Takeaways from the jobs report
Simon Constable and Ben Casselman discuss a few of the takeaways from the May jobs report.
|London Market Report|
Markets surge as US data eases 'tapering' fears
An in-line increase in US non-farm payrolls sparked an impressive surge on equity markets worldwide on Friday afternoon, as worries about the Federal Reserve scaling back its stimulus measures eased, for now at least.
London’s FTSE 100 finished up 76 points on the day (+1.2%) at 6,412. Nevertheless, the index still remains well below the 13-year high of 6,840 reached on May 22nd as uncertainty in regards to the Fed’s ‘exit strategy’ continues to take its toll on sentiment.
The US Labor Department said that non-farm payrolls increased by 175,000 in May, more or less meeting the consensus forecast, following a downwards revision to the previous month’s number. The jobless rate rose from 7.5% to 7.6% to reflect a rise in the participation rate.
The FTSE 100 opened in a cautious fashion today following a recent string of sell-offs on increased speculation that the Fed would soon ‘taper’ quantitative easing (QE) given the steadily improving nature of US economic data. However, given that today’s jobs report failed to materially beat estimates, it is likely to assure some policymakers that the recovery is not yet strong enough to pull the plug.
“If ever there was a Goldilocks number, this is it,” said Trading Director Marcus Bullus from MB Capital. "US job growth is neither too hot nor too cold - and the market's fears about QE tapering have dissolved like sugar in a bowl of warm oatmeal.”
Meanwhile, Market Strategist Ishaq Siddiqi from ETX Capital said that the data “buys liquidity addicts more time to reap the benefits of the loose money environment.”
FTSE 100: Severn Trent jumps on improved offer
Severn Trent surged this afternoon after the LongRiver consortium upped its cash offer for the water provider following the rejection of an earlier proposal by the group earlier this week.
The consortium has offered 2,200p per Severn Trent share, including the 45.51p dividend announced in May, which values the group at £5.3bn at a fully diluted basis. Monday’s rebuffed offer was for 2,125p per share.
Cyclical stocks such as financials and miners were performing well after the US jobs this afternoon: Prudential, RBS and Standard Life were on the rise, closely followed by Rio Tinto, Antofagasta and Glencore Xstrata.
Asset management group Aberdeen was a heavy faller today after Bank of America Merrill Lynch downgraded its rating for the stock to 'underperform', saying that its organic inflows could slow significantly from consensus expectations. "With the stock up around 20% year-to-date, the valuation premium to peers looks unwarranted," the broker said.
Chemicals group Johnson Matthey was also in the red, pulling back after a strong rise yesterday. Citigroup, Deutsche Bank and Goldman have all raised their target for the stock this morning following Thursday's well-received full-year results.
FTSE 250: KCOM and 888 surge
Telecoms and internet communication provider Kcom Group advanced after announcing a 10% rise in its final dividend following a 3.1% increase in pre-tax profits.
