- FTSE 100 up 22 points
- US adds 431,000 jobs in March
- Talks between Ukraine and Russia are progressing
4.55pm: April starts positively
The FTSE 100 finished the week and started the new month and quarter on a positive note, ending 22 points higher at 7,538 points, a 0.3% gain.
The market continues to be headline driven, with the news coming thick and fast, said Craig Erlam, senior market analyst, UK & EMEA, OANDA.
“Talks between Ukraine and Russia are progressing well, it seems, but things can change rapidly, for better or worse,” he said. “Until we see a deal, the situation will continue to feel precariously balanced and investors will remain on edge as a result.”
Erlam said a US jobs report released earlier in the day was once again quite strong, even if the headline non-farm payroll number fell a little short of expectations.
“The creation of 431,000 jobs is still extremely good at a time when unemployment is falling to 3.6%, which surpassed expectations,” he added. “Throw into the mix higher participation which the Fed will no doubt be pleased to see as this is one thing that can alleviate some of those wage pressures and it's hard to find fault with the report.
3.30pm: Gains resume
“Today’s Nonfarm Payrolls data reaffirms the Fed’s view that the labour market is extremely tight,” according to Yash Chauhan, an analyst at Validux Risk Management.
“The rebound in ‘Leisure and Hospitality’, where most of the jobs were lost during the pandemic, continues to be one of the main contributors. Unsurprisingly, the hourly earnings also increased given the shortage of workers in the industry as participation remains below pre-pandemic levels,” Chauhan added.
“Going forward, we expect this trend to continue as workers may be motivated to come back into the labour force attracted by higher wages, and inflation eating into household savings.
“We are aligned with market pricing in terms of a 50-bps [half-point] hike in the coming FOMC meeting, but are more cautious when it comes to the market pricing in about eight hikes for the year. We believe that the risk of the Fed not delivering on its guidance is greater now more than ever.
“In recent months, it seems like the Fed has been listening to the market and the inversion of yield curve pointing to a possible recession could make the case for re-evaluation of their strategy,” the analyst added.
James Knightley, the chief international economist at ING, said it was a solid jobs update that would justify swift interest rate hikes by the Federal Reserve.
“It’s fair to say that the job creation numbers would be even better were it not for employers struggling to find suitable workers. This week’s Jobs Opening and Labour Turnover Survey report showed there are more than 11mn vacancies in the US so there is absolutely no issue with demand. It is that lack of supply of workers that is holding back the economy. There are now more than 1.8 vacancies for every single unemployed person with yesterday’s National Federation of Independent Business (NFIB) survey showing a net 47% of small businesses having job openings they couldn’t fill,” Knightley reported.
“Will supply of workers improve? Well, labour participation rates remain relatively low and the notion of people making lifestyle changes could explain this. People who have seen their 401k retirement plans surge in value, for example, or some people who built up a cash reserve due to financial support may not feel it is the right time to return yet. Also, the pandemic still makes some people reluctant to return to work full time while (legal) immigration, which could pick up some of the slack, has been restricted due to the pandemic,” he added.
The FTSE 100 was up 28 points (0.4%) at 7,543.
2.15pm: Phlegmatic response to US jobs numbers
US payrolls rose less than expected in March but with previous months’ totals revised up by 95,000, the market did not seem overly bothered.
The FTSE 100 has come off the top somewhat at 7,528 but is still up 12 points (0.2%).
“Payrolls 431K and Private Payrolls at 426K were slightly below forecast, but with prior months revised up a net 95K (it’s been a long time since there were any downward revisions), this was a wash. Strength was broad-based, but obviously primarily paced by Services,” said Marc Ostwald, the chief economist at ADM Investor Services.
“Household Survey was even stronger, with a 736K rise in Employment, while Unemployment fell 318K, and the Labour force grew by 418K, which helped to push the Unemployment Rate a little more than expected to 3.6% from 3.8%. Most notable was the drop in the Underemployment to 6.9%, matching prior cyclical lows,” he added.
Craig Erlam at OANDA said the US jobs report was “again quite strong” even if the headline figure fell a bit short of expectations.
“The creation of 431,000 jobs is still extremely good at a time when unemployment is falling to 3.6%, which surpassed expectations. Throw into the mix higher participation which the Fed will no doubt be pleased to see as this is one thing that can alleviate some of those wage pressures and it's hard to find fault with the report. As it is, wages are still rising strongly at 5.6%, somewhat offsetting the inflation drag. Ultimately, this means plenty of rate hikes this year and probably more chance of one or two super-sized, the first of which is now heavily priced in for May,” Erlam said.
