The FTSE 100 rebounded on Friday after a blowout US Non-Farm Payrolls for October and erased early losses to trade broadly flat at the time of writing. One would expect further choppiness throughout the session.
The US economy added 254,000 jobs in September, far more than the 150,000 predicted by economists. The big question for investors is whether this good news for the economy will be good news for stocks.
Such a strong beat is undoubtedly a major positive for the US economy and will go a long way to dispelling fears about a US slowdown. However, traders had been eyeing a potential 50bps interest rate cut at their next meeting. This now looks very unlikely with US growth appearing to be in good shape.
“While focus remains squarely on the employment side of the dual mandate, Chair Powell’s recent assertion that the Committee is “not in a hurry” to cut quickly, along with today’s incredibly solid data slate, means that a return to a more normal cadence of 25bp cuts is likely at the November meeting, and at each meeting beyond that, until the fed funds rate returns to a neutral level next summer,” said Michael Brown, Senior Research Strategist at Pepperstone.
“That said, the data-dependent FOMC will respond if labour market conditions weaken, with larger 50bp cuts on the table particularly if unemployment rises north of the 4.4% median forecast for this year and next.
“For sentiment, the forceful ‘Fed put’ should see the path of least resistance continuing to lead higher for equities over the medium-run, though conviction in the short-term could well be somewhat lacking, owing to ongoing geopolitical risks in the Middle East.”
The initial reaction to the jobs report was a jump in stocks and bond yields. S&P 500 futures were firmly higher and the dollar soared. There was also a jump in the FTSE 100, which recovered losses after a soft start to trade on Friday.
In the UK, rising oil prices didn’t provide much support for BP or Shell, leaving the index vulnerable to domestic constraints. However, the initial general optimism around the jobs report lifted all boats, taking London’s leading index back to flat on the session.
“Oil prices continued their ascent, rising another 0.8% to $78.21 per barrel and putting the commodity at its highest value since August. This is good news for oil producers but bad news for millions of companies and consumers as they face higher energy and transport costs,” said Russ Mould, investment director at AJ Bell.
JD Sports was the top faller as investors continued to checkout of the stock following worrying news from Nike, it’s largest supplier of sportswear.