Europe
European equity markets were propelled higher by the robust US jobs report. 209,000 jobs were added to the payroll in July, and the unemployment rate dipped to 4.3%. The feel good factor form the US lifted investor sentiment in Europe, and the decline in the pound and the euro accelerated the move higher in the FTSE 100, DAX and CAC 40.
Merlin Entertainments (LON:MERL) is the biggest riser on the FTSE 100 as the company said first-half sales were up 19%. Despite the strong revenue, profits were broadly flat, and this was blamed on the timing of the opening of the Japanese LEGOLAND branch. The firm is on track to meet its year-end targets, and its 2020 objectives too.
Homebuilders are the worst performing stocks on the FTSE 100 because there is speculation the government might be considering replacing or bring the ‘Help to Buy’ scheme to an end sooner than initially planned. The market chatter arose from an article in Property Week, and even though nothing has been confirmed by the government, traders were quick to sell Barratt Developments (LON:BDEV), Persimmon (LON:PSN) and Taylor Wimpey (LON:TW).
RBS (LON:RBS) swung to profit in the first-half of the year. For the first six months of the year, the bank registered a profit of £939 million, while for the same period last year the bank lost £2 billion. RBS has a strong liquidity position as their common equity tier 1 capital ratio is 14.8%, and their own target is 13%. This tells us the bank is well financed to deal with a large macroeconomic shock, should it occur. To deal with the uncertainty over Brexit, RBS is looking into setting up their European headquarters in Amsterdam. This would allow it to take advantage of EU ‘passporting’ of banking services. RBS is up 2% on the day.
Pearson (LON:PSON) shares are down 1.3% today after the company announced its plans to trim their headcount by 3000 and the dividend was cut too. The publisher has been dogged by profit warnings in the past few years, and the previous restructuring failed to boost sentiment. The continued job losses is a sign of weakness, and investors won’t buy into the publisher until they see the trickle down positive effect.
US
Its déjà vu as the Dow Jones hit another record high, as the already bullish sentiment ramped up again on the back of the US jobs report.
The S&P 500 and Nasdaq 100 also higher today, which makes a nice change, because we were starting to see divergence between them and the Dow Jones. The broader economic picture has improved a touch in the US, and it is reflected in the wider US equity market.
The US revealed all an all-round positive jobs report. The headline number for July was 209,000, while economists were expecting 183,000, and the June number was revised higher to 231,000 from 220,000. Unemployment fell to 4.3% from 4.4%. Average earnings were 0.3% on a month-on-month basis, up from 0.2% in June. While on a year-on-year basis average earnings remained at 2.5%. All aspects of the report were well received.
FX
The EUR/USD was driven lower by the impressive US jobs report. The single currency has gained so much ground versus the US dollar in 2017, traders were just looking for an excuse for take their profit. The numbers from America today will help curtail the decline the greenback has been in for the past few months, but dealers still remain divided over whether the Federal Reserve will raise interest rates again this year. The selling of the euro intensified in the afternoon, and it dropped 0.9% on the day.
The GBP/USD has also been hit by the solid jobs figures from the US. Sterling suffered at the hands of the US dollar as trader were quick sell the currency pair in light of the data. This is the second day in a row the pound had a big sell-off against the US dollar, as the dovish update from the Bank of England prompted traders to sell sterling. The GBP/USD could be pushed towards the $1.30 mark as the outlook for the two countries has changed slightly in the pasts couple of days.
Commodities
Gold traded below $1255 as traders took their cues the US jobs announcement. The fed funds futures market is pricing in a 42% chance of an interest rate chance hike in December, and it was at 39% before the numbers were released. Traders are still not convinced the US central bank will hike rates again, but they are moving in that direction. The strength of the US dollar is weighing on gold too.
WTI and Brent Crude gained ground in the afternoon as traders will be watching out for the OPEC meeting in Abu Dhabi next week. The major oil producers want greater compliance with the oi production cut they agreed upon. Exports from OPEC members increased in July though they pledged to freeze oil production. We have seen oil inventories in the US decline over the past month, so supply-glut is being chipped away at.
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