It’s been a fairly good week for European equity markets, though they have struggled today, despite all the talk of tariffs, trade wars and political uncertainty from the Italian election.

This week’s gains do need to be put in the context of the bigger declines seen at the end of last week, which saw the FTSE 100 and DAX open this week at one-year lows.

The rebounds this week have also been helped, particularly in Asia, by last night’s reports that US president Donald Trump would be meeting North Korean leader Kim Jong Un with a view to discussing nuclear de-escalation, in a historic move.

While there is plenty of cynicism about how this might play out, the fact that we are talking about a historic meeting when six months ago there was talk of nuclear war must surely be progress. There are certainly plenty of reasons to be cynical but surely to quote Winston Churchill “meeting jaw to jaw is better than war”, particularly given what’s at stake.

The US non-farm payrolls for February turned out to be one of those reports that had a bit of everything for both the hawks and the doves. Therer was a really positive headline number with 313k jobs added in February, while the January number was revised up to 239k. For a labour market that we are told is rather tight this is quite a big number, and the fact that wage growth slowed to 2.6% from 2.9% would suggest that there is much more slack in this particular jobs market than most people think.

Far from reinforcing the prospect of four US rate rises this year, I would suggest that those calls may well be a little bit premature, particularly when you see the participation rate jump from 62.7% to 63%, as more people return to the workforce. This is likely to prompt a little bit of a brake on this week's US dollar rebound.

In company news, UK satellite firm Inmarsat is one of the worst performers after reporting that it would be cutting its dividend due to uncertainty over future cashflow from its US 5G operations. The underlying numbers were fairly positive with Q4 beating market expectations, coming in at $353.7m.

The company also announced that it would be investing additional money into the growing in-flight Wi-Fi market.  While the cut in the dividend to $0.2c a share is disappointing the dividend yield still remains at a fairly healthy 5%, and reflects a management adopting a responsible outlook to a more challenging environment. Even so the fact that the share price has halved in the last 12 months should be a significant concern for shareholders as the share price languishes just above levels last seen in 2012. 

BAE Systems also enjoyed an afternoon boost after news broke that Saudi Arabia would be reportedly confirming that it would be buying 48 Typhoon jets from the UK, securing hundreds of jobs in the process. 

US

US markets opened higher this morning after the latest February jobs report showed 313k jobs were added, well above expectations of 200k. The strength of the numbers points to a US labour market which is still in decent health, however it was disappointing to see wages growth slip back to 2.6% from 2.9%, helping allay concerns that inflationary pay awards might prompt the Fed to tighten policy quicker than expected.

Despite the weakness in the wages numbers the US 10 year yield jumped back towards 2.9% reinforcing the fact that rates are still expected to rise, even if the pace remains up for debate.

In company news Toys R Us is preparing to liquidate its US operations and has seen the share prices of Mattel and Hasbro come under pressure in early trade. 

While this seems a rather strange reaction given that neither of these companies owns a significant amount of real estate, there are concerns that both companies may have to take losses on some of the unsold stock.

The moves should be limited as markets are likely to have factored in just such a possibility already. Toys R Us appears to have suffered from the Amazonification of the retail space and its inability to adapt its shopping experience to compensate for that.

FX

The US dollar has come under pressure today after a decent run of gains this week on the back of those weaker than expected wages numbers.

The pound has had a fairly decent week ahead of next week’s spring statement, with the latest economic data pointing to a fairly decent rebound in economic activity in January. The data wasn’t all good with the trade balance still showing little signs of improving.  The borrowing picture has continued to improve but the economy is still showing signs of some sluggishness with NIESR GDP coming in at 0.3% below expectations of 0.4%.

Commodities

The weaker US dollar has helped lift oil prices today, but they are still set to close lower on the week over concerns about rising US shale capacity.  
 

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