It’s been a slow grind for markets in Europe today with little in the way of a catalyst one way or the other, though it’s still been a positive week.
The latest US non-farm payrolls report for May turned out to be a bit of a damp squib, adding a less than expected 559,000 jobs in May, helping to support a view, that for all of the recent talk of a possible central bank retreat of support measures, that any such action was likely to be later rather than sooner.
Europe
The slight miss on the headline number has seen yields fall back, and in the process act as a drag on financials which are the worst performing sector in Europe today, with the likes of HSBC, Standard Chartered and Lloyds Banking Group all underperforming.
With airline stocks still under pressure as a result of yesterday’s changes to the travel traffic light system, the likes of Ocado and Just Eat are amongst the best performers on the basis of expectations of a slower relaxation of restrictions.
Bill Ackman’s Pershing Square Holdings is amongst the largest fallers after announcing that its special acquisition vehicle Pershing Square Tontine Holdings is in discussions to acquire a 10% stake in Universal Music Group for the sum of $4bn, valuing the group at $35bn. It seems investors aren’t exactly enthused at the prospect of this deal given the thin margins
Anglo Irish packaging group Smurfit Kappa announced this morning it has acquired Peru’s Cartones del Pacifico as it looks to expand its footprint in Latin America.
AstraZeneca is also reporting another success after announcing that its Lynparza drug reduces the risk of a recurrence of breast cancer in its latest trial data. The company also announced the appointment of a new CFO, Aradhana Sarin, replacing Marc Dunoyer, who will be taking up a new senior executive role within the company.
US
US markets opened higher after the latest US non-farm payrolls report showed that the US economy added 559,000 new jobs in May, disappointingly below expectations, while April showed a weak adjustment to 278,000 from 266,000.
Wages were higher, but the drop in the participation rate to 61.6% showed that US workers remained reluctant to return to the workforce. This flies in the face of optimism that the economic reopening will prompt a rehiring blitz, making it much less likely that the Fed will look at an early tapering of asset purchases. This lack of a pickup in hiring trends tends to suggest that the generous unemployment benefits are acting as a brake on workers returning to the workforce, and that it will be quite some time before the Fed sees “substantial further progress” in hiring trends.
US factory orders and durable goods for April were also disappointing, slipping back by 0.6% and 1.3% respectively.
AMC Entertainment shares have continued to chop around after their share sale early this week, as management took advantage of the recent surge in the share price. It was certainly a sensible move by the board to take advantage of the higher share price to raise new funds. The company simply isn't worth the current valuation and it was wise of AMC management to warn investors of the risks. This week’s move higher seems like an accident waiting to happen. AMC is nowhere near worth what the market is currently pricing it at and over time should be a lot lower. How it gets there is anyone's guess.
Pershing Square Tontine Holdings is lower after this morning’s deal to acquire 10% of Universal Music Group for $4bn.
FX
The US dollar had seen some decent gains in the last 24 hours rebounding strongly on an expectation that we’d see a strong May payrolls number this afternoon. This optimism proved to be somewhat misplaced after 559k new jobs were added during the month. Having seen the weak employment components in both manufacturing and services ISM earlier this week, perhaps this shouldn’t have been a surprise, and the US dollar has slipped back.
While the headline number is disappointing it doesn’t change the fact that the US economy is still rebounding, all it means is that its rebounding slower than expected, largely due to overly generous government fiscal support, which appears to be slowing down rehiring trends.
Commodities
We’ve seen some decent gains in oil prices for the second week in succession, with prices sitting near the top of their recent range and just below the peaks seen in January 2020. A lot of the reason behind the recent advances has been a weaker US dollar, as well as expectations that demand will pick up further as the vaccination programs in the US and UK ramp up further, and restrictions get eased further. Downside risk to prospects of increased demand remains a rise in infection rates and slow vaccination rates in Asia, which could prompt slower economic re-openings.
Gold prices have rebounded strongly after slipping back yesterday, largely as a consequence of a weaker US dollar and today’s weaker than expected payrolls number.
Bitcoin prices have slipped back after Tesla CEO Elon Musk tweeted a broken heart emoji from his twitter account, fuelling speculation perhaps that Tesla might be looking at offloading their $1.5bn bitcoin stake. It seems utterly perverse that the SEC can standby and allow someone like Musk indulge in what can only be described as market manipulation, but these are the times in which we live.
