- FTSE 100 closes off 6.89 points
- November US jobs around half figure expected
- Oil price on the rise after OPEC+ keeps production policy unchanged
4.50pm: Weak end to a volatile week
The FTSE 100 index ended a topsy-turvey week slightly lower on Friday, having reversed from earlier gains in the afternoon as US stocks took a tumble following a much weaker than expected November US non-farm payrolls (NFP) report.
At the close, the UK blue-chip index was 6.89 points, or 0.1% lower at 7,122.32, above the session low of 7,109.72, but well below the day's peak of 7,196.05.
On Wall Street, around London’s close, the Dow Jones Industrials Average was down 150 points, or 0.4% at 34,487, while the broader S&P 500 index shed 1.2% and the tech-laden Nasdaq Composite dived 2.4%.
Chris Beauchamp, chief market analyst at IG, a global leader in online trading commented: “The week is ending on a sour note for equities, which remain in thrall to the potential spread of the Omicron variant, and are also sulking in the wake of a poor NFP figure.
“Hopes of another 500K+ month of job creation were dashed, and while the unemployment rate dropped, a slower pace of wage increases has contributed to a general move out of risk assets. Growth fears are taking centre stage across markets, as a slowing recovery threatens to put more pressure on stocks after a strong year for the headline indices.”
He added: “Until the extent of the hit from Omicron becomes clearer it looks like we have more downside to come in indices, with intraday bounces being sold. For investors who had expected a steady climb in December, this will come as a rude surprise, but with the Vix still at an elevated level dramatic moves in equities remain the norm. This is still quite the change from earlier in the year, and is somewhat reminiscent of the volatility of early 2020, although in a much milder form for now.”
Beauchamp concluded: “Expectations of tighter Fed policy mean that the dollar remains well-supported, giving investors another reason to be cautious about buying the dip in stocks. Some of the shine has come off crude prices too, as the post-OPEC+ bounce fades. Now traders in the commodity can go back to fretting about economic growth and demand, and whether both these elements can recover sufficiently to provide the foundation for further gains in the price.”
3.50pm: Looking a non-event
Despite some surprising numbers in today’s US jobs report, Friday has proved to be a bit of a non-event for UK equities.
The FTSE 100 was up 15 points (0.2%) at 7,144, thanks largely to the strength of the oil giants BP PLC (LSE:BP.) and Royal Dutch Shell PLC (LSE:RDSB), which are getting a lift from the stronger oil price.
“Oil prices rebounded from yesterday’s session lows after OPEC+ decided to keep its oil production policy unchanged and add another 400,000bopd [barrels of oil per day] on the market in January,” SP Angel reported.
“Expectations were that OPEC+ would opt for a pause in the monthly increases because of the still high uncertainty over the Omicron COVID variant, the SPR releases led by the US, and an anticipated oil surplus early next year,” the resources specialist added.
“With still little information on the new variant and whether it escapes vaccine protection, OPEC+ looks ready to take further action, if necessary, but it is showing it is not over-reacting to Omicron,” SP Angel opined.
2.50pm: Phlegmatic response to puzzling US jobs data
Mixed unemployment data from the US has left UK equities sitting where they were; modestly in profit by and large.
The FTSE 100 was up 26 points (0.4%) at 7,155.
“Friday's US employment data was mixed: the headline figure for the increase in nonfarm payrolls was much below estimates (but still positive). On the other hand, the unemployment rate plunged more than expected despite a higher-than-expected participation rate (excellent!),” said BDSwiss’s Marshall Gittler, presumably channelling Bill & Ted or possibly Montgomery Burns from The Simpsons.
“The headline NFP [non-farm payrolls] number - the number of new jobs -- was quite disappointing, less than half as much as expected (210k vs 550k). Still, it's positive - employment is growing. What we don’t know if why it’s growing so slowly. It may be just that people don’t want to work, in which case we could be near “maximum employment” anyway,” Gittler speculated.
“In that respect, the more significant take-away from the figures I think is the sharp drop in the unemployment rate to 4.2% from 4.6% (4.5% expected). This came despite a bigger-than-expected rise in the participation rate (to 61.8% from 61.6%, 61.7% expected).
