FTSE 100 index closes down 51 points
The US unemployment rate forecast rises to 3.7%
US payrolls grow by 224,000 in June
FTSE 100 closed in the red on Friday after a relatively calm week as global indices travelled lower.
The UK's premier share index closed down around 51 points at 7,552 on the day, but over the week as a whole the index added around 1.7%. The FTSE 250 shed nearly 136 points at 19,661.
On Wall Street, stocks went lower, on the day the closely followed US monthly job creation number was announced.
Last month saw an increase of 224,000 new jobs, indicating that the labor market still remains strong. The consensus estimate had been for 160,000 and far outpaced a paltry 72,000 (revised down from 75,000) new jobs in May.
The unemployment rate ticked up slightly to 3.7% from 3.6%, but was still one of the lowest rates in nearly 50 years.
The Dow Jones Industrial Average is down 122 points at the time of writing, while the S&P 500 shed around 19 points.
2.45pm: US markets open sharply lower
US markets shifted sharply into reverse at the outset after a set of jobs figures that brought into doubt the prospect of future rate cuts.
The Dow Jones industrial average was down 154 points (0.6%) at 26,825 while the S&P 500 was down 17 points (0.6%) at 2,978.
“The strong rebound in job growth in June is encouraging, and, we suspect that the rebound would have been even larger were it not for the Trump Administration’s unexpected tariff threats on imports from Mexico in early June that probably made some firms hesitant to proceed with hiring plans,” said Mickey Levy at Berenberg Capital Markets.
“Continued solid job growth bodes well for consumption growth, which is the primary driver of U.S. GDP growth. We believe underlying job growth is closer to 150k than it is to 224k, but it is obvious that the potential labour supply is larger and more elastic than commonly assumed. There is remaining slack in the labour market,” he added.
Berenberg said it still expects the Fed to cut its key lending rate this month and thinks the US central bank will opt for a quarter point cut rather than a half point one.
“The dollar appreciated against every single G10 currency as markets cheered the fact that the United States added an impressive 224,000 jobs to its economy last month,” reported Lukman Otunuga at FXTM.
“Today’s report is likely to complicate the Federal Reserve’s decision to cut interest rates this month, especially if economic conditions in the United States continue to stabilise leading up to the Fed policy meeting,” the analyst added.
Ever wonder why farmers aren’t included in labor data? Here’s why. https://t.co/Me24nTUWJT
— The Milwaukee Company (@themilwaukeeco) July 5, 2019
Back in London, the FTSE 100 was down 34 points (0.5%) at 7,569.
1.40pm: Rate cut hopes hit by buoyant US jobs market
US non-farm payrolls rose by 224,000 in June, comfortably above the consensus estimate of around 160,000.
The May increase was revised to 72,000.
Average hourly earnings rose 0.2% month-on-month in June, versus a consensus forecast of 0.3% and by 3.1% year-on-year, versus a market forecast of 3.2%.
The unemployment rate unexpectedly nudged up to 3.7%; expectations had been for the rate to remain unchanged at 3.6%.
The FTSE 100 was down 29 points (0.4%) at 7,575, dipping a little on the release of the US jobs data.
#US #NFP June 2019 224k vs 160k: Pr 75k.Avg earnings 3.1% vs 3.2% exp y/y. Pr 3.1%Unemployment rate 3.7% vs 3.6% exp/pr.Participation rate 62.9% vs 62.8% pr.Ok numbers. $USD #employment
— ForexFlow (@forexflowlive) July 5, 2019
1.15pm: Countdown to non-farm payrolls release begins
With the release of the US jobs figures imminent, the FTSE 100 remains modestly lower.
London’s index of leading shares was down 25 points at 7,578, not far off its low point for the day.
In the US, futures markets suggested that after yesterday’s national holiday, the Dow Jones would open at around 26,917, down 50 points or so from Wednesday’s close.
The broader-based S&P 500 was expected to open just below 2,990, around six points down.
“Looking ahead to the non-farm jobs report this afternoon, and the state of the update will likely dictate whether or not the Dow Jones breaches 27,000 when the bell rings on Wall Street. Analysts are expecting wage growth to creep up from 0.2% to 0.3%, with the unemployment rate forecast to hold at 3.6%,” reported Connor Campbell of Spreadex.
“As for the headline non-farm figure, it is estimated to bounce from a disappointing 75k in May to 162k in June. Though many believe a Fed rate cut in July is already locked on, Friday’s jobs data could help sway the central bank in terms of the size of the slash,” he added.
11.55am: The Footsie stages a slow-motion recovery
Paint continues to dry in London’s stock market. The release of the US jobs report cannot come soon enough to generate a bit of excitement.
