Stocks are in the red this afternoon despite the positive US non-farm payrolls report. 

Europe

The headline figure was strong as 225,000 jobs were added in January, which easily topped the 160,000 forecast. The previous report was revised from 145,000 to 147,000. Today’s number was a great improvement on the old report too. The unemployment rate edged up to 3.6% from 3.5% - which was a fifty-year low. On a yearly basis, average earnings grew by 3.1%. Economists were expecting 3%, and keep in mind the December level was revised from 2.9% to 3%. It’s a pity the unemployment rate edged up, but overall it was a very strong jobs report. The robust earnings component could be an indication that employers are having to offer higher wages to attract workers. People who earn more usually spend more so that might be reflected in future retail sales reports.

European equity markets might be lower today but keep in mind how far they have travelled from the lows of last Friday. The action of the Chinese authorities in relation to the financial markets has done loads to boost sentiment even though the health crisis is deepening. The liquidity injection by the Chinese central banks, the stricter rules regarding short-selling on Chinese markets, plus the plans to lower levies on $75 billion worth of US imports, all contributed to the positive moves this week. It would appear that traders are interested in profit taking as the weekend nears.

Burberry shares are in the red after the company warned the health crisis is hurting sales in mainland China. More than a third of the company’s stores in mainland China are in the closed on account the crisis, while some of the stores that are open are operating on reduced hours. The stock is off the low of the session so traders aren’t that disappointed by the update.  

US

The Dow Jones plus the S&P 500 are lower this afternoon as traders have shrugged-off the solid jobs report. The two big indices set record closes last night so a pullback from those levels are isn’t a huge shock. The bullish run that took place between Monday and Thursday seems to have run out of steam, and dealers are only too aware the health crisis in getting worse. The number of confirmed cases in China has topped 31,100, and at least 636 people have lost their lives in the crisis.

The jobs report shows the US labour market in in rude health, and it seems that traders would secure their profits as the week draws to a close. It is possible the situation in China will worsen over the weekend, - when markets are closed, hence that’s why dealers are ducking out of equities.

Uber shares are driving higher thanks to better-than-expected quarterly figures last night. The company lost $8.51 billion last year, but it losses for the year ahead are expected to be $1.35 billion, and the forecast impressed traders as the consensus estimate is for a $2.83 billion loss.    

FX

EUR/USD is in the red but the US jobs data didn’t have a huge impact on the single currency. Germany and France are the two largest economies in the currency area, and they both posted very disappointing industrial production figures this morning. The German reading fell by 3.5%, while the French update showed a 2.8% decline. Admittedly, the reports aren’t a particularly important, but the readings do spark some concern.       

USD/CAD initially dropped in the wake of the US and Canadian jobs report, but it have since rebounded. The US jobs update was impressive but so was the Canadian report. In Canada, the unemployment rate dipped from 5.6% to 5.5%, while the consensus estimate was for the rate to hold steady. The employment change showed that 34,500 jobs were added last month. 35,700 full-time jobs were added, while 1,200 part-time jobs were lost. Earnings jumped to 4.4% from 3.8% - which is very bullish. The sharp falls in the energy market has weighed on the Canadian dollar, hence why USD/CAD is higher.

Commodities

Gold has been helped by the drop in stocks today. Dealers are swapping their long positions in equities for the precious metal – which is seen my many as a lower-risk asset. The commodity had a tough time earlier in the week as dealers adopted a risk-on strategy thanks to the action of the Chinese authorise in relation to supporting their domestic stock market.   

WTI and Brent crude are in the red again because Russia’s reluctance to cut output has acted as a greenlight for the sellers. The difference of opinion between Russia and the rest of the OPEC+ group highlights the cracks in the organisation. The lack of unity among the major oil producers was seen as a sign of weakness, so traders were quick to pounce. The deepening health crisis in China continues to add weight to the argument that demand in in the country will be severely dented by the coronavirus.     

 

 


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