- FTSE falls 12 points, or 0.17%
- Inflation and higher interest rates back in focus
- Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) is the day’s top performer
4:45 pm: FTSE 100 closes lower after hot US jobs report
The FTSE 100 closed lower Friday as inflation and higher interest rates came into focus on a strong US jobs report.
The unexpected surge in jobs last month -- 467,000 versus an estimate of 150,000 -- spiked bond yields and reaffirmed to investors the Federal Reserve would continue with its plan to raise interest rates as soon as March.
At the close, the UK blue-chip index fell 12 points, or 0.17%, to hit 7,516.
Chris Beauchamp, chief market analyst at online trading group IG, said “optimism is still in short supply” as investors weigh the December jobs report and look to more Fed moves.
“A surprisingly-good non-farms reading has not provided much cheer for equities, which remain generally lower on the final day of the week,” he said.
“Wednesday’s ADP report was a complete red herring, as today’s US jobs report came in strong. But wages are rising too, which brings the inflation story back into play. Try as they might, markets can never really escape this one central theme, which seems to hang over everything at present. Faced with this fresh sign of inflation markets have come under pressure again, and as this busy and volatile week draws to a close the sellers look to be in charge once again.”
The top gainer was Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL), which increased by 3.5% to 2,029.25p.
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US markets have opened lower but it is not the bloodbath seen yesterday.
The Dow Jones average was down 24 points (0.1%) at 35,087 while the S&P 500 was little changed.
Facebook owner Meta Platforms Inc (NASDAQ:FB), which took an absolute shellacking yesterday, has fallen another 5% today but Amazon.com Inc (NASDAQ:AMZN) is 11% heavier after its earnings release last night.
“Management had set a low bar for expectations with a conservative outlook alongside the third-quarter results, the quality of Amazon’s fourth-quarter figures is weak and the guidance for the first quarter of 2022 does not inspire either,” said Russ Mould at AJ Bell.
“That’s not really good enough for a cult stock with a market capitalisation of US$1.4 trillion that represents more than 50 times forecast profits for 2022 and were it not for the financial gains on Rivian Automotive’s stock market flotation and the Prime price hike then Amazon’s shares could have been taken out to the woodshed, along with those of Netflix, Meta Platforms, Spotify, Peloton and other highly-valued firms that have found it hard to maintain stellar momentum as lockdowns have eased.” he added.
2.25pm: Non-farm payrolls "spooks investors"
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said with commendable understatement that the US jobs report was a much stronger report than expected.
“As well as the upside surprise in January, the net revision to the previous three months was a huge +709K; December has been revised up to 510K from 199K. The strong Homebase data for December were not wrong after all. In January, the error against our forecast is about two-thirds in the unadjusted numbers, which were 360K stronger than we expected – reversing the Dec error – with the remainder of the error in the seasonal adjustment, which was something of a wild card for this month,” Shepherdson said.
“These data make it clear that the labour market ahead of Omicron was much stronger than previously believed, and it’s very tempting to argue that the Jan data mean that all danger of an Omicron hit has passed. We’re a bit more cautious than that, not least because the near-real-time data fell through most of Jan and have only just begun to recover. The Feb payroll survey is next week, so the lags between activity and employment suggest that the net change in payrolls between Jan and Feb could yet be very small or even negative,” he added.
Almost all the job growth in January was in private services, Shepherdson noted. He also described the 0.7% increase in average hourly earnings (AHE) as “disconcerting, because AHE growth usually is constrained by big increases in employment in low-paying sectors like leisure”.
The US unemployment rate rose to 4.0%, ahead of the consensus forecast of 3.9%.
Dan Boardman-Weston, the chief investment officer at BRI Wealth Management, said markets are likely to be spooked by the non-farm payroll data.
“It’s an impressive set of figures given that the US has been battling a huge rise in Omicron infections and it shows that employers are still confident enough to continue hiring. The data is likely to add further pressure on the Fed to start raising interest rates and unwinding their trillion-dollar balance sheet. Markets are likely to be spooked by the numbers and we’d expect that stocks that are more sensitive to higher interest rates will continue to be volatile over the coming months if economic data remains robust,” he added.
In London, investors are not exactly spooked but they seem a bit dubious with the FTSE 100 sliding 20 points (0.3%) to 7,512.
The FTSE 250, down 180 points (0.8%) at 21,788 is faring even worse, with the pound down almost three-quarters of a cent against the US dollar.