“How could payrolls & the unemployment rate be so different? They come from different surveys. The NFP comes from a survey of employers (they ask how many people you're employing) while the unemployment rate comes from a survey of households (they ask how many people were working). The household survey showed a HUGE increase in employment (1136k) vs the small NFP increase (210k),” he added.
Singing a similar tune was Dawad Razaqzada of ThinkMarkets.
“Disappointing,” was his verdict, “but not a game-changer.”
“Today’s US jobs report was never going to be blockbuster in terms of market impact. This is because Fed Chairman Jerome Powell had already set out the near term path of monetary policy at his testimony this week,” he reported.
“Shortly after the publication of the jobs data, we saw very mild reaction in the market. In immediate response, the dollar fell slightly while stock index futures and gold gained ground. Moments later we were back at pre-NFP levels,” he reported.
1.35pm: Stocks shrug off US jobs surprise
US non-farm payrolls rose by 210,000 in November, way below the number expected.
On the plus side, October’s rise was revised upwards to 546,000 from 531,000 but this was still a big miss; economists had expected an increase of around 550,000.
Meanwhile, the unemployment rate fell to 4.2% from October’s 4.6%. Once again, economists were wrong-footed although this time with too pessimistic a view – the consensus forecast had been for a rate of 4.5%.
Despite the jobs numbers disappointing, the FTSE 100 remained around the 7,160 level, up 30 points.
11.45am: US stocks to open lower
US stocks are expected to open lower on Friday following a volatile week for equities as investors await the latest non-farm payrolls (NFP) data, due for release ahead of the market open.
Futures for the Dow Jones Industrial Average declined by 0.27% in pre-market trading, while the broader S&P 500 index shed 0.31% and those for the tech-heavy Nasdaq 100 fell 0.31%.
Stocks closed higher on Thursday in a sharp rebound a day after the new coronavirus (COVID-19) variant Omicron drove investors into a massive sell-off.
“Investors are coming back into some oversold names, suggesting they are seeing some buying opportunities if Omicron is not as bad as feared,” commented Neil Wilson, chief market analyst from Markets.com.
Wilson noted that "reopening" stocks led the way with big gains for the likes of Delta Airlines, Wynn, Carnival and Norwegian Cruises, suggesting investors thought some of the moves against stocks tied to travel were overdone this week. Strong banks and energy stocks also assisted the Dow’s gains.
“Today’s data sheet focuses on the US non-farm payrolls report; however the Fed’s recent hawkish pivot and acknowledgement of inflation risks mean the labour market is not the key to guessing monetary policy going forward," Wilson added.
10.35am: Early gains vanish
Having had an hour or so to pick over the bones of this morning’s Services PMI, investors have been quietly closing down equity positions.
The FTSE 100 is up barely changed – up two points – at 7,131, which is not an unusual position ahead of the US jobs report on the first Friday of each month.
But back to those PMI figures, which were far from terrible…
UK Services PMI slips back in November, come in at 58.5, from 59.1, exp: 58.6
— Michael Hewson ???????? (@mhewson_CMC) December 3, 2021
“The services PMI edged down from 59.1 in October to 58.5 in November, but this was still well above the long-run average (54.5) and consistent with a rapid pace of activity growth. The detail of the survey was mostly consistent with a sector performing strongly. New orders growth accelerated to a five-month high on the back of both strong domestic demand and the fastest pickup in export orders for more than four-and-a-half years but labour shortages caused backlogs to accumulate and helped to drive record increases in both input costs and prices charged,” said Martin Beck, the chief economic advisor to the EY ITEM Club.
“The EY ITEM Club expects the services sector to lose some momentum in December, following the discovery of the Omicron COVID-19 variant. Though the Government has introduced relatively minor restrictions so far, consumers may adopt a more cautious approach, particularly to social consumption activities, such as going out to eat.
“This caution is also likely to extend to the MPC [Bank of England’s Monetary Policy Committee]. Without the new variant, the strength of the incoming data, and diminishing concerns about the impact of the end of the furlough scheme, looked to be tipping the balance in favour of a December rate rise but unless the potential impact of the Omicron variant becomes clearer in the next two weeks, the EY ITEM Club expects the MPC to err on the side of caution and wait for the February meeting before raising the Bank Rate,” Beck said.
