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Goldilocks returns as US jobs report lifts yields, stocks and the US dollar

A masked waitress takes a food order at a restaurant

European stocks have finished the week with more record highs for the FTSE 250 and the Stoxx 600, with financials leading the gainers as a result of this afternoon’s decent US jobs report, which has helped to drive a rise in yields, in turn lifting the likes of Lloyds Banking Group and Barclays higher, while NatWest Group shares hit their best levels this year, and best levels since February 2020.

Europe

Once again, the FTSE 100 has lagged but is still on course for its best weekly performance since June.

London Stock Exchange has led today’s gainers, after announcing it was making good progress in delivering the various cost savings from its Refinitiv deal. Having finalised the Refinitiv acquisition back in January, the company warned in March that the deal synergies could cost it as much as £850m, sending its shares spiralling sharply lower, where since then they’ve struggled to gain any traction. Today’s H1 report appears to show that progress is being made, with the LSE saying that £77m has been saved so far, pushing total income up by 4.6% to £3.35bn, helping to push operating profits up to £1.29bn, slightly ahead of expectations.

Morrisons shares are higher after the Fortress consortium of equity investors raised their bid to £6.7bn, from £6.3bn, in anticipation of a possible counter offer over the weekend.

Hikma Pharmaceuticals first half numbers have seen the business post a 7% rise in revenue to $1.2bn, and a 26% rise in profits, driven largely by outperformance in its generics division. As a result of the better-than-expected performance the company upgraded its revenue guidance in this area, to between $810m and $830m, raising core operating margin to 22% to 24%. The company also raised its dividend to 18c a share, however the shares have dropped sharply, perhaps over disappointment that the guidance lift wasn’t better.

Darktrace shares have dropped sharply after shareholders sold 23.15m shares at 620p each, as the lockup period expired, locking in a nice profit in the process.  

US

US markets opened higher with the S&P 500 and Dow Jones making new record highs after the latest US non-farm payrolls showed strong gains of 943,000 in July, as well as a decent upward revision to 938,000 for June. There was little to dislike in the numbers, with the only nugget of concern a bigger than expected increase in wages, which has helped to push US 10-year yields to their highest level since 26 July.

The smaller cap Russell 2000 is also surging higher on confidence over the US recovery, while the more highly valued Nasdaq is slipping back, as capital flows out of the more highly valued areas of the market and into the cheaper parts.

Beyond Meat shares initially dropped sharply after guidance for Q3 fell short of expectations, although they have since rebounded. Q2 revenues were better than expected, coming in at $149 4m, however the lower net revenue guidance of $120m to $140m was not well received, while losses came in higher than expected at -$0.31 a share.   

Didi Global has seen its shares rise on reports that the company is mulling giving up control of its data to a third party to appease Chinese regulators.  

Novavax shares have plunged after the company delayed its Covid-19 vaccine candidate again, this time pushing the application into Q4, from Q3.

After seeing big declines yesterday, Robinhood Markets shares have shot higher after the company said it probably wouldn’t be able to get approval on any share sale from the SEC, until after their Q2 results, which are expected around 18 August.  

Virgin Galactic shares have also shot up after unveiling new tickets for $450,000 apiece.   

FX

The US dollar has surged after today’s US jobs report, and the strong payrolls data. Even more positive was the unemployment rate plunged from 5.9% to 5.4%, and underemployment rate from 9.8% to 9.2%.

We also saw the participation rate rise to 61.7% as more people returned to look for work. On a more cautious note, average hourly earnings rose to 4% on an annualised basis, which might be concerning given that a lot of the additional jobs that were added were for restaurants and bar tenders, which tend to be on the lower end of the pay scale. Perhaps employers are having to pay up to get these staff back, certainly some jobs like truck drivers are commanding higher rates.

The biggest losers have been the negative yielding currencies of the Swiss franc, euro and the Japanese yen, as markets price in the prospect of a Federal Reserve tapering of asset purchases before the end of this year.  

Commodities

Precious metals prices have sunk like a stone, with gold prices sliding to a one month low on the back of today’s bumper US payrolls report, clobbered by higher yields and a stronger US dollar. Silver has also come under similar pressure, slipping to four-month lows.

Crude oil prices haven’t seen much of a reaction to today’s decent jobs report, with the stronger US dollar perhaps acting as a brake, on the optimism that the US economy is seeing some significant momentum heading into the autumn. 


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