Positive NFP number lifts US markets

After a week of selling off, equity markets staged a rebound today with the bulls back in charge. 

Wall Street sign
Source: Bloomberg

Tesco still out of favour

Disappointment, albeit misplaced, is still fairly prevalent amidst investors. The European Central Bank’s failure to deliver a big stimulus yesterday in the form of full blown QE has removed some of the overt bullishness seen over the past month.

Raised profit estimates from easyjet helped the FTSE take off in early trade as the Air France strike bumped up passenger numbers.

Tesco, which now looks set to offer a rights issue in a bid to raise capital, remains out of favour despite attempts to engage in the tablet market with its new Android tablet Hudl2. One might question how far it has to drop until it’s considered a bargain. 

NFP number impresses

Nothing beats a good US jobs number to shake the pessimism from equity markets, and today’s figure was nothing but positive. The number came in well ahead of expectations and this, coupled with the upward revision of the weak August data, sent the unemployment rate (5.9%) down to levels last seen in 2008. We are finally in the realm where good news is good news for equities – a welcome change from the taper tantrums felt over the last number of years.

The Dow Jones is trading off its highs as we head to the London close but is managing to hold most of its gains. Given that Q3 corporate earnings season is set to kick off, we may see some clearer direction. Facebook has received the go-ahead by the European Commission for its plans to buy the mobile messenger service WhatsApp. The deal, worth £11.9 billion, was approved when the EC decided that the two companies were not close competitors. The social media stock added 1% today so far.

Commodities retreating again

The rout isn’t over until it’s over. Gold, silver and oil are all in full blown retreat again. Particularly of note is the fact that gold is now below $1200 for the first time since the final day of 2013. The only hope for the gold bulls is the possibility that we will now see a wave of gold mine closures around the world. This would allow supply and demand fundamentals to take over, but when this is the sole source of comfort then the situation has become dire. Faced with rising rates the headwinds for gold will only become stronger.

Meanwhile, supply issues and a stronger dollar continue to take a bite out of crude prices, and the signs are that OPEC’s consensus on supplies is already  starting to break down.

Pound below $1.60

The dollar detractors are licking their wounds today as the greenback continues its surge as optimism in the US growth story abounds. On a trade weighted basis, the dollar has now reached levels last seen in the summer of 2010.

What has been interesting to observe is the fact that the pound has done nothing but decline in the wake of the Scottish Referendum results. Having sunk through the $1.60 level this afternoon, there seems to be little appetite for the pound despite the fact that there’s an excellent chance the Bank of England will tighten monetary policy ahead of the Federal Reserve. The single currency continues to plummet and has now shed over 10% in the past four months against the dollar. This plays excellently into the hands of Mario Draghi who has once again succeeded in using verbal intervention to drive FX rates. 

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