Beck’s comments were echoed by Gabriella Dickens, the senior UK economist at Pantheon Macroeconomics. Or possibly Beck echoed Dickens’s comments as her press release wasreceived a few minutes ahead of Beck.
Dickens described November as a month of solid growth in November but said Omicron already has triggered a consumer pull-back.
“Near-real-time indicators suggest that some consumers already have turned more cautious again. OpenTable data show that diner numbers in the five days to December 1 were only 5% above their level two years ago, compared to 17% above in the equivalent five days of the previous week. In addition, Google Trends data show that the number of people searching online for phrases including “restaurant”, “pub” or “gym” has fallen over the last week,” she noted.
9.40am: Service sector's business activity expands in November
The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) for November was little changed from the flash estimate, at 58.5.
The reading – any level above 50 indicates an expansion in business activity – was down from October’s three-month high of 59.1.
“Surging price pressures have done little to dent business and consumer spending across the UK economy, according to the latest PMI data. New order growth hit a five-month high in November, job creation remained strong, and backlogs of work built up due to supply issues,” reported Tim Moore, the economics director at IHS Markit, which compiled the survey data.
"The overall speed of recovery looks to have accelerated in comparison to the third quarter of 2021, with output growth mostly driven by services as manufacturers struggle with severe shortages of raw materials and critical components.
"The vast majority of survey responses in November were received prior to the news of the Omicron variant, however, which has the potential to derail near-term growth prospects and add to international supply chain disruption,” Moore cautioned.
"Hospitality has been a top-performing area of the UK economy in recent months and looser international travel restrictions delivered a considerable boost to export sales in November. Worryingly, the fastest-growing parts of the service sector are also the most exposed to the return of tighter pandemic restrictions, especially as we approach the crucial festive spending period,” he added.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS) said services provision in the UK continued to expand in November as “domestic pipelines of work perked up and overseas orders piled in”.
UK Markit Services PMI Nov F: 58.5 (est 58.6; prev 58.6)
- Markit Composite PMI Nov F: 57.6 (est 57.7; prev 57.7)
— LiveSquawk (@LiveSquawk) December 3, 2021
"This ongoing demand was fuelled by a slight recovery in supply chain performance in some quarters and travel opportunities opened up for more business. Firms were keen to improve on their capacity as hiring levels were maintained even if job seekers kept the upper hand in terms of choice and salary uplifts. Consumers were eager to enjoy the upcoming holidays and spend from their pandemic piggy banks in spite of prices rising at their highest levels since July 1996,” Brock said.
"With all these reasons to be jolly, firms remained short on festive cheer. Business optimism registered at the lowest level since November 2020 as higher wages, fuel, and material costs were still giving businesses a hangover. Input prices rose to another survey record with 64% of supply chain managers paying more to keep their businesses operating, which begs the question – how long can this continue and can businesses keep up?" he wondered.
The FTSE 100 remained in positive territory at 7,145 but the advance had been trimmed to 16 points (0.2%).
8.40am: Nobody mention a Father Christmas rally, right?
Saints preserve us from the mention of a Father Christmas rally – or worse still, a Santa rally – but I fear the phrase is going to get used today.
The FTSE 100, as expected, has opened on the front foot, with a 42 point (0.6%) gain to 7,172, helped in no small measure by BP PLC (LSE:BP.) climbing 2.3% on the back of a 2.7% increase in the price of Brent crude.
Also going well in the early action are stocks that are especially sensitive to the prospects of further lockdown measures. British Airways owner International Consolidated Airlines Group (LSE:IAG) SA, up 2.9% at 136.12p, is the top riser (and to hell with the increased price of fuel implied by rising oil prices), while aerospace engineer Rolls-Royce Holdings PLC (LSE:RR.) is 1.5% heavier at 127.32p.
Hospitality stocks such as contract caterer Compass Group PLC (LSE:CPG) and hotelier InterContinental Hotels Group PLC are also in demand; the former is up 1.8% and the latter is 1.5% firmer.
DIY retailer Wickes Group (LSE:WIX) PLC has hammered out an 8% gain at 232.2p after lifting full-year profits guidance.
Among the small caps, Beowulf Mining PLC (AIM:BEM) is the top riser with a 22% advance to 8.875p as hopes rise of a change of attitudes in Sweden towards mining projects.
