Trading lacks enthusiasm
The new month has got off to a positive start for the FTSE and other UK markets, although trading is lacking the enthusiasm displayed during previous days. This is probably down to a combination of the absence of ‘month end mark up’ trading, and caution ahead of non-farm payrolls tomorrow.
Lloyds has added to its gains in the afternoon session, and the results today are likely to boost appetite for the TSB IPO among investors, eager to seize another piece of the Lloyds empire.
More good news for the pharma sector arrived in the shape of an update from Shire. The company enjoyed a good start to the year, and its shares have rallied accordingly, putting the March slump behind them. Fresh all-time highs beckon for a company that, since the financial crisis, has left its sector peers and the FTSE 100 trailing in the dust.
History repeating for Dow
Progress in US indices has stalled this afternoon ahead of non-farm payrolls, leaving us eerily in almost the same position as last month, as the Dow Jones tiptoes towards 16,600. Mixed data has been blamed as the culprit, but it is hard to blame traders for not ploughing head first into the markets when there are fewer than 24 hours to go until the next jobs report.
Memories of the shocking GDP reading have faded, replaced by a reassurance that the Federal Reserve is not about to accelerate the pace of tapering. As we head towards non-farms, it should be noted that expectations for non-farms are exhibiting the tightest range seen this year, and even the lowest estimate is expecting a reading 30,000 higher than the average number of jobs added so far in the US in 2014.
Dollar strength knocks commodities
US dollar strength is leading to some nasty falls in commodity prices. Gold is hitting the bottom end of its trading range once again, testing the $1280 level that capped losses in recent weeks. Similarly, US crude is probing the April low around $99, as the hangover from GDP yesterday continues to be felt, with poorer initial jobless claims not helping matters either.
Sterling buoyed by manufacturing
Sterling briefly saw $1.69 against the dollar this morning, lifted by yet more good news on UK manufacturing, which saw growth accelerate in April thanks to a surge in orders. This caused the PMI index for the sector to hit its highest level since November. However, the higher sterling goes the wider the gap between interest rate expectations in the UK and the US. If the prevailing consensus – that the Bank of England is going to raise rates before the Fed – begins to falter, much of the ground supporting the GBP/USD rally could easily disappear, leaving sterling bulls dangerously vulnerable.