It’s been a fairly low-key end to another choppy week for European markets after the latest US non-farm payrolls report showed that the US economy added 372,000 jobs in June.
Europe
The decent jobs report prompted a bigger reaction from markets in the US, than here in Europe, where trading activity has been lacklustre, but still looks set to finish the week on a positive note.
Today’s gains come despite the DAX briefly touching 18-month lows earlier this week largely aided by outperformance from the auto sector, driven primarily by Porsche and Volkswagen. The FTSE 100 also looks set to finish a similarly choppy week slightly higher, with the biggest decliners on the week being in energy and basic resources, due to the slide in metals and oil prices over the past few days.
Among today’s gainers JD Sports is higher after announcing that Andy Higginson as its new Chairman to replace Peter Cowgill. Higginson used to be chairman at Morrisons. Harbour Energy is also higher, helped by the recent rebound in oil prices. The company also announced that EIG, one of its major shareholders, had divested some of its shares to its investors by a series of distributions.
US
US markets dipped lower on the open after a decent US payrolls report saw the US economy add 372,000 jobs in June. The unemployment rate remained steady at 3.6%, while better than expected wages growth of 5.1%, helped drive the US dollar higher, while May wages were revised up to 5.3%. US participation fell to 62.2% from 62.3%, which again is a head scratcher, and a little concerning. Wages are rising, and vacancies are at record levels, yet people are dropping out of the workforce.
Today's report, while solid, would ordinarily be positive news, but it raises the question about how much more US stock markets can rally in the face of a tightening Federal Reserve as it doubles down on its inflation targeting credentials.
The strong number not only keeps the focus on 75bps in July, which now seems a done deal, but also means we could see a similar move of 75bps in September, especially if we get a strong CPI number next week. This has been reflected in US treasury yields with the US 10-year surging back above 3%, while the 2-year yield has moved above 3.1%, although they have since slipped back from their intraday highs.
Despite the challenges facing the retail sector, Levi Strauss Q2 earnings came in better than expected, as revenues came in at $1.5bn, while profits came in at $0.29 a share, comfortably beating forecasts of $0.23c a share. Levi Strauss did record charges of $60m related to its Russian and Ukraine business, but still raised its dividend to $0.12c a share. The company also reaffirmed its full year guidance of 11% to 13% revenue growth driven by strong growth at its own branded stores.
Reports overnight suggest that Tesla CEO Elon Musk’s bid for Twitter is in trouble, with the social media company stating that spam bots account for less than 5% of its total user base. With no real evidence to back up this claim, the deal appears to be running into a wall, with Twitter shares falling.
Only days after announcing a 4-1 stock split, GameStop shares are falling after the company announced the departure of its CFO Mike Recupero, as well as saying it was cutting a number of jobs across the business.
FX
Another 19 year low for the euro today against the US dollar, although we have rebounded off the lows of the day despite a strong US jobs report. With the weekend looming, there appears to be little appetite to push the US dollar much higher after a week of already strong gains, against the beleaguered single currency.
Attention now shifts to next week's US CPI report for June, which could well be the catalyst to move the US dollar through parity against the euro, a level last seen in December 2002.
The pound has also had a disappointing week, as it struggles to regain a foothold back above the 1.2000 area after briefly pushing below 1.1900 earlier this week.
Commodities
Gold prices have also come under pressure this week, weighed down by higher US yields and a stronger US dollar. Prices have attempted to rebound in the past couple of days, however today’s payrolls number has served to limit the upside today, while a big US CPI number next week could send the yellow metal back towards the lows this week.
It’s been more than 4 weeks since Brent crude oil prices posted a positive week, as prices came within touching distance of a 3-month low earlier this week. Despite the rebound seen in the past two days, markets are becoming increasingly concerned about recession risk and demand destruction, and which has served to offer some respite from the higher prices seen in June.