“Markets have regained some poise at the end of a difficult week which was marred by Omicron fears and an increasingly hawkish outlook from central banks,” said Richard Hunter at interactive investor.
“Investors switched into optimistic mode following the earlier Federal Reserve suggestion that the end of the tapering programme and therefore the beginning of interest rate hikes could come earlier than expected next year. Alongside no immediate change to its supply plans at OPEC, there is a growing feeling that future variants may not, after all, be enough to derail economic policy per se.,” Hunter ventured.
6.35am: Stocks to open higher ahead of November US jobs report
It’s the first Friday of the month and that means US non-farm payrolls and the usual cautious start for UK equities.
To be fair, the FTSE 100 index is set to rouse itself a bit and open 33 points higher at 7,162 according to spread betting quotes.
“With the ADP [private payrolls] report... showing a strong number on Wednesday, of 534k, expectations are for a similar 550k jobs to be added on top of the decent numbers seen in the past two months,” said CMC’s Michael Hewson.
“The unemployment rate is also expected to fall further to 4.5% with a particular focus on wages, while the participation rate is expected to tick up to 61.7%,” he added.
Yesterday, US markets stormed ahead as investors stopped worrying and learnt to love the Omicron virus – a strange love indeed – with the Dow Jones up 618 points at 34,460 and the S&P 500 64 points to the good at 4,577.
“US stock markets roared higher overnight as omicron nerves settled on initial indications that the new variant is very contagious, but less severe symptom-wise. Whether that is the case or not remains to be seen and omicron sentiment will continue driving swings in market direction into next week. It was enough to flush the FOMO [fear of missing out] gnomes of Wall Street into action though, with stock markets rallying impressively on Wall Street,” said OANDA’s Jeffrey Halley.
Asian markets are mixed this morning with the Nikkei 225 in Tokyo up 247 points at 28,000 and the Hang Seng in Hong Kong down 34 points at 23,755.
“Nerves continue to swirl in the China property space as well today, with troubled developer Kaisa failing to gain the 95% approval to swap out its maturing $400 million, note due next week, for longer maturities. Default risks have now reached deafening levels for Kaisa who have until December 7th to pay. Additionally, a 30-day grace period on an $82.50 million coupon for Evergrande falls on 6th December next week,” Halley reported.
China Caixin Service PMI - Full Reporthttps://t.co/rUKYagiLAC pic.twitter.com/MXV74KXLnz
— LiveSquawk (@LiveSquawk) December 3, 2021
“China’s Caixin Services PMI for November fell unexpectedly to 52.1 this morning from 53.8 in October, raising fears that domestic consumption is fading on the Mainland on rising labour and energy costs, as well as selective virus restriction. That has overshadowed improved services PMI data from Japan, Australia, Singapore and Hong Kong. South Korean markets are struggling as well, with virus cases surging, capping gains on the Kospi and also the Won.
“Add in the danger of being whip-sawed on random omicron headlines, it's hardly surprising Asia wants to sit the rest of today out. I expect a similar response from Europe as well,” the OANDA analyst proclaimed.
On the corporate front, another quiet Friday is in prospect, made quieter still by the fact that it is early December and not far enough away from the end of September for the third-quarter updates to start rolling out.
Around the markets
- Sterling: US$1.3298, down 0.08 cents
- Gilt: 0.814%m down 0.94 basis points
- Gold: US$1,766.30 an ounce, up US$13.60
- Brent crude: US$70.77 a barrel, up US$1.10
- Bitcoin: US$56,742, down US$162
- Ethereum: US$4,569, up US$24
6.50am: Early Markets - Asia / Australia
Tech stocks in Hong Kong fell after ride-hailing giant Didi said that it will begin taking steps to delist from the New York Stock Exchange.
This comes less than six months after Didi was listed in the U.S.
Asia Pacific shares were mostly higher except Hong Kong’s Hang Seng index, which slipped 0.17%.
China’s Shanghai Composite rose 0.88% and the Shenzhen component climbed 0.232%.
The Nikkei in Japan surged 1.00% while South Korea’s Kospi gained 0.88%.
Australia’s S&P/ASX200 closed 0.22% higher at 7241.2 points with energy and finance stocks the big winners.