S&P 500 falls on Wall Street as stellar US jobs data encourages Fed rate hawks
New York stocks fell in opening trade and the dollar rose after influential employment data powered through forecasts, allaying fears about a US recession but opening the way for the Federal Reserve to be more hawkish in lifting interest rates to tame inflation.
The S&P 500 fell 30 points to 4,124.40, a slip of 0.8%. The dollar index rose by over 1% as the prospect of faster monetary tightening boosted the currency. The non-farm payroll report showed the creation of 528,000 jobs in July, more than double the number forecast, which took the number of people on private sector payrolls in the US back to pre-pandemic levels and cut the overall unemployment rate to 3.5%.
Hinesh Patel, portfolio manager at Quilter Investors, said it showed the US labour market “remains red hot”, and:
“The Federal Reserve will see this a sign that they need to continue to hike aggressively to get inflation under control and take some of the froth out of this tight labour market.”
US jobs data smashes through forecasts and points to more room for Fed rate hikes
Closely-watched US employment data has powered through forecasts, showing a 528,000 rise in the number of non-farm payrolls for July, more than double the 250,000 forecast.
The number looks to give the US Federal Reserve more room to fight inflation by raising interest rates without damaging the economy if it able to generate such strong job growth. The overall unemployment rate fell to 3.5% from 3.6%.
Such strong demand for labour will dilute fears about a US recession as central banks tighten monetary policy and could play into lead City forecasters’ expectations on the pace of rate rises there.
After the numbers came out, US futures fell, andpointed to an opening fall for the S&P 500 of around 30 points as investors measured the implications of the data, one of the most closely-watched on the economic calendar. The dollar rallied, with the index tracking it against a series of currencies up 0.8% for the session. Investors sold out of two-year US Treasuries, one of the assets most sensitive to the outlook for US monetary policy, sending its yield up toward 3.2%.
London’s FTSE 100 was 17 points lower at 7430.60.
FTSE 100 steady in mid-session trade ahead of US jobs numbers
London’s FTSE 100 slipped 7 points to 7,441.3 in afternoon trade as investors across global markets turned their attention to influential US jobs data that will play into exptectations for the pace of rate rises in the world’s biggest economy,
The non-farm payrolls report for July is due out at 1.30pm London time, an hour before the start of Wall Street trade. City forecasters expect it to show the creation of 250,000 posts outside the agricultural sector in the month, which would be a slowdown in the pace of job creation from 372,000 in June, though not by enough to shift the unemployment rate from 3.6%. It would be the 19th consecutive month of payroll expansion.
Michael Hewson, chief market analyst at CMC Markets, pointed out a reading of 250,000 would ”still be the lowest number this year,” but that “the strength of the labour market may well be starting to increase in the level of importance when it comes to how aggressive the Fed is likely to be when it comes to tackling inflation. “
Financial stocks were stronger in London after well-received updates from Hargreaves Lansdown and the London Stock Exchange. Their shares gained 7% and 3% respectively. WPP’s shares fell 7% after it sounded a muted tone on the outlook for the advertising industry as recession looms.
Allianz profits climb as it claims to be well set to handle inflation
Health, life and disability insurer Allianz insisted it is in good shape to withstand high inflation and economic pressures across Europe as it reported a boost in profits.
Revenues rose 8.2% to €37.1 billion (£31.2 billion) in the second quarter, while operating profit increased by 5.3% to €3.5 billion.
CEO Oliver Bäte said: “We are well-positioned to manage the impact of high inflation and the economic pressures that are particularly evident in Europe.”
In May the US asset management unit of Allianz was hit with a $6 billion fine for fraudulent conduct by the Securities and Exchange Commission over the collapse of investment funds early in the pandemic.
‘Once in a generation’ global troubles hurt Hargeaves Lansdown
Investment business Hargreaves Lansdown said it had been hit by a “geopolitical climate not seen in a generation” that had caused “subdued flows and lower activity across wealth management” as full-year revenue and profits declined.
Assets under administration feel 9%, driven by what HL described as “market falls” to £123.8 billion.
Revenue dipped 8% year on year to £583 million. Pre-tax profit dropped 26% to £269.2 million, but the firm remained confident of delivering “outstanding client service, strong shareholder returns and market leadership”. Boss Chris Hill stressed its “continued commitment to our clients to ensure they get the best outcomes in these challenging times”.
Pendragon reverses out of car dealership takeover talks
Pendragon, owner of the Evans Halshaw and Car Store brands, has said it is no longer in takeover talks with an unnamed suitor after one existing shareholder refused to engage with the bid.