1.39pm: US jobs numbers lower than expected
US non-farm payrolls in March rose by 431,000, below the consensus forecast of around 480,000.
US average hourly earnings rose by 13 cents per hour, or 0.4% in March, to US$31.73.
Back in London, the FTSE 100 was up 27 points (0.4%) at 7,543.
11.50am: More gloom and doom, this time from the British Chambers of Commerce
Though the new energy price hike is incoming today, it's not just households feeling the inflationary pain, with a new British Chambers of Commerce (BCC) survey indicating 77% of survey respondents cited inflationary pressure as their main concern, up from 66% in the previous quarter.
And 62% of businesses expect their prices will rise in the next three months, a new high and up from 58% in the final quarter of 2021. A mere 1% of survey respondents expect a decrease in their prices.
Rising raw materials prices were cited by 92% of respondents as a cause of pressure on margins, while 56% pointed to increased overheads, 34% highlighted pay settlements and 19% finance costs.
“High price pressures suggest that the current inflationary surge will escalate significantly in the coming months. The reversal of the hospitality VAT cut, the higher energy price cap and soaring energy and commodity prices amid Russia’s invasion of Ukraine, should lift inflation well above 8% in the near term,” said Suren Thiru, the head of economics at the BCC.
Across the Atlantic, stocks are expected to open higher, ahead of the pivotal US non-farm payroll (NFP) numbers due out this afternoon that could drive the US Federal Reserve to a steeper path for interest rates.
If the labour market remains strong, expectations of larger interest rate rises will solidify further and markets will have to consider if inflation-busting rate increases will choke off economic growth.
Futures for the Dow Jones and the S&P 500 were both 0.4% higher, while contracts for the tech-powered Nasdaq-100 are pointing 0.5% higher.
“The Federal Reserve says inflation rather than jobs is now its primary source of concern. Therefore, it is likely to be more interested in wage growth than the headline jobs data, particularly with a view to forming a decision on whether interest rates should go up at its next policy committee meeting on 4 May, and by how much,” Russ Mould, investment director at AJ Bell said.
“Bond markets have recently been flashing the type of warning signs that have historically come before a recession and so investors will be watching today’s jobs figures like a hawk. Wage growth exceeding forecasts could cause markets to wobble but equally, that might encourage the Fed not to be overly aggressive at its next policy meeting” he added.
The forecast for the March NFPs is for 492,000 new jobs and for wage growth to reach 5.5% while the unemployment rate is expected to dip to 3.7% in March from 3.8% in February. The data is due out at 8.30 am New York time or 1.30pm in London.
10.35am: Fallers
Biggest fallers on the FTSE 100 this morning are Electrocomponents PLC (LSE:ECM), the distributor of industrial and electronics products; Compass Group PLC (LSE:CPG), the catering giant; and pharma colossus AstraZeneca PLC.
Electrocomponents is giving up the gains from yesterday's strategy update.
READ: Electrocomponents goes back to the future with new name
AZ is slipping lower in line with the wider Big Pharma sector today.
10.07am: ECB rate hike expected after inflation spike
The FTSE is holding onto its modest gains at 7542, while European bourses have all just given up some of theirs on surprisingly bad inflation numbers.
UK manufacturing numbers were also out and were slightly weaker than expected in March, but still in growth mode.
The UK manufacturing purchasing managers' index (PMI) came out at 55.2, while a reading of 55.5 was expected, based on the initial estimate.
In Europe, manufacturing output looks to have slowed and the outlook soured on the back of the rising risk of rationing of gas supplies in some parts of the eurozone.
The eurozone manufacturing PMI fell to a 14-month low of 56.5 from 58.2 the month before, below the initial estimate and consensus, both 57.0.
Eurozone flash inflation numbers leapt way more than expected, the harmonised index of consumer prices (HICP) for March was 7.5% compared to 6.6% expected, from 5.9% the month before.
Core HICP, excluding things like fuel and food prices, was 3.0% versus 3.1% expected and 2.7% in February.
"With euro-zone inflation rising even further above the ECB’s forecast, and likely to remain very high for the rest of the year, we think it won’t be long before the Bank starts raising interest rates," said Capital Economics.
The economists noted that March’s outturn left average inflation in Q1 at 6.2%, more than half a percentage point higher than the ECB forecast just three weeks ago when it already had the data for January and the flash estimate for February.
9.35am: Oil ups and downs
The Footsie was being held back by oil giants Shell and BP earlier, as crude prices fell further after US president Joe Biden ordered the release of 1mln barrels per day from the country's strategic reserve for six months to bring down prices.
Having been above US$120 a week ago and at US$111 on Wenesday, Brent crude futures are now just over US$104, down less than 1% on the day.