“House builders and mining companies are weighing on the FTSE, the latter sliding because of a drop in metals prices over the last few days, the former because of a 0.3% decline in UK house prices in June,” noted Fiona Cincotta at City Index.
The FTSE 100 was down 12 points (0.2%) at 7,592, with house-builder the worst performer, down 2.9% at 1,907.5p, closely followed by mining giant Rio Tinto PLC (LON:RIO), down 2.7% at 4,781p.
The latter fell despite JPMorgan cranking up its target price for Rio to 5,670p from 5,200p; the US investment bank rates the stock as ‘overweight’.
The other bigger beastie of the sector, BHP Group PLC (LON:BHP), was 1.9% weaker at 1,972.8p after JPM nudged up its price target to 2,080p from 2,060p.
Sector peer Anglo American PLC (LON:AAL) gave up 43.5p (2%) at 2,148p after JPM edged up the price target to 2,390p from 2,300p.
Further down the mining food chain, Arc Minerals Limited (LON:ARCM) climbed 4.8% to 3.90p after it raised its stake in in Zambian copper exploration Company Zaco Limited to 47.5% from 42.5%.
Tradeable News (1):
US: NFP. 1.30pm
As far as equities are concerned, bad news will be good news – as it will reinforce the expectations of future rate cuts.
If the NFP is unequivocally poor, wait for initial drop in equity markets, then BUY US500/Dow. Also Buy Gold. #NFP
— Churchill Lloyd (@ChurchillLloyd1) July 5, 2019
11.00am: A return to volatility - but not yet
The Footsie has seen its losses lengthen as futures markets point to a soft opening on Wall Street.
The FTSE 100 was down 27 points (0.4%) at 7,577.
“Traders will be keen to see the return of volatility today, with yesterday’s Independence Day celebrations seeing the stock market surge hit the buffers,” said Joshua Mahony at IG Group.
Notwithstanding the above, there has been little sign of the return of volatility yet as traders wait on the US non-farm payrolls update.
“Today sees the US jobs report guarantee the return of volatility, with Wednesday’s soft ADP figure pointing towards potential for another weak headline figure today. Donald Trump has been piling on the pressure over recent months, with the Fed unwilling to bend for the most part; however, this month it is evidently time for the Fed to act, and with US data expected to continue stuttering as long as the US-China trade relationship remains broken, markets are expecting much more that just a ‘one-and-done’ rate cut,” Mahony noted.
In Europe, German factory orders plunged 2.2% in May, compared to expectations of a 0.2% fall, leading to a sell-off of the single currency.
Not that sterling was doing much better, shedding just over a quarter of a cent against the greenback at US$1.2554, after some dismal productivity numbers.
“The drop in productivity in the first quarter of 2019 after an underwhelming 2018 can only fuel concerns over the UK’s overall poor productivity record since the deep 2008/9 recession,” predicted Howard Archer, the chief economic advisor to the EY ITEM Club.
“Indeed, referring to the period from the third quarter of 2009 through to the first quarter of 2019, the ONS reported that ‘Since the downturn GVA growth has averaged 1.6%, slightly higher than the average hours growth of 1.2%’. As a result, productivity has seen weak growth averaging 0.5%, with brief instances of high growth most noticeably in the initial post-downturn years,” Archer reported.
Turning to Company news, Kazera Global PLC (LON:KZG) was the top riser in London, soaring 30% to 2.15p following a mineral resource estimate for two of its assets in Namibia.
9.30am: Stocks marking time after decline in UK productivity in the first quarter
The Footsie remains in arrears, thanks largely to weak miners, with the UK productivity data having little effect.
The FTSE 100 was down 16 points at 7,588.
Headline labour productivity for the first quarter of 2019 decreased by 0.2% compared with the same quarter in the previous year. On this basis labour productivity decreased for the third consecutive quarter, the Office for National Statistics (ONS) reported.
Services recorded a labour productivity growth of 0.2% compared with the same quarter in the previous year; in contrast labour productivity growth fell in manufacturing by 0.9% during the same period.
“Our latest figures represent a continuation of the UK’s productivity puzzle. This sustained stagnation in productivity in the last decade is at odds with what we’ve seen after previous economic downturns,2 said Katherine Kent, the head of productivity at the ONS.
“Our new analysis underlines the impact this has had on sluggish wage growth in recent years, with private sector workers missing out on an estimated average of £5,000 per year," she added.
Earlier, mortgage lender the Halifax released its house price index for June to a sceptical response.
It reported a 0.3% month-on-month fall in June, versus expectations of a 0.4% decline. The three-month average of year-over-year growth in prices rose to 5.7%, from 5.2% in May, matching the consensus.
