 November 2021.
Meanwhile, GSK PLC (LSE:GSK, NYSE:GSK) said the European Medicines Agency had validated its marketing authorisation application for momelotinib, a potential new oral treatment for the blood cancer myelofibrosis after meeting key endpoints in a Phase 3 trial.
The FTSE 100-listed pharma giant also gave an update on the phase III trial of Jemperli (dostarlimab) RUBY.
The group said the trial met its primary endpoint in a planned interim analysis in patients with primary advanced or recurrent endometrial cancer.
GSK said regulatory submissions based on the trial results are planned for the first half of 2023.
7.00am: FTSE 100 seen lower ahead of non-farm payrolls
FTSE 100 expected to open lower on Friday ahead of US non-farm payrolls later in the day which will provide further evidence as to the state of the health of the US economy.
Spread betting companies are calling London’s blue-chip index down by around 13 points.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said “a fairly strong non-farm payroll print today, around or slightly above the 200,000 penciled in by analysts, should boost risk appetite.”
However she added: “A soft figure, like Wednesday’s ADP report, could increase recession odds and keep equities under negative pressure.”
“Then, there is a slim possibility that we will see a very strong figure, at 300,000 or above. In that case, we shall see the Fed hawks take the upper hand again, and send equity valuations lower before the weekly closing bell.”
Consensus forecasts currently point to a 208,000 increase following a stronger-than-expected rise of 261,000 in October.
Average hourly earnings are expected to rise 0.3% month-on-month giving an annual increase of 4.6%.
The unemployment rate is expected to remain unchanged at 3.7%.