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FTSE hits 9-month high, US jobs data disappoints

The FTSE 100 has hit its highest level since March thanks to a solid performance in pharma, mining and energy stocks. 

These sectors have been gaining ground lately and they are connected to the optimism brought about by the positive vaccine news. The UK is the first country in the world to authorise a vaccine for Covid-19 and there is a view that others will follow suit in the months ahead, and that has been a factor in the upward move in underlying commodities – metals and energies. On the domestic front, the hospitality sector is higher, broadly speaking, and transport stocks like Stagecoach are showing decent gains, and they are being fuelled by the vaccine story.   

The US non-farm payrolls report showed that only 245,000 jobs were added last month and that was nowhere near the 469,000 that economists were expecting. October’s metric was revised from 638,000 to 610,000. The unemployment rate fell from 6.9% in October to 6.7% last month but it is worth noting the participation rate slipped to 61.5% from 61.7% so that might explain why the unemployment rate dropped. Sometimes when an economic environment is so depressing, some people who are out of work, give up on looking for employment and that might be what we are seeing today with respect to the jobless rate. Average yearly earnings held steady at 4.4%.    

Cineworld shares have come under pressure on the back of the news that Warner Brothers will release all of its new films in 2021 on HBO Max – the TV subscription channel - on the same day as they are released at cinemas. 2020 has been a brutal year for the entertainment industry, both in terms of production and screening. The move by Warner Brothers makes sense for them as they need ticket sales to recoup the cost of production, whether those sales are made at cinemas or pay per view TV is irrelevant. Some people are likely to be cautious about going to cinemas for health reasons so viewing brand new movies at home is likely to be popular next year. Cineworld shares hit their highest level in over 5 months yesterday and the Warner Brothers news provided traders with a good excuse to exit the stock.

Berkeley Group confirmed that first half pre-tax profit slipped by 16.6% to £230.8 million and revenue slipped by 3.7% to £895.9 million. Disruption has been common across the construction sector but traders are not too worried about it because in the current environment, the order book is key, and forward sales stands at £1.94 billion. Since the housing market has reopened, demand has been strong. Berkeley revealed that average selling prices in the six month period were £799,000, up from £644,000 one year ago, which underlines the robust demand. The house builder has over £950 million in cash so it is in rude health from a liquidity point of view, and that will assist with the sizeable work-load in 2021.  

Pets At Home has joined the ranks of Tesco, Sainbury’s and Morrisons by declaring that it will repay in full the £28.9 million relief from business rates. The company saw a rise in demand for pets amid the pandemic and that should benefit future revenue streams in the form of vet services. The decision to repay the business rates relief speaks to the group’s financial strength but the same time it adds to their public image      

Primark owner, Associated British Foods, announced that the recent lockdown cost the company approximately £430 million in missed revenue opportunities. The group is keeping an eye on its outgoings as costs at closed stores fell by 25%. Despite the massive disruption, Primark sales and profits are expected to be higher on the year – provided there are no more lockdowns. The grocery and sugar businesses are performing better than expected and they are ahead of last year’s performance.         

US

The S&P 500 has hit yet another intraday record high thanks to the mixed US jobs report. The weaker aspect of the update – the disappointing headline number and the fall in the participation rate – adds weight to the argument that further financial assistance is needed to help the US economy.

The Federal Reserve has already made it very clear they are determined to do what it takes to help the US economy. In the past few days there has been growing bipartisan support for the proposed $908 billion coronavirus stimulus package and in light of the much softer-than-expected non-farm payrolls figure that should put pressure on policy makers to help the US labour market. Equity traders have fallen back into the old lazy habit of buying stocks on the back of bad news.  

FX

USD/CAD came under pressure on the back of the US and Canadian jobs reports. The headline American number was very disappointing, while in Canada, the employment change reading showed that 62,100 jobs were added last month, easily topping the 20,000 forecast. Over 99,000 full time jobs were created, while over 37,000 part-time jobs were lost, which overall is positive. In addition to that, the jobless rate tumbled to 8.5% from 8.9%. Average wages of full time workers slipped from 5.25% to 4.84% and that could suggest that more lower-income people have returned to the jobs market. The Canadian jobs update topped its US equivalent, hence the move lower in USD/CAD.

GBP/USD hit its highest level since May 2018 as optimism in relation to the prospect of the UK and the EU reaching a trade deal in the next few days. The “will they, won’t they” chatter has been going on for months now but in the past few days the language being used suggests that both sides are getting very close to reaching a compromise.

Commodities

Gold is in the red because of the recovery in the greenback. It was being assisted by the dip in the US dollar, which occurred after the US jobs report was posted. Since falling to a multi-month low on Monday, gold has rebounded. The $1,848/50 area was an important support zone in recent months, so it might act as a barrier to a rally.

Brent crude and WTI are showing modest gains on the back of the news that OPEC+ will keep their fairly tough production cuts in place. The group of oil producing nations had originally planned to row back on output cuts by 2 million barrels per day. There was a lot of toing and froing about what to do come January with respect to production, but in the end, it was decided that output cuts would only be rolled back by 500,000 barrels per day – far less aggressive than initially discussed. Both oil contracts are essentially at nine month highs.      


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