1.35pm: US jobs report springs a surprise
The US economy added 467,000 jobs in January, massively above the 150,000 economists were expecting but down from the 510,000 jobs added in December.
US average hourly earnings increased by 23 cents (0.7%) to US$31.63.
US stock index futures weakened after the jobs data.
In London, the FTSE 100 was up 5 points (0.1%) at 7,534, led by the heavily-weighted Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) and BP PLC (LSE:BP.), both of which are up by more than 3.0%.
1.00pm: Hanging on to slim gains
London's blue-chip stocks are hanging onto their slim gains, helped by more stock indications turning green across the Atlantic.
However, a lot of the bullish mood around Amazon's earnings, which was helping to lift sentiment earlier, is starting to evaporate.
After-market trading had Jeff Bezos's baby up over 15% at one point.
But dig down into the numbers and plenty of observers are suggesting they do not look so hot, with operating income decreasing in the fourth quarter year on year.
The headline numbers are "massively flattered" by Amazon's Rivian investment, notes Neil Wilson at Markets.com.
"This one-off accounting trick was responsible for 82.5% of Amazon’s net income, which doubled to $14.3bn from $7.2bn a year ago. Big increase in staff costs and lower guidance for the current quarter; not exactly a blowout, confidence-inspiring earnings report."
Over at AJ Bell, analysts elucidate six reasons why the results are "a lot worse than they look".
“Management had set a low bar for expectations with a conservative outlook alongside the third-quarter results, the quality of Amazon’s fourth-quarter figures is weak and the guidance for the first quarter of 2022 does not inspire either," said AJ Bell's Russ Mould.
“That’s not really good enough for a cult stock with a market capitalisation of $1.4 trillion that represents more than 50 times forecast profits for 2022."
He suggested that if it were not for the financial gains on the Rivian flotation and a price hike to the Prime service, then Amazon’s shares "could have been taken out to the woodshed", along with those of Netflix, Meta Platforms, Spotify, Peloton and other highly-valued firms that have found it hard to maintain stellar momentum as lockdowns have eased.
(For more reading on the insane swings in big tech stocks in recent days, try this: Amazon set for huge gain after Meta’s record one-day loss - what’s happening with markets?)
Back home, the FTSE 100 is up just 3 points now at just under 7,532.
The FTSE 250 meanwhile is down 0.4% at 21,885.44.
11.57am: FTSE gains wiped out
The Footsie index has dropped into the red, joining the rest of Europe under water, as US futures point to a mixed start after last night's blood-letting.
Having skimmed a two-year high of 7,600, up almost 1%, early in the session the FTSE tumbled all the way down into negative territory as midday approached.
At last look, the benchmark was up 7 points at 7,536, the only member of the European stock markets in the green.
Wall Street, following yesterday's tech-induced carnage, is not sure of its mood quite yet, according to futures markets.
Futures for the Nasdaq 100 are pointing at a 0.6% gain, boosted by a jump for Amazon.com Inc (NASDAQ:AMZN) and Snap Inc (NYSE:SNAP) shares in premarket trading, following earnings reports after the market close.
Pre-market trading earlier suggested Amazon.com Inc (NASDAQ:AMZN) could be heading for the biggest one-day gain in stock market history, though the rise has eased from 18% to 11%.
On the other side of the coin, Dow Jones and S&P 500 futures are in the red, down 0.4% and 0.1% respectively.
Much however will depend on the US jobs report due at 1.30pm London time (8.30am ET).
Investors seem to be a bit nervous as they await the latest monthly jobs report, with economists estimating that employers added 150,000 jobs in January, from 199,000 in December, with average wages growing 5.2% compared to 4.7% last time.
Walid Koudmani, market analyst at XTB.com said: "As usual for the first Friday of the month, investors will be focusing on the highly anticipated non-farm payroll report from the US which will give an overview of the job market situation for January and which is expected to show an increase of only 150,000.
"However, this report will be even more highly focused on since Wednesday's ADP report surprised markets with a significantly below expectation reading of -301,000 and pointed to increasing difficulties in the world's largest economy caused in part by the Omicron variant."
He added: "While rising costs and supply concerns continue to impact the economic recovery, the Fed maintains its position that full employment has been reached and that it will adjust its policies when it deems necessary in order to stimulate further growth.
