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US payrolls miss weighs on markets

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While there was an expectation that we might see a dip in US hiring in the August non-farm payrolls report, few people expected to see a sharp slowdown to 235,000. On the plus side, we did see an upward revision for July to over 1m, so it’s not the end of the world either, while the unemployment rate fell to 5.2%.

The poor number certainly helps to vindicate the cautious stance taken by Jay Powell at his Jackson Hole speech last week, and while the hawks on the FOMC will still be keen to set out a timeline for a taper, it may well not happen until early next year.

Europe

The disappointment over the jobs number has weighed on stock markets in the afternoon session, with European markets sliding back, having spent most of the day in positive territory. The initial impulse was for stocks to push higher, however a turnaround in yields appears to have reversed this, after another big jump in the wages data which jumped sharply to 4.3% from 4.1%. While this rise needs to be treated with some scepticism given that a decline in hospitality jobs may well have pushed this number higher, it nonetheless speaks to a great deal of uncertainty about the health of the US labour market.  

The best performer on the FTSE 100 is Melrose Industries as it continued to build on yesterday’s better than expected H1 numbers. Basic resource stocks are also higher as the weaker US dollar pushes keep a floor under copper, and silver prices, with Glencore and Anglo American higher on the day.

Berkeley Group latest Q1 numbers showed that, despite having to absorb higher costs, the housebuilder remains on track to meet its profits guidance at or above the £518m, it reported at the end of its last financial year. Forward sales guidance was also kept unchanged at £1.7bn, with the company confident that profits would remain steady over the next two years.

Ashmore Group has seen its shares slide back sharply despite reporting a 27% rise in pre-tax profits, to £282.5m. Net revenue however was quite a bit lower, coming in at £291.7m, below last year’s £330.5m and also below consensus. The company appears to be being penalised due to its exposure to emerging markets, where there is rising concern about ripple effects from China’s regulatory crackdown, and rising virus cases.

Also underperforming the travel and leisure sector is finishing the week on a downbeat note, with easyJet, TUI, IAG and Jet2 all struggling.
 
US

US markets opened lower in the wake of today’s disappointing August payrolls report, which came in at 235k. While a lower number was expected, the bigger than expected drop appears to have sapped the energy out of some of this week’s gains, especially since we are heading towards a long bank holiday weekend, with the US Labor Day holiday on Monday.

Today’s main movers have still seen the tech sector outperform with the Nasdaq edging into positive territory with the Dow and S&P500 lagging. Amongst the best performers has been Broadcom which is higher after reporting better than expected Q3 numbers than expected, while upgrading its Q4 forecasts as well.

DocuSign is also higher after similarly boosting its revenue forecasts for the year, after a decent Q2 performance.      

FX

Not surprisingly the US dollar slipped back in the wake of the latest US payrolls numbers, as markets pushed back the likelihood of a tapering announcement at this month’s meeting on 22 September.

Against the euro the US dollar hit a four-week low as the prospect of a Fed taper got pushed back into the back end of this year. Leading into today’s numbers there had been an expectation that a decent number today could well have seen Fed policymakers outline a pathway at this month’s meeting on 22 September. That now looks highly unlikely, and pushes the prospect of additional clarity on the timing of a taper to the next payrolls report for September which is due in early October.

Commodities

After some big losses the previous week, crude oil prices have pulled back the lost ground although the upside could be limited to concerns over rising infection rates in Asia, and an extra 400,000 barrels of oil a day comes onto a market that in Asia appears to be slowing.

Gold prices hit a three-week high today on the back of today’s weak US payrolls report, however they continue to struggle near to the $1,834 July highs, which is currently acting as a resistance level.

Copper prices also got a bid on the back of the weaker US dollar, as it looks to reverse this week's declines.


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