The strong US jobs report lifted the already bullish mood. 

Europe

Stocks were pushing higher this morning on the back of the news that Pfizer and BioNTech saw positive results from their drug trial that they are hoping will be a vaccine for Covid-19. The news encouraged traders to buy into the market, but the results have yet to be reviewed by a medical journal.

In June, the US added a record 4.8 million jobs, which smashed the 3 million consensus estimate. The May reading of 2.5 million was revised up to 2.69 million. The unemployment rate fell from 13.3% to 11.1%, while the consensus estimate was 12.3% Yearly average earnings dropped from 6.6% to 5% - this is probably because a large number of lower income workers re-entered the work force. The labour participation rate increased to 61.5% from 60.5%. The US labour market still has a long way to go but it is clearly heading in the right direction. The jobs data spurred on the buying of stocks as the recovery is on traders’ minds.       

Associated British Foods is the parent of Primark, and it confirmed that nearly all the stores have reopened, and that trading has been encouraging. The stock is up on the session as things are largely back to normal for the discount fashion house. Primark doesn’t have an online division so the lockdown was painful for the firm, but things are on the up now. The parent company said it is making progress to achieve a fair deal in relation to rents too. The forced temporary closures was awful for the group. The Primark unit is expected to post a full year adjusted operating profit excluding exceptional charges of £300-£350 million. Keep in mind, the level last year was £913 million. Moving away from Primark, Associated British Foods is anticipating to see an increase in operating profit at its sugar, ingredients and grocery businesses.

Meggitt shares are in demand as the company said it is on track to achieve savings of between £400 million and £450 million this year. It needs to tighten its belt as its civil aerospace business has been hit hard because of the wider problems in the aviation industry. Organic revenue at the civil aerospace unit is expected to decline by roughly 50% in the second quarter. It wasn’t all bad news though, as the defence business has been performing well, and it is worth noting that last year the division accounted for more than one third of total revenue, so that cushioned the blow of the civil aerospace news. Meggitt is anticipating full year group revenue to fall over 15%.

Airlines such as easyJet, Ryanair, International Consolidated Airlines Group are all higher this afternoon as it was reported the UK government will drop its quarantine rules for people arriving from 75 countries. It is understood the UK will lift a ban on non-essential travel from a wide range of counties, and that has helped the airline sector.   

DS Smith said there was a small dip in volumes and an increase in costs on account of the pandemic. Incurring higher overheads has been a common theme for companies that continued operating during the crisis as health and safety measures increased. The company is performing well, but it feels it is still too soon to return to paying dividends. It is sensible to be cautious when it comes to cash, but traders reacted badly to the news, and that is why the stock is in the red. Full year revenue dipped by 2% to £6.04 billion, while pre-tax profit increased by 5% to £368 million.  

US

The mood on Wall Street is bullish thanks to the better-than-expected non-farm payrolls figure and the decline in the jobless rate. The S&P 500 is showing decent gains while the NASDAQ 100 has notched up yet another all-time high. The non-farm payrolls data wasn’t the only US labour numbers posted today. The latest jobless claims reading was 1.42 million, down from 1.48 million – it was the thirteenth decline in a row, but the rate at which it is declining is falling. The continuing claims report actually ticked up to 19.29 million from 19.23 million – which is a little concerning. By-and-large, the jobs market is getting better but some traders might question the size of the upward move in stocks in relation to the strength of the data.       

Tesla shares are driving higher on the back of the latest deliver numbers. In the second quarter, the group delivered 90,650 vehicles, while according to a poll from Factset, the consensus estimate was about 72,000. A broader poll of analysts’ estimates put the forecast at roughly 83,000.

McDonald’s announced that its plans to reopen restaurants in the US has been pushed back by 21 days. This is because of a rising number of Covid-19 cases in many states. The move is similar to that of Apple, who reclosed 77 stores in the US. Roughly 15% of McDonald’s stores with dining areas in the US have reopened. In terms of franchises, if the venue is located in a state that has loosened its restrictions, and the local government has not instructed restaurants to close, then it will be at the discretion of the franchise owner. The decision to pause the reopening sends out a worrying message.

FX

The US dollar index is now up on the day as it reversed all of its earlier losses in the wake of the well-received jobs data. Traders took advantage of the weaker US dollar once the labour figures were released as it points to a recovery in the US economy.

EUR/USD is showing a small loss due to the greenback’s move. Unemployment in the eurozone ticked up to 7.4% in May from 7.3% in April, while economists were expecting 7.7%. The number seems low when compared with US for example, but it is worth noting the metric includes those who are actively seeking work. For those who can’t go to work, or are not looking for work, they are excluded from the update, so in reality the true rate is probably much higher. The PPI rate in the currency area fell from -4.5% to -5% in May, which suggests that demand is weak. If prices are falling at the factory level, that will probably lead to a decline in CPI down the line.  

Commodities

Gold is up on the session despite the turnaround in the US dollar in the last few hours, and the rally in stocks. Lately there has been a strong inverse relationship between the US dollar and the commodity, but that’s not the case at the moment. Only yesterday the metal hit its highest level in over seven years, so the wider bullish move is still in play.

WTI and Brent Crude received a nice boost from the US jobs data as it points to a rebound in the largest economy in the world. Dealers took the view the oil’s demand should increase while the US labour market is recouping some of its losses. Seeing as several US states are either pausing their reopening plans, or in some cases reversing them, there are some concerns that demand might be hit.  

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