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News

FTSE 100 outperforms, US jobs report sparks yield worries

The FTSE 100 is set to finish fractionally higher on the session as oil, mining and banking stocks act as a solid foundation for the British index. 

The major eurozone indices are showing losses but are off the lows of the day thanks to the well-received US non-farm payrolls report. 379,000 jobs were added last month and that hammered economists’ expectations of 182,000. It was a double victory because the January report was revised from 49,000 to 166,000. The unemployment rate dipped from 6.3% to 6.2% and the participation rate remained at 61.4%. Yearly average earnings came in at 5.3%, meeting forecasts. Overall it was a strong jobs report.    

The LSE posted respectable full year results today as total revenue grew by 3% to £2.12 billion. Post trade revenue and information services revenue increased by 7% and 3% respectively. The post trade division performed well as there was strong growth in LCH, with record activity in CDS, FX and cash equities clearing – the high volatility in the markets has clearly helped the group. Operating profit rose 3% to £755 million. The final dividend was 51.7p, taking the total pay-out to 75p, up 7% on the year. In January, the LSEs takeover of Refinitiv was completed, it expects to achieve up to 7% revenue growth from the deal. In today’s update, LSE anticipates higher operating costs in the new financial year, and that appears to have weighed on the share price, but a drop of 12% seems excessive.              

Aggreko shares are higher this afternoon as it has agreed to be taken over by I Squared and TDR for 880p a share, valuing the firm at £2.3 billion. The investment groups approached the company early last month. 

Brent crude oil prices hit a 14-month high as Opec+ essentially maintained its existing output level. Last week there was chatter that some members would push for an increase in output, but that didn’t come to fruition, hence the move higher in the price. Oil companies like BP, Royal Dutch Shell, Tullow Oil and Premier Oil are up today as a result of the bullish move in the underlying energy market.

Boohoo shares are lower this afternoon as it was reported that MPs have written to the group’s chairman in relation to the bonus scheme as well as workers’ rights. The fashion house was in focus this week as Sky News reported the firm might face an import ban from the US over allegations of slave labour being carried out at some of its suppliers.

BT shares are showing strong gains as Credit Suisse lifted its price target for the stock from 190p to 200p, while Barclays increased its target to 180p from 170p.  

US

Equity markets were bouncing around but they are now lower. The US 10-year yield has pulled back from the new one-year high that was set in the wake of the stellar jobs report. There seems to be a little unease in the market as the positive labour update is a double-edged sword. A healthier jobs market bodes well for the recovery but it will also probably bring about inflation pressure – which has a track record of pushing up yields and hurting stocks.    

Gap’s fourth-quarter net sales dropped by 5% on an annual basis to $4.42 billion but that beat the $4.66 billion consensus estimate. Net income for the three-month period was $234 million, a sharp rise from the $184 million loss that was registered a year ago. The fashion retailer was hit by store closures but at the same earnings improved as it sold more items at full price. Total online sales surged by 49%, which equated to 46% of total sales in the quarter. Even though the current environment is very challenging, the group predicts next year’s revenue will see mid-high teen percentage growth, with equity analysts forecasting 14.1%. The restructuring of the business will continue as it will close roughly 100 Gap and Banana Republic stores, while opening 30-40 Old Navy Stores and 20-30 Athleta shops.        

FX

The US dollar index hit its highest mark since late November following the robust jobs report. Since January, the dollar has been in rebound mode as the US’s economic recovery is one of the best in the west, as the economy grew by 4.1% in the last quarter of 2020. In addition to that, the impressive vaccination distribution rate, roughly 25%, is adding to the recovery story. The greenback is off the highs of the session but GBP/USD and EUR/USD are in the red.   

The CMC CAD index is up over 0.2% as the rally in oil is helping the ‘loonie’. The Ivey PMI report for March surged to 60, a six-month high.   

Commodities

Gold has experienced a lot of volatility in the past few hours. Immediately after the US labour data was posted, it printed a new eight-month low as the jolt higher in the dollar applied further pressure to the asset. Despite the initial bearish response, the commodity has recouped the losses and is now slightly higher on the session. In the past few hours the dollar has cooled a little and that seems to have assisted the yellow metal.

Oil is enjoying a bullish run as it started off the session on the front foot because of the news that Opec+ essentially maintained its production level. The energy market was given an extra lift today because the solid jobs report from the US adds weight to the argument the world’s largest economy is experiencing a relatively strong recovery from the pandemic, so demand for oil should rise.    


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