The company said the offer, from a “large international corporate”, was not going ahead after one of its five biggest investors would not join the talks, which were supported by the other four. The bidder’s offer, priced at 29p per share, would have valued Pendragon at about £460 million. It was conditional on the backing of all the major shareholders.
Demand for used cars has stayed strong after the end of lockdown and the prospect of tighter restrictions on new vehicles’ environmental performance boosted demand in the sector. Nonetheless, the trade faces pressure from the cost-of-living crisis and soaring inflation.
According to Auto Trader, the industry magazine, the average price of a used car in July was more than £17,000, a year-on-year increase of almost 20%.
Pendragon forecast underlying profit before tax of around £33 million for the first half of its financial year. Shares rose more than 11% to 24p.
LSE buyback boosts shares another 2%
London Stock Exchange’s better-than-expected results powered shares to their highest level since April today.
LSE rose another 2% or 198p to 8342p at near the top of the FTSE 100 index, with its valuation now up by a quarter since mid-June as investors become more comfortable about the integration of financial data firm Refinitiv.
The benefits of the $27 billion deal from January 2021 were shown in today’s results as data and analytics revenues rose £482 million to £2.3 billion. The capital markets arm grew revenues to £720 million, despite a 47% drop in the number of new listings.
Adjusted profit lifted 4.3% excluding currency moves to £1.4 billion as LSE accompanied its results with a £750 million buy back of shares and 27% increase in interim dividend.
Charlie Huggins, head of equities at Wealth Club, said investors could be richly rewarded if LSE is successful with the Refinitiv integration. He added that LSE was a “pretty resilient business” as three-quarters of its revenues are recurring.
Huggins said: “High inflation is less of a problem for LSE than for most businesses, thanks to good pricing power which results in consistently solid margins. The business model is also highly scalable and capital light.”
LSE’s improvement came during an otherwise lacklustre session as the FTSE 100 retreated 12.23 points to 7435.83. The biggest downward force came from BP and Shell after the price of Brent crude dipped to below $95 a barrel.
The gloomy UK economic outlook meant little appetite for Next shares, which declined for a second session in a row despite the retailer’s better-than-expected trading update yesterday.
Liberum raised its price target on Next to 500p this morning, but shares fell another 122p to 6592p. Other broker upgrades saw BAE Systems lifted to 970p by Deutsche Bank, but shares in the defence firm were flat at 793p.
Outside the top flight, Capita shares fell 2p to 27.5p despite the UK government’s biggest software and IT services provider reporting half-year results in line with expectations.
LSE shares up 3%, BP down 1%
Declines of 1% for BP and Shell after the price of Brent crude last night dipped to $94 a barrel left the FTSE 100 index near to its opening mark, down 8.99 points at 7439.07.
The weakness for the oil majors was offset by results-day progress at London Stock Exchange and investment platform Hargreaves Lansdown after their shares lifted 3% and 4% respectively.
LSE’s improvement of 214p to 8358p was driven by plans for a £750 million buy back of shares alongside a 27% increase in its interim dividend to 31.7p a share.
The FTSE 250 index was unchanged at 20,155, having rallied by 0.7% yesterday.
House price dips 0.1% in July
The latest house market report from mortgage lender Halifax shows prices fell last month for the first time since June 2021, with a marginal fall of 0.1%. The annual rate of growth eased to 11.8%, from 12.5%.
Halifax managing director Russell Galley said: “While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time.
“Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios.”
However, he added that some of the drivers of the buoyant market over recent years, such as extra funds saved during the pandemic and investment demand, are still evident.
Galley said: “The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.
“Looking ahead, house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold.”
FTSE 100 steady, US jobs report in focus
Financial markets have held firm in the face of the Bank of England’s recession warning and biggest hike in interest rates in 27 years.
The domestic-focused FTSE 250 improved by 0.7% yesterday and the FTSE 100 index was close to its opening mark, in line with robust performances elsewhere in Europe.
CMC Markets sees a resilient start after forecasting a 10 point rise for the FTSE 100 to 7458, although progress later in the session is likely to depend on the outcome of the closely-watched non-farm payrolls report in the US.
Wall Street economists expect to see the addition of 250,000 jobs, which compares with the previous month’s better-than-forecast figure of 372,000.
The strength of the labour market is likely to be the key consideration for the US Federal Reserve when determining the pace of interest rate rises in the fight against inflation.
US markets were slightly lower yesterday but the S&P 500 remains on track to finish higher for the third week in a row.
The pound, meanwhile, stood at just above $1.21 versus the US dollar. Brent crude, which has fallen by around 10% this week, has steadied at near to $94.50 a barrel.