"A better than expected result could encourage the Fed to continue its approach, while a disappointing reading could cause further concerns and may shift focus slightly on wage figures and their relation to record level inflation in the world's largest economy."
"Either way, today could see a noticeable increase in volatility as investors assess the situation and as stock markets attempt to stabilize after several weeks of significant moves," Koudmani concluded.
10.50am: Strong gains ebbing away
London stocks are giving up their early gains despite some encouraging data on UK car sales, which are edging higher but still struggling well below pre-pandemic levels.
Private new car registrations totalled 62.3K in January, above the 37.9K a year earlier but below the 71.4K from the start of 2019.
Total registrations, including business and fleet sales, totalled 115.1K, versus 90.2 last year and 161K two years ago.
Private car sales were 13% below their January average from 2015 to 2019, a deterioration on the 10% shortfall in December.
According to figures from the Society of Motor Manufacturers and Traders (SMMT), January’s growth was driven by sales of electric vehicles (EV), with battery (BEV), plug-in hybrid and hybrid cars accounting for 71.5% of the uplift in registrations.
Registrations of plug-ins and battery-electric, of which there are now more than 140 plug-in car models available to UK buyers and almost 50 more scheduled for release in 2022, represented 20.4% of the market.
“Given the lockdown-impacted January 2021, this month’s figures were always going to be an improvement but it is still reassuring to see a strengthening market,” said SMMT chief executive Mike Hawes.
“Once again it is electrified vehicles that are driving the growth, despite the ongoing headwinds of chip shortages, rising inflation and the cost-of-living squeeze.”
Economists at Pantheon Macroeconomics said the intensifying squeeze on real incomes, alongside the disruption caused by the Omicron variant, appears to have weighed on private car sales in January compared to December.
"This chimes with other indicators that suggest demand is weakening. Google Trends data show that the number of searches for the top ten car brands dropped in January to 72% of its pre-Covid level, down from 86% in the second half of 2021. Looking ahead, we doubt that car sales will return to their pre-Covid levels this year," said economist Sam Tombs.
He noted that households’ real disposable income is set to fall by between 1.5% and 2.0% this year, with the crunch point in April when energy bills will soar and taxes will rise, while the recent increase in the interest rate to 0.50% will push up the cost of car finance.
9.49am: Construction data boost
London stocks were giving up some of their gains but a strong set of data has provided an extra boost.
The UK construction purchasing managers' index (PMI) from IHS Markit printed at 56.3 for January, well above the boom/bust mark of 50 and also ahead of market expectations for 54.3.
Business activity in the UK construction sector increased for the twelfth consecutive month, the survey found, with growth picking up since December.
Encouraging signs were flagged for the near-term outlook too, with new orders rising at the fastest pace since last August and input buying was the strongest for six months.
Encouragingly for inflation, the sector's rate of inflation eased to its lowest for 10 months in January despite rapid rises in raw material prices, energy costs and transportation bills continuing to push up business expenses.
Inflation was the big scary spectre that led the Bank of England to yesterday make its second interest rate hike in as many months.
The yield on 10-year UK government gilts has risen above 1.4%, the highest since November 2018.
READ: Bank governor expects household income squeeze to last into 2023
Talking of inflation, analyst Neil Wilson at Markets.com is still stewing at the Bank of England and governor Andrew Bailey after yesterday he gave an interview where when asked if the Bank was implicitly asking workers not to demand big pay rises, he said, "broadly, yes".
Here's Wilson's response: "The governor of the Bank of England, Andrew Bailey, says we can do our bit to help to battle rising inflation by not asking for wage increases.
"Coming from someone who’s been sleeping at the controls for the last 18 months, that is not exactly helpful. How about doing your job? By which I mean getting a grip on inflation before it sets in – which would have been to gently tighten last summer. Too bad that moment was lost. Can’t believe I actually would like Mark Carney back."
9.30am: Surge at the open
The FTSE 100 surged higher in early trade on Friday, lifted by rises from oil giants, housebuilders and miners.
With Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) leading the way, the index jumped almost 71 points or 0.9% to 7,599.62, putting it back on course to regain its recent two-year highs.
Tech-related stocks were also on the leaderboard, including Scottish Mortgage Investment Trust PLC (LSE:SMT), after a bullish after-hours reaction overnight to earnings from Amazon.com and Snap.
Markets analyst Susannah Streeter at Hargreaves Lansdown agreed that the "rollercoaster ride on the financial markets" was lurching back upwards across Europe this morning in large part to the encouraging results from the US tech duo, in what was "a relief rally at the end of a tumultuous week".
