Stocks have hit their highest level since mid-to-late May as the underwhelming headline non-farm payrolls report in the US has increased chatter about the Federal Reserve cutting rates.

Europe

The US central bank is open to the possibility of loosening monetary policy, and traders have pounced on the message, and the markets are pricing in an extremely high probability of an interest rate cut in September, and that is fuelling the drive in stocks.  

Ferrexpo shares are in demand after the company issued a positive trading statement. The group said profitability improved because of an increase in production and higher prices. The dip in oil prices and fall in European gas prices meant that cost inflation was lower than expected. Net debt is tipped to drop and the balance sheet is still ‘strong’. The company’s reputation and share price took a knock when its auditor, Deloitte, walked away from the company over concerns about funds donated to a charity in Ukraine. Today, Ferrexpo, announced that Graeme Dacomb of EY, will be appointed to the board as an independent non-executive director chairing the audit committee. The high profile hire, shows how serious the company is dealing with the situation, and that it should help rebuild the firm’s image. 

Games Workshop shares hit an all-time high today after the company issued an upbeat update. The company confirmed that sales grew across all channels and it maintained its pre-tax profit outlook. The stockbroking firm, Peel Hunt, hiked its price target for the stock from 3,700p to 4,750p. 

US

Stocks are pushing higher on the back of the jobs update, and the so-so report has spurred on the belief that the Federal Reserve will trim rates at the back end of the year. Dealers have fallen into the habit of viewing bad news, as good news for the equity market.

The US jobs report provided volatility as always. The headline non-farm payrolls figure was 75,000, which was nowhere near the 185,000 forecast, and the April figure was revised down to 224,000 from 263,000. The unemployment rate held steady at 3.6%, and the yearly average earnings rate cooled from 3.2% to 3.1%. Recently there has been chatter that the jobs market is getting closer to being tapped out, and that is why the number of jobs added last month wasn’t high. But seeing as the earnings figure cooled too, it doesn’t fully back up the idea of tightening in the jobs market. If there was a jump in earnings there would be a better argument that employers are having to pay up to get new staff.  

The Trump administration said the levies on Chinese imports won’t go up from 10% to 25% until 15 June for some of the imports. Marc Short, the chief of staff for Mike Pence, said the Trump administration will press ahead with the tariffs on Mexican imports. It was reported that progress is being made in relation to the border security, but there is still a long way to go.

Barnes & Noble shares jumped on the news that Elliott Management will acquire the group for approximately $683 million.  Amazon chipped away at the book stores client base, and now the activist investor is planning on taking the firm private. 

FX

GBP/USD has rallied on the back of the drop in the US dollar. The greenback endured a sharp sell-off in the wake of the jobs report, and that sent sterling higher. The Halifax HPI report showed that prices increased by 0.5% in May, which exceeded the 0.2% decline that economists were expecting.  Theresa May has stepped down as leader of the Conservative Party, but will stay on as Prime Minister until her replacement has been selected. The race for the top job will go into overdrive in the near-term, but currency traders will largely be paying attention to the potential successor’s views on Brexit.

EUR/USD has also been given a boost by the drop off in the greenback. German imports and exports dropped by 3.9% and 1.3% respectively in April, and even though the dollar story has taken precedence today, it shows that German demand is soft, and that demand for German goods is cooling.  

USD/CAD was hit by both sides as mixed US jobs announcement was compounded by the impressive Canadian jobs report. Canadian unemployment dropped to 5.4% from 5.7%, and 27,700 jobs were created in May – they were all full-time jobs too, adding to the bullish update, and USD/CAD sold-off sharply.  

Commodities

Gold hit a level not seen since April 2018 as the slide in the US dollar drove the metal higher. The inverse relationship between gold and the US dollar is strong, and the metal is dining out on the greenbacks pain. The metal has rallied over 5% since late May, and it is on track for its seventh consecutive day of gains.

WTI and Brent crude jumped after OPEC and other oil producers indicated their preference at extending the production cuts, and traders are snapping up the energy in light of the severe sell-off it endured in recent weeks.

 

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