“Halifax’s data remain implausibly strong and irreconcilable with all other measures of house price growth,” declared Samuel Tombs at Pantheon Macroeconomics.
“The underlying cause of the strength of Halifax’s data is unclear. Seasonal adjustment is performed using an outdated methodology, though this can’t explain the extended run of implausibly strong year-over-year growth. Some analysts have speculated that the data are misleading because Halifax’s lending book is skewed towards the north of the UK, where the housing market has fared better but Halifax obviously weights its sample to replicate the national picture, and if this bias existed, one would have expected Halifax’s index also to be strong in 2018, when the markets in London and the South East already had weakened, but price growth had held up well elsewhere,” Tombs added.
“Whatever the explanation, Halifax’s data should be cast aside right now; the housing market has little momentum, though a modest revival later this year is likely if lenders reduce mortgage rates in response to the recent fall in their funding costs,” Tombs said.
The FTSE 100 housebuilders were all in the red, with Persimmon PLC (LON:PSN), down 1.8% at 1,929p, the hardest hit.
In the mid-cap space, SIG PLC (LON:SIG) tumbled 6.1% to 124.3p after the building materials supplier announced the sale of its German business WeGo FloorTec as tough trading conditions in the UK construction market hit first-half revenue.
8.30am: Subdued start for Footsie
The FTSE 100 was stuck in reverse gear early on, with the index of UK blue-chips nudging 14 points lower to 7,589.98,
Trading in Asia was subdued, but generally positive, while the massed ranks of Wall Street took Thursday off for Independence Day.
US employment numbers later will help form sentiment, with the world’s largest economy expected to have added 160,000 new jobs in June after a lacklustre showing in May.
But, as economists pointed out, if American employment does rebound, and wage claims continue to edge higher, then the pressure to cut interest rates is likely to diminish.
In other words, market sentiment will likely be driven by the devil in the detail of US non-farm payrolls at 1.30pm.
“With expectations so skewed strongly towards rates being reduced the downside risk here is of a rate rise getting priced back out, which could see bond markets slip sharply and yields spike,” said Michael Hewson, analyst at CMC Markets.
Miners struggle
The Sino-American trade rhetoric, which is becoming increasingly hostile after a momentary thaw in relations, unsettled the miners with Rio Tinto (LON:RIO) leading the charge lower with a 2% fall.
It was followed by Anglo America (LON:AAL), off 1.7%, and Chilean copper giant Antofagasta (LON:ANTO), which fell 1.4%.
Housebuilder Persimmon (LON:PSN), which delivered what can be best described as a lacklustre update on Thursday, continued its derating with a 1.7% decline.
Dropping down to the second-tier, SIG (LON:SIG) fell 13% after it coupled its trading statement with news it is planning to sell its Kingspan insulation operation.
Proactive news headlines:
Westminster Group PLC (LON:WSG) has inked a deal to provide the Gulf Aviation Academy of Bahrain (GAA) with aviation and other specialised training services. The Company noted that the agreement is for an initial period of three years and nothing in it prevents either party from continuing to individually market their own products and services around the world. No financial details were disclosed at this time. Big Pic in June.
Live Company Group PLC’s (LON:LVCG) executive chairman, David Ciclitira, believes the Company will exceed its events target for 2019. In a trading update for the six months ending 30 June, the chairman said the media group had secured 67% of its revenues for 2019 so far, while it had also confirmed 52 events for the year from its target of 60 and had “several more in the pipeline”. Big Pic in June.
Arc Minerals Limited (LON:ARCM) has acquired a further 5% stake in Zambian copper exploration company Zaco Limited. AIM-quoted Arc now holds a 47.5% stake in Zaco. Big Pic in May.
Ashley House PLC (LON:ASH) said it was hit by legal delays to three deals it was trying to rush through before the end of June but added that it means the firm will make a strong start to the new financial year. The supported care housing developer had warned on 25 June that it was up against the clock on three Morgan Ashley extra care schemes.
Remote Monitored Systems PLC (LON:RMS) has raised £100,000 through the issue of convertible loan notes. Big Pic in March.
ADES International Holding PLC (LON:ADES), a leading provider of oil & gas drilling and production services in the Middle East and North Africa (MENA), has appointed Numis Securities as its joint corporate broker, working alongside Investec Bank and Canaccord Genuity, with immediate effect.
6.40am: FTSE 100 set for quiet start
A quiet start is in prospect as traders wait for this afternoon’s US jobs report at 1.30pm.
Spread betting quotes suggested the FTSE 100 would open unchanged after easing 6 points yesterday to close at 7,604.
Asian markets this morning were sedate, lacking any pointers from US markets, which were closed yesterday for a public holiday.