888 Holdings rallied after New York Congressman Peter King proposed a bill that back online gambling.
|AIM/Small cap report|
| FTSE 100 - Risers |
Prudential (PRU) 1,118.00p +5.47%
BT Group (BT.A) 312.80p +3.68%
Royal Bank of Scotland Group (RBS) 327.40p +3.31%
Standard Life (SL.) 375.30p +3.22%
Diageo (DGE) 1,956.50p +2.97%
Kingfisher (KGF) 346.70p +2.94%
Aviva (AV.) 334.70p +2.83%
CRH (CRH) 1,359.00p +2.64%
Fresnillo (FRES) 1,144.00p +2.60%
TUI Travel (TT.) 343.50p +2.54%
FTSE 100 - Fallers
Aberdeen Asset Management (ADN) 415.70p -1.68%
Johnson Matthey (JMAT) 2,704.00p -1.67%
ARM Holdings (ARM) 864.50p -1.59%
Hargreaves Lansdown (HL.) 909.00p -1.46%
Sage Group (SGE) 348.00p -1.02%
Meggitt (MGGT) 519.50p -0.95%
Sainsbury (J) (SBRY) 360.70p -0.72%
Wood Group (John) (WG.) 809.50p -0.61%
London Stock Exchange Group (LSE) 1,382.00p -0.58%
Serco Group (SRP) 592.00p -0.50%
FTSE 250 - Risers
888 Holdings (888) 151.50p +8.21%
KCOM Group (KCOM) 83.10p +8.13%
Spirent Communications (SPT) 134.00p +7.72%
Petropavlovsk (POG) 140.10p +6.95%
New World Resources A Shares (NWR) 100.50p +6.52%
Rank Group (RNK) 161.00p +4.48%
African Barrick Gold (ABG) 139.80p +4.17%
Moneysupermarket.com Group (MONY) 203.00p +4.10%
Keller Group (KLR) 904.50p +3.97%
FirstGroup (FGP) 123.70p +3.86%
FTSE 250 - Fallers
Cobham (COB) 262.00p -2.78%
Perform Group (PER) 576.00p -2.70%
Ashmore Group (ASHM) 365.00p -2.69%
Barr (A.G.) (BAG) 505.00p -1.94%
Filtrona PLC (FLTR) 686.00p -1.79%
Home Retail Group (HOME) 151.80p -1.75%
Bank of Georgia Holdings (BGEO) 1,781.00p -1.44%
Telecom Plus (TEP) 1,246.00p -1.42%
RPC Group (RPC) 420.40p -1.29%
Laird (LRD) 192.00p -1.03%
|European Market Report|
European Markets Climbed On U.S. Employment Data
The European markets ended Friday's session firmly in the green. The driving force behind the gains was the better than expected U.S. jobs report for May. The jobs report overshadowed the announcement that the Bundesbank had lowered Germany's growth forecasts. Insurance stocks were among the best performing stocks, after Citigroup raised its rating on the financial services sector to "Overweight" from "Neutral."
Employment in the U.S. increased by a little more than economists had anticipated in the month of May, according to a report released by the Labor Department on Friday. The report said non-farm payroll employment rose by 175,000 jobs in May following a downwardly revised increase of 149,000 jobs in April.
Economists had been expecting employment to increase by about 167,000 jobs compared to the addition of 165,000 jobs originally reported for the previous month.
Despite the continued job growth, the unemployment rate edged up to 7.6 percent in May from 7.5 percent in April, reflecting an increase in the size of the labor force. While the job growth is a positive sign for the economy, the uptick by the unemployment rate may be seen as a sign that the Federal Reserve will maintain its asset purchase program at the current pace.
Germany's central bank on Friday lowered the economy's growth projections for this year as well as the next and said "structural problems" in Eurozone remained a major impediment to rapid improvement. Bundesbank said it expects German gross domestic product to grow 0.3 percent this year, weaker than 0.4 percent forecast in December. The economy is seen growing 1.5 percent in 2014, down from an initially predicted 1.9 percent expansion.
Britons' inflation expectations for the year ahead stayed at 3.6 percent in May, unchanged from February, results of a quarterly survey by the Bank of England and GfK NOP revealed Friday.
According to the Inflation Attitudes Survey, inflation will then fall to 3.3 percent in the 12 months after that. Inflation expectations for a longer-term, say in five years time, came in at 3.6 percent, the same rate as seen in the previous survey period.
The Euro Stoxx 50 index of eurozone bluechip stocks increased by 1.86 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, added 1.57 percent.
The DAX of Germany climbed by 1.92 percent and the CAC 40 of France advanced by 1.53 percent. The FTSE 100 of the U.K. rose by 1.20 percent and the SMI of Switzerland gained 2.13 percent.
In Frankfurt, Hochtief fell by 1.98 percent. Berenberg downgraded the stock to ''Hold'' from ''Buy.''
Bayer rose by 3.56 percent. Exane BNP upgraded the stock to ''Outperform'' from ''Neutral.''
Deutsche Telekom gained 2.15 percent, after Jefferies upgraded its rating on the stock.
JPMorgan cut Alstria Office to ''Underweight'' from ''Neutral.'' The REIT declined by 2.79 percent.
PATRIZIA Immobilien dropped by 2.62 percent. The stock was downgraded at JPMorgan.
Gagfah climbed by 4.74 percent, following a broker upgrade.
In Paris, Air France-KLM dropped by 3.09 percent, after reporting traffic data for May.
Merrill Lynch upgraded Vinci to ''Buy'' from ''Neutral.'' The builder gained 3.18 percent.
