This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
European markets suffer against US jobs report
Of all the epithets to employ to today’s non-farm payrolls up, ‘Goldilocks’ might be the best. Jobs growth was strong, but not too strong. Meanwhile earnings growth was better as well, providing the rationale for a stabilisation that still leaves the index tantalisingly close to 6900. Yet again it is the mining sector that has contributed most to the losses today, as the tale of oversupply that has caused such woe for the sector overall rears its head again.
Asset managers gained, with Aberdeen leading the way, as broker upgrades boosted confidence.
Given that European Central Bank quantitative easing is scheduled to start in March, with firm positive implications for stock markets in the currency union, we can expect to see fund managers remain a favourite for some weeks to come. European markets were little enthused by the US jobs report, and although they rallied off their lows from the morning the prospect of further Greek upheaval points to a difficult week ahead.
Rate hike looks more likely
US indices continue to outpace their European peers, reversing a trend that dominated throughout January. Today’s jobs report has implications for a Federal Reserve rate hike in June, and although the US dollar has woken up to this equity indices have been slower on the uptake. It’s rare to see a report that is so encouraging in all areas, particularly the way in which earnings for January were so much better than in December.
A rate hike is a greater possibility in June than it was just 24 hours ago, but for now markets are just content that the average American is beginning to see solid increases in pay that will provide a consumer spending tailwind for the world’s largest economy.
Oil holds gains
Predictably, gold and silver have taken one look at today’s jobs report and thrown themselves into a sulk. For gold, all the gains made since 15 January have been wiped out, and indeed today’s move almost exactly matches the upward surge on that day.
Dollar and Treasury buying have been the culprits, and while an oversold bounce cannot be ruled out, a retest of the sub-$1200 lows has suddenly become a very real possibility. Oil has managed to cling on to some of its gains, ending the week much higher than it started, but renewed dollar strength will take out some of the more recent gains.
Tension continues over Grexit
Four days of volatile swings have seen the euro end the week only slightly higher than where it started. Greek uncertainty and dollar strength mean that the $1.13 level is under threat once again. Mr Varoufakis’ tour of the continent has not been a complete failure, given his warm reception in Paris, but the Germans are still intransigent.
Greece faces a race against time in February, but the Germans know that they are much better prepared for Grexit than they were, and this time they are determined not to blink first.