As this followed the value of Meta Platforms, the owner of Facebook, sinking by the largest amount ever recorded in a session, more than US$200bn, Streeter said: "When Facebook loses a chunk of value bigger than the size of any company listed on the FTSE 100 it demonstrates just how sensitive tech investors are right now to a whiff of weakness, but also the astronomical gains the tech giants made during the pandemic."
"It shows how patience is running very thin for companies investing heavily now, for profits down the line. This is particularly the case if they are falling so out of favour with the younger generation, who will be crucial to attract to promise of the metaverse which Meta is ploughing cash into."
6.31am: Set for higher start
For once, we can’t trot out the old cliché about traders sitting on their hands ahead of the US jobs report, as the Footsie looks set to open higher.
Spread betting quotes point to the index rising 50 points or so from last night’s close.
“As we look ahead to today’s price action, European markets look set to open higher in the wake of last night’s after-hours surge in US markets, as attention now shifts to this afternoon’s US payrolls report for January,” wrote Michael Hewson at CMC Markets.
“Expectations are low for the headline number having seen weak reports for November and December, with numbers of 249k, and 199k respectively, although unemployment fell back to 3.9%, and looks set to stay at that level, when the latest numbers drop today.
“We’ve already been set up for a weak number for January by Philadelphia Fed President Patrick Harker earlier this week when he said that because of the Omicron surge, and the sharp rise in weekly jobless claims at the beginning of January that the Fed was likely to look past a disappointing report. Nonetheless, this week’s ADP report gave us a foretaste of what to expect today when a forecast of 180k turned into a decline of -301k, with the decline put down to sickness, or absences due to people isolating through exposure to an infected person,” he added.
US markets took a bath yesterday with the Nasdaq 100 posting its worst one-day fall since March 2020, as investors bailed out of stock in Meta Platforms, the giant advertising and personal data harvesting machine that owns Facebook.
The Dow Jones, down 518 points at 35,111, got off relatively lightly while the S&P, 112 points lower at 4,477, didn’t.
After-hours in the US, online retailer and server storage leviathan Amazon.com Inc (NASDAQ:AMZN)provided some respite for reeling backers of the so-called FAANG stocks, as its shares rose in screen-based trading despite fourth-quarter net sales of US$137.4bn (on a constant exchange rates basis) being a tad behind analysts’ expectations.
“The market is having a positive reaction to what is on some level a disappointing set of results. For major tech stocks to avoid being pummelled at the moment, they need to knock it out the park which arguably Amazon hasn’t done. The helpful conditions from the pandemic have actually turned out to be a nightmare for the bottom line. Enormous infrastructure bills to allow Amazon to capture the permanent increase in demand for online shopping, cost inflation, plus impossible comparisons with sales rates this time last year, means Retail profits are in freefall. As an employer of over one million people, wage increases are also going to have a huge impact,” said Sophie Lund-Yates at Hargreaves Lansdown.
“There has been considerable strength in advertising services rising a third to over $9bn. This is likely a core reason behind the positive share price reaction and echoes positive advertising sentiment from Alphabet. Selling digital ad space is a cash generative nice-to-have in times of uncertainty. As is the ability to pump up the cost of Prime, those extra couple of dollars across the millions of affected users will do wonders for cash flow. It’s also proof of Amazon’s inherently sticky customer base.
“Every single drop of profit is being generated by the mushrooming Amazon Web Services cloud business. It’s hard not to admire the business model and potential for further growth as cost inflation causes companies to seek efficiencies, which plays into the hand of cloud providers; however, no one should lose sight of the fact Amazon is supposed to be a retail giant, and it’s not the greatest look for the support act to be seen keeping profits afloat,” she added.
6.50am: Early Markets - Asia / Australia
Hong Kong’s Hang Seng index surged more than 3% after returning to trade on Friday following the Lunar New Year holidays.
Markets in Mainland China remained closed on Friday for the holidays.
Japan’s Nikkei 225 gained 0.73% while South Korea’s Kospi surged 1.57% to 2,750.24.
Australia’s S&P/ASX200 closed 0.60% higher at 7120.2 points, with the energy sector supporting gains as crude prices hit multi-year highs.
Iron ore producer Fortescue Metals Group (ASX:FMG) was also among the market leaders, gaining 9.7% to A$21.34.