Glencore Xstrata rose by 1.32 percent, after Credit Suisse added it to its Focus List.
Aberdeen Asset Management fell by 1.68 percent, after Bank of America Merrill Lynch downgraded it to "Underperform" from "Neutral."
SThree declined by 3.46 percent, after issuing a trading statement.
Fuller Smith & Turner gained 5.11 percent, after its annual profit rose.
KCOM surged by 8.13 percent, after announcing a higher dividend.
|US Market Report|
Brokerage stocks are turning in some of the market's best performances in mid-day trading, with the NYSE Arca Broker/Dealer Index up by 2.6 percent. With the gain, the index has climbed back near the two-year highs set last month.
Among brokerage stocks, Morgan Stanley, Nomura Holdings, and Goldman Sachs are posting notable gains.
Substantial strength has also emerged among transportation stocks, as reflected by the 2.5 percent gain being posted by the Dow Jones Transportation Average. United Continental is leading the sector higher after being upgraded to Neutral from Sell by Goldman Sachs.
Health insurance stocks are also seeing considerable strength, resulting in a 1.8 percent gain by the Morgan Stanley Healthcare Payor Index. Most of the other major sectors have also shown strong moves to the upside, with defense, software, and biotechnology stocks posting standout gains.
Meanwhile, gold stocks are bucking the uptrend on the day, moving sharply lower along with the price of the precious metal.
In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan's Nikkei 225 Index edged down by 0.2 percent, while Hong Kong's Hang Seng Index dropped by 1.2 percent.
Meanwhile, the major European markets showed strong moves to the upside following the U.S. jobs data. The U.K.'s FTSE 100 Index advanced by 1.2 percent, while the French CAC 40 Index and German DAX Index surged up by 1.5 percent and 1.9 percent, respectively.
In the bond market, treasuries have come under considerable pressure amid the rally on Wall Street. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, has jumped by 6.8 basis points to 2.143 percent.
Friday broker round-up
Aberdeeen Asset Management: Bank of America cuts target from 475p to 410p downgrading to underperform.
Anglo American: Nomura lowers target from 1700p to 1650p and stays with its neutral rating.
ARM Holdings: UBS moves target from 950p to 970p, while its neutral rating remains unchanged.
Assura Group: Espirito Santo shifts target from 39.20p to 40.80p keeping a buy recommendation.
AstraZeneca: Jefferies reduces target from 3700p to 3560p maintaining a hold recommendation.
BHP Billiton: UBS raises target from 2370p to 2470p and keeps a buy recommendation.
Daily Mail & General Trust: Westhouse Securities increases target from 634p to 670p retaining its neutral rating.
Fuller Smith & Turner: Panmure Gordon takes target from 755p to 834p, while leaving its hold recommendation unaltered.
Gem Diamonds: Goldman Sachs shifts target from 170p to 180p upgrading from neutral to buy.
GlaxoSmithKline: Jefferies ups target from 1800p to 1900p, while keeping its hold recommendation.
Hyder Consulting: Panmure Gordon upgrades from hold to buy with an unchanged target of 488p.
Intertek: UBS reduces target from 3400p to 3200p, while its neutral rating is maintained.
ITV: Credit Suisse ups target from 130p to 150p retaining outperform rating.
Johnson Matthey: Deutsche Bank takes target from 2550p to 2950p and reiterates its buy recommendation. Citi increases target from 2450p to 2700p, while leaving its neutral rating unchanged. Goldman Sachs raises target from 2950p to 3050p maintaining a buy recommendation.
Legal & General Group: Exane ups target from 116p to 128p reiterating an underperform rating.
Millennium & Copthorne Hotels: Goldman Sachs cuts target from 650p to 583p downgrading to neutral.
Petra Diamonds: Goldman Sachs moves target from 125p to 180p and upgrades from neutral to buy.
Spirent Communications: Panmure Gordon lowers target from 181p to 176p maintaining its buy recommendation.
SThree: Investec cuts target from 385p to 359p downgrading from buy to add.
Tesco: Deutsche Bank reduces target from 440p to 428p and retains a buy recommendation.
3i Group: Citi moves target from 340p to 370p staying with its buy recommendation.