In Hong Kong, the Hang Seng was up 36 points at 28,832 while in Tokyo the Nikkei 225 was up 8 at 21,710.
“Following yesterday's Fourth of July market closures in the US, Asian markets are mixed this morning. These markets are clearly in wait-and-see mode ahead of the US jobs report. With the crucial Fed meeting coming up in late July, a jobs report on either the strong or weak side could shift expectations of Fed policy actions. The possible action by the Fed and other major central banks has been a more important driver for equity markets lately than the salient trade ceasefire between the US and China over the weekend at the G20 meeting,” reported Danske Bank.
US non-farm payroll additions expected to pick up a bit
“In the US, the jobs report for June is due out. Overall, the labour market has started to show some weakness, so we think it is important to keep an eye on employment growth, which is an important recession indicator, in our view. The average monthly increase in non-farm payrolls has declined to 164,000 this year, from 223,000 in 2018. We expect employment growth to come in around 175,000. We estimate average hourly earnings rose +0.20% m/m in June, unchanged at 3.1% y/y,” the bank added.
In London, there are a handful of trading updates due, including from building materials seller SIG PLC (LON:SHI) and Ukraine-focused iron miner Ferrexpo POL (LON:FXPO), as well as traffic figures from British Airways-owner International Consolidated Airlines Group PLC (LON:IAG).
SIG’s update will be closely eyed after the first four months of the year saw mixed trading, with Europe up 2.7% and the UK down 9.2% for a total group like-for-like decline of 2.6%.
Having tackled problems at its UK distribution arm first, SIG’s German and French units are now in focus, with a review on the Air Handling arm also ongoing.
Analysts at Jefferies forecast that the FTSE 250-listed firm’s sales will continue to contract into May and June and so see the full interim results – at a date yet to be confirmed - “as a bigger potential catalyst for the share price, as this is when it will be seen if management’s expectation of a strong profit up-tick in 1H19 has materialised”.
They noted that investors are still likely to seek reassurance that SIG’s operations in France are normalising after a ransomware attack in April and that there are no signs of significant deterioration in any of the group's markets.
“Given the step-up in UK political uncertainty in recent weeks and weaker data (e.g. construction PMI), we see scope for a more cautious tone towards the UK, but expect the outlook towards Europe to remain sanguine,” the Jefferies analysts said.
Significant events expected:
Trading updates: SIG PLC (LON:SHI), Ferrexpo PLC (LON:FXPO)
Traffic figures: International Consolidated Airlines Group PLC (LON:IAG)
Economic data: US non-farm payrolls, average hourly earnings
Around the markets
- Sterling: US$1.2583, up 0.03 cents
- 10-year gilt: 0.679%, down 1.35 basis points
- Gold: US$1,419.40 an ounce, down US$1.50
- Brent crude: US$63.38 a barrel, up 8 cents
- Bitcoin: US$11,197, down US$535
Business headlines
Financial Times
British commandos seized a supertanker suspected to be smuggling Iranian oil to Syria, triggering a diplomatic row between the UK and Iran
Private equity funds targeting distressed property assets raised US$8 billion in the first quarter, which is more money than the last two years put together.
The Times
Bookmaker William Hill is preparing to close betting shops following a clampdown on lucrative fixed-odds betting terminals, which may result into thousands of job losses on Britain’s high streets.
London’s transport agency has given Ola of India, one of the world’s largest ride-sharing companies, permission to launch its ride-hailing service in London.
Superdry has appointed Helen Weir, the former Marks & Spencer finance chief, as its senior independent director and Alastair Miller, the former New Look finance boss, as chairman of its audit committee.
The Daily Telegraph
Foreign secretary Jeremy Hunt refused to rule out sanctions against Beijing over escalating tensions in Hong Kong, which could be bad news for British exports.
Transport Secretary Chris Grayling has opened the door to keeping East Coast mainline, one of Britain’s busiest train lines, nationalised until 2025.
The bailout of Kodak UK’s pension plan put a whopping £600 million hole in the UK lifeboat fund’s reserve pot.
Manchester Building Society has taken its case against the UK’s fifth-biggest bean counter, Grant Thornton, to the Supreme Court.
The Guardian
The National Trust is divesting its £1 billion portfolio from fossil fuels in an attempt to help tackle the escalating climate crisis.
George Osborne’s interest in running the International Monetary Fund has met immediate criticism because of the former chancellor’s austerity policies.
Deloitte has been fined £4.2 million by the accounting watchdog and severely reprimanded over Serco tagging scandal.
Daily Mail
Associated British Foods said that new store openings for cut-price fashion giant Primark helped the High Street chain grow sales over the last nine months.