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London’s blue chips have lost some of their early oomph as traders eye the important US non-farm payrolls report later
- FTSE 100 drops 3 points
- Travel stocks lifted by red list news
- Shell shares continue rally
The Footsie has dropped into the red, as the early momentum in London has well as truly disappeared back to bed.
Similarly, UK consumer confidence had sunk to the lowest level since February as confidence in economy drops, according to the () survey just out.
“European markets are struggling to maintain the positive momentum seen yesterday, with stocks largely treading water ahead of the latest US jobs report,” said Joshua Mahony, market analyst at IG.
“While payrolls figures typically serve to highlight how willing businesses are to hire new employees, this time around is it less about their willingness but more their ability to find candidates at a time when vacancies are at a record high. The business environment is understandably tough when looking at the availability and cost of materials, but labour appears to be a similar story of late.”
Fellow analyst Neil Wilson at Markets.com, wondered if market momentum was “flipping in favour of bulls” and whether the supply chain-stagflation worry might have peaked.
“Maybe, but rising rates could undermine the big weighted tech sector in the near-term and it is unclear whether there is enough appetite among investors to go more overweight cyclicals when the macro outlook still seems somewhat cloudy in terms of growth, policy and inflation.
“Next week is earnings season so we either get more bullish conference calls for the coming quarters or a bit of sandbagging re supply chain issues, inflation – for the index a lot will depend on whether the C-suite is confident or cautious about their outlooks.”
Top fallers on the FTSE are currently AVEVA Group (), the industrial software specialist, and cardboard box makers Mondi () and DS Smith ().
9.44am: Royal Mail pushes the envelope
The early gains for London’s benchmark index have mostly been wiped away as traders hunker down for the big US jobs report later.
“On Friday the FTSE 100 consolidated its gains from yesterday but investors appeared to be marking time ahead of the key US jobs report later,” says AJ Bell investment director Russ Mould.
“A really weak number might just put the US Federal Reserve off tapering its support for the economy as expected in November.
“However, its scope to do so is being rapidly narrowed as inflation rises more quickly than expected, driven by soaring energy costs and post-pandemic shortages, and also proves to be more entrenched than the consistent message from central banks about ‘transitory’ inflationary pressures suggested.”
Like the FTSE, () has seen its early gains fizzle away, having initially received a warm welcome for its latest overseas acquisition, a £210.5mln swoop for one of Canada’s largest freight carriers.
Rosenau Transport, which will be integrated into Royal Mail’s GLS business, owns 24 owned facilities in four provinces, which will almost double GLS’s number.
Royal Mail also launched a drive to take on 20,000 Christmas workers in the UK.
Of the Canadian deal, Mould said: “Arguably this is the part of the group with the most potential and it is not faced with the same level of structural issues as its UK-based business.
“As GLS becomes an increasingly significant part of the business the case for demerging it from the UK letters and parcels operation may gather strength.
“While the UK arm has benefited from Covid and an increase in the volume of parcels being sent due to the e-commerce boom, it is lumbered with a structurally challenged letters operation, large pension liabilities and substantial cost base.
“Costs are likely to see upwards pressure in the near-term as the company launches its seasonal recruitment drive, with the business impacted by wider staffing shortages in the economy.”
8.34am: Solid start to session
The FTSE 100 surprised to the upside in early trading on Friday, skipping 17 points or 0.25% higher to 7094 rather than making the subdued start expected.
Leading the gains were blue-chip stocks related to travel and energy themes, with British Airways owner IAG () top of the leaderboard and aeroplane engine supplier Rolls-Royce () not far behind.
The sector was being lifted as the number of countries on the UK’s red list was slashed, with only Panama, Colombia, Venezuela, Peru, Ecuador, Haiti and the Dominican Republic now facing the toughest quarantine restrictions.
Royal Dutch Shell (), a day after saying that soaring gas and power prices will significantly boost its cashflow in the third quarter, and rival BP () were also near the top.
After wild swings earlier in the week, gas prices have retreated to levels that are “still insanely high” but at least lower, says market analyst Marshall Gittler at BDSwiss.
“Despite the fallback in gas prices, oil managed to climb even further after the US Energy Department said that it has no plans ‘at this time’ to tap the nation’s oil reserves nor to ban exports of crude oil.
“That followed remarks the day before from Energy Secretary Granholm that “all tools are on the table” to counter surging gasoline prices.”
