The FTSE 100 has been helped by weakness in the pound, and the British index reached a level not seen since early August.

Europe

Theresa May isn’t too popular with some of colleagues in the Conservative Party on the back of their Conference, and the talk of a leadership ‘plot’ against the Prime Minister is eroding the pounds value, and propping up the FTSE 100. The London market is the top performer out of the major European benchmarks.

The chaos that erupted due to the Catalan independence referendum at the weekend has cooled somewhat. The Spanish government have suspended the parliament in Catalonia, and they have passed laws to make it easier for companies headquartered in the region to relocate their head office to a different part of Spain. This sort of political and financial pressure will make life tricky for the Catalan separatists, but it is an improvement on the violent scenes that we saw last weekend. Just because the Spanish stock market is no longer in free-fall, doesn.t mean everything is alright. Traders will be reluctant to buy into the IBEX 35 or Spanish stocks will this situation is still ongoing, and for now there isn’t an end game in sight.       

US

American equity markets are a touch lower after a very impressive run this week. The US non-farm payrolls was the event of the day. In September, the number of jobs declined by 33,000 – the storms were to blame. The August report was revised upward from 156,000 to 169,000. It wouldn’t be a shock if the poor September number was revised higher next month. The unemployment rate fell to 4.2%. On a year-on-year basis, average earnings increased by 2.9%, while the consensus was for 2.5%. Last month’s earnings figures was revised upward to 2.7%.

Some traders are overlooking the headline non-farm payrolls figures as it is likely to have been skewed by the storms, and the remainder of the report was solid. For a long time the relatively low wage growth was a concern for investors, but now that we are seeing earnings tick up, it should translate to higher consumer spending, and in turn an increase in inflation.

Federal Reserve member Patrick Harker yesterday stated the US central bank is pencilling in a rate hike in December, and after today’s announcement, it is probably even more likely now.

Forex

GBP/USD is suffering, just like Theresa May after the Conservative Party conference. The chatter on the newswires is that Mrs May could be up against a leadership challenge. Whether the Prime Minister is realistically going to face challenge or not is up for debate, but as far as the markets are concerned it reeks of uncertainty. Sterling is far from ‘being strong and stable’ on account Theresa’s tickly cough.

EUR/USD has crept higher as traders take their profits on the US dollar. The greenback was on a positive run going into the non-farm payrolls report, and even though the figures were robust, the US dollar declined against the single currency. It is like traders wanted confirmation of a solid US economic announcement before exiting their long US dollar positions. The possibility of an interest rate hike from the US has ticked up, so we could a decline in the euro in the coming weeks and months.  

Commodities

Gold is near a two-month low as the metal felt the pressure from the non-farm payrolls report. The further decline in US unemployment and the impressive spike in average earnings has pushed up the prospect of the rate hike from the Fed in December. The metal has lost ground over the past four weeks, and that trend could stay in place as dealers will be looking toward the US central bank meeting at the end of the year.  

WTI and Brent Crude oil are fallen severely as traders are worried about tropical storm Nate in the Gulf of Mexico. There is a talk of it being upgraded to a hurricane. It’s a similar story to Harvey and Irma, in that the adverse weather could knock refineries out of commission. Already operations in that region are being wound down in preparation of the heavy rain and high winds.


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