The FTSE 100 slipped on Friday after the US Non-Farm Payrolls beat expectations, suggesting underlying strength in the US economy. This puts a damper on the argument for dramatic changes to borrowing costs.

London’s flagship index had been trading in a tight range for much of the week, and the highly anticipated monthly US jobs report did little to provide a catalyst for the FTSE 100 to break out of the 8,320 – 8,380 range.

After an October report heavily influenced by storms, the US bounced back with the creation of 227,000 jobs in November. Economists expected 200,000 jobs to be added to the US economy in November.

“The November US labour market report showed a rebound from the dismal, weather-affected October report, as the overall employment situation remains resilient,” said Michael Brown Senior Research Strategist at Pepperstone.

“Headline nonfarm payrolls rose by 227k in November, a touch above consensus expectations, but well within the forecast range. At the same time, the prior 2 months of data was revised higher, by a net 56k, taking the 3-month average of job gains to +173k.”

The strength of job creation will present something of a dilemma to investors who were hoping for additional interest rate cuts in the coming months.

The US equity market has enjoyed a prolonged period of strength supported by hopes of interest rate cuts but today’s data only serves to push the expectations of future rate cuts further out.

The conundrum for investors is whether the Federal Reserve should await negative economic news with ramifications for corporate earnings before cutting rates or attempt to orchestrate a soft landing. Both options have their risks.

Judging by the reaction in equities after the news hit the wires, the Non Farms have done little to alter many traders views on the market and the promise of Donald Trump seems to be enough to support stocks for now. 

“The question investors will be asking themselves is, with the US economy booming does the Fed really need to keep cutting interest rates,” said Nicholas Hyett, Investment Manager at Wealth Club. 

“The incoming Trump administration is set to do everything it can to spur domestic economic activity, and with tariffs potentially pushing up the cost of imports the combination of surging demand and restricted supply could trigger a resurgence in inflation. With labour markets seemingly doing well enough on their own interest rate cuts look increasingly unnecessary.”

The major corporate news on Friday was the agreement by Direct Line to a revised takeover offer by Aviva.

“Direct Line has finally relented, accepting Aviva’s 275p per share offer after resisting an earlier proposal in recent weeks,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“The deal, a mix of cash, shares, and a small dividend, delivers a 73% premium to Direct Line’s pre-offer price. Direct Line’s board had been holding out, insisting they could make it on their own. But even they had to admit that Aviva’s proposal is a golden ticket they’d struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.”

Britzman continued to explain the move by Aviva was relatively opportunistic after a torrid year for Direct Line.

“Let’s not sugarcoat it: Direct Line has hit some serious potholes lately,” Britzman said.

“Market share has been sliding, underwriting hasn’t exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan. For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot.”

Frasers Group was among the top fallers, shedding 2.5%, as brokers lowered their price targets after the retailer lower profit guidance this week.

Insurance giants Aviva and Direct Line have announced an agreement for the takeover of Direct Line by Aviva after a revised bid was accepted by Direct Line.

The proposed deal values Direct Line at 275p per share, and comprises three elements: a cash component of 129.7p per Direct Line share, which Aviva plans to fund through its existing cash resources; an equity component of 0.2867 new Aviva shares per Direct Line share; and dividend payments totalling up to 5p per Direct Line share, subject to board approval.

The offer presents a significant short-term uplift for Direct Line shareholders, representing a 73.3% increase over Direct Line’s closing share price on November 27, 2024, and a 49.7% premium compared to the company’s six-month volume-weighted average share price leading up to that date. Upon completion of the transaction, Direct Line shareholders would hold approximately 12.5% of Aviva’s issued share capital.

Direct Line rebuffed an initial offer totalling 250p per Direct Line share and has secured an additional 10% for its shareholders.

Direct Line said that while it maintains confidence in Direct Line’s standalone prospects and its new leadership team, it recognises the potential value creation opportunity presented by the combination. The proposed merger is expected to generate substantial synergies, potentially delivering additional value for shareholders of both companies.

“Direct Line has finally relented, accepting Aviva’s 275p per share offer after resisting an earlier proposal in recent weeks,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown

“The deal, a mix of cash, shares, and a small dividend, delivers a 73% premium to Direct Line’s pre-offer price. Direct Line’s board had been holding out, insisting they could make it on their own. But even they had to admit that Aviva’s proposal is a golden ticket they’d struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.

“Let’s not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn’t exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan. For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line’s transformation, while squeezing out efficiency gains from their combined scale.”