Among the main fallers were miners Antofagasta () and Glencore (), together with housebuilders Persimmon () and Barratt Developments ().
However, London’s positive mood follows similar upbeat sentiment in Asia, as China returned from its long holiday and the Caixin services PMI printed a surprise expansion in activity in September.
“All eyes are on today’s US jobs data,” says market analyst Ipek Ozkardeskaya at Swissquote, with the US ADP employment report earlier in the week giving investors hope that we may see a strong Non-Farm Payrolls report today too.
“The data is important because it will help with shaping expectations on what the Federal Reserve (Fed) could do next. We all know that the Fed is about to announce a start date for tapering its bond purchases, and reasonably soft data won’t get the Fed to change its mind. Only a shockingly low figure could do that – a figure below 100,000 for example, which would warn of an alarming slowdown in US labour market recovery.
“But even then, the Fed can’t do much, given that the latest spike in energy prices continues boosting inflation expectations, and the high inflation needs to be addressed quickly, perhaps more quickly than the depressed jobs market.”
I wonder if they do an NFP sweepstakes at the Fed
— Newsquawk (@Newsquawk) October 8, 2021
6.40am: Subdued start predicted
US jobs data for September is due out later today and to the surprise of few, traders appear hesitant to commit ahead of the release.
Spread betting quotes indicate the FTSE 100 will open little changed, despite a storming session for US equities yesterday.
The Dow Jones average surged 338 points to close at 34,755 while the S&P 500 hit 4,400 with a 36 point gain.
Weekly jobless claims dropped to 326,000 last week from 364,000 the week before, reversing much of the increase in recent weeks, which Pantheon Macroeconomics thinks was triggered by Hurricane Ida.
Pantheon is expecting today’s jobs number for September to be +600,000, with the unemployment rate little changed, “though much depends on whether labour participation rebounded”.
The market consensus is for an increase in payrolls of around 500,000, with an unemployment rate of 5.1%.
The return of several hundred thousand relatively low-paid people into leisure and hospitality jobs should limit the increase in hourly earnings to 0.3%, according to Pantheon; the consensus forecast is for a 0.4% increase in hourly earnings.
In Asia this morning, Japan’s Nikkei 225 is up 483 points at 28,161 but Hong Kong’s Hang Seng is off 65 points at 24,636.
“Japan has formally pencilled in October 31st for a snap lower house election. Newly installed Japan Prime Minister Kishida has also announced instructions to his cabinet to compile economic stimulus measures for an extra budget to be submitted after the election. Following a positive debt sticking plaster session from Wall Street equities, news that the hoped-for fiscal goodie bag has been confirmed has seen the Nikkei 225 soar by over 2.0% this morning. I do note though, that the Nikkei is now as subject to the fast-money whims as US markets these days, and a very high Non-Farm print tonight could evaporate today’s rally on Monday,” opined Jeffrey Halley at Oanda.
“China markets have returned from a week-long holiday and inevitably Evergrande, and what to do with it, will resurface once again. Another medium-sized China property company defaulted on an offshore bond this week, and there is no sign of Evergrande or its subsidiaries, US Dollars for offshore holders of debt so far either. That said, the whole mess is likely to be overshadowed today by the Caixin Services PMI, which rebounded sharply in September to 53.4, as Covid restrictions were eased. The Composite PMI rising to 51.4 as a result. With markets this week having an investment horizon as far as their big toes, the short-term positives from the PMIs are lifting Mainland equities higher to start the day,” Halley reported.
The Shanghai Composite was up 9 points at 3,577.
On the corporate scene in the UK, () ends the week with a trading update coming after an impressive 37% jump in revenue in the first quarter.
The distributor of industrial and electronics products continued to see good market share gains across its key regions, thanks to its product availability, strong service solution and digital offer compared to the smaller competition.
“Management back in July was guiding to a slowdown in top-line growth in the balance of the year due to a combination of supply chain constraints reducing product availability and customer demand. We see no reason for this to have changed since then,” said Peel Hunt.
Around the markets
- Sterling: US$1.3600, down 0.16 cents
- 10-year gilt: 1.082%, up 0.65 basis points
- Gold: US$1,757 an ounce, down US$2.20
- Brent crude: US$82.92 a barrel, up 97 cents
- Bitcoin: US$53,742, down US$463