International Energy Agency member countries are set to meet later today and could release more oil reserves.
Elsewhere, several UK oil terminals have suspended operations after access roads were blocked by an environmental group called Just Stop Oil.
Sites owned by oil supermajors including BP and ExxonMobil have been affected, with activists sitting on roads and obstructing tankers from leaving sites.
Just Stop Oil said in a statement that it is "demanding an end to the government’s genocidal policy of expanding UK oil and gas production and is calling on all those outraged at the prospect of climate collapse and suffering from the cost of living crisis to stand with us".
It said it was blocking 10 locations, including BP’s Hamble Oil Terminal in Southampton, ExxonMobil’s Hythe Terminal in Southampton, and Esso terminals in Birmingham and near Heathrow Airport.
❗Update❗ 10 key oil terminals have now been blocked by supporters of Just Stop Oil, with a potential impact on fuel supply for London and the South East.
Just Stop Oil are demanding that the UK Government stops new #Oil and #Gas projects!#JustStopOil #EndFossilFuels pic.twitter.com/cJTu0SrBR5
— JustStopOil (@JustStop_Oil) April 1, 2022
8.33am: Tentative start
The FTSE 100 made a tentative start to proceedings as traders kicked off the new quarter in a contemplative fashion.
For the three months just gone, the index was flat, though this masked the volatility caused by the war in Ukraine along with the threat of inflation and slow growth.
While investors will possibly look at the Footsie’s performance ruefully, it did at least outperform the American indices, which were in reset territory in the first quarter.
READ: FTSE 100 second only to Brazil among best performers in 2022
The tech-led Nasdaq led the charge lower with a 10% lurch downwards in the first three months of the year, while the S&P 500 was off 5.6%.
Looking ahead, the big economic news of the day comes from the US and in the form of non-farm payrolls, or employment data to you or I.
Analysts are expecting the world’s largest economy to have generated 470,000 new jobs in March compared with 680,000 a month earlier.
“Of equal significance will be the unemployment rate, which has latterly implied tightness in a labour market approaching full employment,” said Richard Hunter, head of markets at Interactive Investor.
“While this effectively frees up the Fed to concentrate on inflation, the tightness could also lead to wage rises which would be further inflationary factors of their own.”
On the market, the housebuilders were well bid with Taylor Wimpey PLC (LSE:TW.) leading the way with a 3.4% rise.
Earlier in the week many builders fell to their lowest levels in over a year, which is likely to have sparked some bargain hunting.
6.40am: FTSE 100 set for a quiet start
London’s blue chips are expected to open modestly higher ahead of the release of US jobs data for March today.
Spread betting quotes indicate the FTSE 100 will open just 6 points firmer at 7,522 and as is often the case when the market-moving US non-farm payrolls figures are scheduled, a quiet time looks in prospect in the morning session.
As the US jobs market is so tight, it means growth in the number of new jobs is likely to be limited to a maximum of 500,000 with wage pressures continuing to build, economists at ING said.
Pantheon Macroeconomics, however, went out on a limb and predicted zero change.
“Indicators of labour demand are consistent with the idea that payroll growth slowed sharply in March. Hiring intentions in the NFIB survey and the ISM services employment index have fallen in recent months, signalling a downshift in job growth, though neither survey is consistently reliable on a month-to-month basis,” said Pantheon’s chief economist, Ian Shepherdson.
“We'd be very surprised to see sustained near-zero readings, given the strength in final demand, but anything can happen in any given month. A zero print today would not kill the idea of a 50bp [half point] rate hike next month, but it would sow a seed of doubt,” Shepherdson added.
The last non-farm payrolls report revealed 678,000 jobs were added on a seasonally adjusted basis, with the US Bureau of Labor Statistics saying the national unemployment rate dropped to 3.8%.
US average hourly earnings are forecast to have risen by 0.4% but Pantheon expects a 0.8% jump.
In the UK, where the weather is not exactly balmy, today will see new energy prices kick in. The new tariffs were announced weeks ago but as a reminder, the minimum tariff for an average dual-energy household rises by 54% or £693 to £1,971.
US markets yesterday took a big step back, with the Dow Jones tumbling 550 points to 34,678 and the S&P 500 off 72 points at 4,530.
In Asia, red is the colour and gloom is the name. In Japan, the Nikkei 225 is down 128 points at 27,693 while in Hong Kong the Hang Seng is 159 points lighter at 21,837.
Around the markets
- Sterling: US$1.3132, down 0.11 cents
- Gilt: 1.54%, down 5.31 basis points
- Gold: US$1,942.30 an ounce, down US$12.10
- Oil: US$104.30 a barrel, down 41 cents