The FTSE 100 sank with global equities on Friday after US Non-Farm Payrolls provided a much stronger snapshot of the UK economy than investors had been expecting.
Non-farm payrolls rose by a whopping 272,000 jobs, much stronger than the expected 180,000. Such a strong beat in jobs added is great news for the US economy but terrible news for stocks.
The bumper Non-Farm Payrolls report effectively closes the door on a rate cut by the Federal Reserve next week and throws doubt over when the Federal Reserve will eventually cuts rates.
The big risk for the Federal Reserve is easing too quickly and leaving themselves vulnerable to a slowdown in the US economy. Easing borrowing costs when the economy is still humming will erode the impact of further rate cuts if and when the economy slows. This risk of cutting rates too early is the reason why financial markets are no longer pricing a 100% chance of a US interest rate cut in 2024.
Attention will shift to the US CPI reading due for release on Wednesday for further insight into the Fed’s next move. Should we see an inflation reading higher than expected, equities could come under real pressure.
“FOMC members continue, unsurprisingly, to place greater weight on the inflation side of the dual mandate, and are likely to reiterate next week that they are yet to obtain the ‘confidence’ being sought on a return towards the 2% target to enable the first rate cut to be delivered,” said Michael Brown, Senior Research Strategist at Pepperstone.
“As such, the May CPI report, also due next Wednesday, is likely to be a much more significant event, particularly after the core CPI metric fell, on an annual basis, to a near 3-year low in April.”
The prospect of few or no rate cuts in 2024 has sent equities into a tailspin and bond yields soaring. US futures were down heavily and the FTSE 100 fell in sympathy.
The FTSE 100 was trading negatively before the jobs data was released at 1.30pm and losses accelerated as the news hit the wires. The selloff was broad with 89 of the FTSE 100 constituents trading negatively at the time of writing.
Miners were the worst hit, with Fresnillo falling 4% and copper miner Antofagasta dropping 3.4%. JD Sports felt the pressure of higher borrowing costs for longer and fell 3%. Ocado never misses out on a big move and was down 2.5% after earlier this week it was confirmed they will be removed from the index in upcoming reshuffle.
Utilities companies were among the few companies trading in positive territory
