After what has been a rollercoaster week for markets in Europe, with the DAX and FTSE 100 both hitting a three-month low, the last two days price action could see the FTSE 100 finish the week higher, despite rolling back in this afternoon’s trading session
US stocks appear to be leading this afternoon’s weakness, rolling over in the wake of today’s US non-farm payrolls report for November, which was somewhat of a mixed bag, and not nearly as disappointing as the headline number suggests.
This week’s price action in Europe has been uneven with the DAX’s performance being particularly feeble given the extent of last week’s falls, however the rebound in the FTSE 100 has been much more notable, closing well above last weeks close, helped by strong performances from the likes of housebuilders, as well as BP and Royal Dutch Shell, with the recent OPEC+ agreement on oil production helping to underpin prices there.
Housebuilders have been buoyed today by this morning’s comments from Bank of England external MPC member Michael Saunders who appeared to soften his position on an interest rate increase later this month. This has helped push the likes of Berkeley Group and Taylor Wimpey higher on the day, and added boost on top of this week’s positive Nationwide House Price data survey.
The underperformance of the DAX can partially be explained by the health emergency in Germany, which has prompted the government to introduce restrictions on unvaccinated people as Europe wrestles with the more immediate problems associated with the Delta variant.
On the earnings front we heard from Wickes today about its outlook for the year. Having been spun off from Travis Perkins earlier this year, Wickes latest trading update has seen the business raise its full year guidance, after a decent start to its Q4. Adjusted profit before tax guidance has been raised to not less than £83m. This is welcome news for a share price that has underperformed since being spun off at the end of April, with the shares hitting a record low in November. This has also helped push up Kingfisher shares on a positive read across.
On the downside, Ocado shares have been the worst performers this week, despite concerns over Omicron, as optimism that the higher vaccination levels in the UK wont prompt further restrictions, or lockdowns over the Christmas period. Reports that a takeover bid may well not be forthcoming also appears to be weighing on the share price.
US
US markets opened higher for a brief moment after the latest November jobs report showed that 210k new jobs were added in November, falling well short of estimates of 550k. While disappointing on the headline number, the rest of the report was much better and this may help explain why stocks are rolling over.
The unemployment rate was much more encouraging, falling back to 4.2%, from 4.6%, and the participation rate rose to 61.8%, as more people returned to the workforce. Wage growth was also encouraging from an inflation point of view, remaining unchanged at 4.8%. One reason for the weak headline number is weak payrolls growth in leisure and hospitality, while away from that the household survey saw strong gains, with vacancy rates still very high.
The latest ISM services report also showed strong growth in November lending support to the idea that the Federal Reserve will accelerate the tapering of its bond buying program in just under two weeks’ time.
This expectation, along with a rise in US 2-year yields appears to be hammering the Nasdaq, which is leading the market lower, as investors price in the prospect that the Fed could move on interest rates next year.
FX
The US dollar has edged higher despite the weak headline number from the jobs report, with currency traders focussing on the stronger internals which show that the US labour market remains in fairly decent shape.
The Canadian dollar has also outperformed helped by the decent gains being seen in the oil price today, after they slipped to three-month lows earlier this week.
The pound has slipped back after Bank of England MPC member Michael Saunders appeared to cool his enthusiasm for a possible rate rise later this month. Saunders has been one of the more hawkish voices on the MPC arguing that the central bank needs to start pulling back on its QE programme and start to look at hiking rates. His caution appears to stem from the recent concerns over Omicron, although he cautioned that waiting also posed risks.
Commodities
Crude oil prices have rebounded from three-month lows despite OPEC+ surprise decision to go ahead with their output hike in January, although they retained the option to review the decision if circumstances warranted it.
There was little or no reaction to today’s US jobs report from the gold price which is hovering near to the lows of the week. The strength of the US dollar today appears to be capping the upside.
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