1st Nov 2024 17:01
(Alliance News) - Sterling rallied and stocks prospered in London on Friday as weak US jobs data raised hopes of a faster pace of rate cuts across the pond.
The FTSE 100 index closed up 67.05 points, or 0.8%, at 8,177.15. The FTSE 250 ended up 90.78 points, or 0.5%, at 20,479.74, and the AIM All-Share closed up 1.90 points, 0.3%, at 739.00.
For the week, the FTSE 100 was down 0.9%, the FTSE 250 was 1.6% lower while the AIM All-Share was 2.2%.
The Cboe UK 100 ended up 0.8% at 820.22, the Cboe UK 250 closed up 0.7% at 18,084.01, but the Cboe Small Companies ended down 0.4% at 16,356.60.
The bright mood extended to Europe and Wall Street after a brutal day for stocks on Thursday.
In European equities on Friday, the CAC 40 in Paris ended up 0.8%, while the DAX 40 in Frankfurt advanced 0.9%.
In New York at the time of the London close, the DJIA was up 1.1%, the S&P 500 was 0.9% higher, and the Nasdaq Composite climbed 1.3%.
The big market moves came as figures showed the US economy added markedly fewer jobs than expected in October.
According to the Bureau of Labor Statistics, nonfarm payroll employment rose by just 12,000 jobs last month, well short of the 113,000 pencilled in by FXStreet cited consensus, and a steep fall from 223,000 in September.
September's number was downwardly revised from 254,000, while August's reading was lowered to 78,000 from 159,000. It means that for August and September, readings were downwardly revised by a cumulative 112,000 jobs.
The unemployment rate for October was 4.1%, where it stood in September.
Although distorted by hurricanes Helene and Milton, and strike action analysts pointed out the underlying picture of the labour market is weak.
"While temporary factors like a strike of manufacturing workers and hurricanes will weigh on payroll employment, we see clear signs of further weakening in the labor market in other details of the report not impacted by these issues," commented Veronica Clark at Citi.
"Permanent job loss reached a new recent high, as did the number of people unemployed for 15 weeks or more. Substantial downward revisions to payrolls in previous months confirm that the trend of job growth is slowing," she added.
But economists at Wells Fargo felt given the "noise" in the report from the strikes and hurricanes, that the FOMC will take this reading with "a large grain of salt".
"That said, when doing our best to look through the noise in the data, there were some signs of softness in the labour market," it added, noting the downward revisions to the figures in August and September.
While a 25 basis points rate cut is all but nailed on for next week, economists now see a growing likelihood of back-to-back cuts in December.
Wells Fargo and Goldman Sachs said their base case remains another 25 basis points cut in December.
Citi's Clark suggested further weakness in the November jobs report could see the Fed lowering rates by 50bp in response in December.
The soft jobs data was followed by figures showing the US manufacturing sector continued to decline in October.
The seasonally adjusted manufacturing purchasing managers' index from S&P Global edged up to 48.5 in October from 47.3 in September but remained in contraction territory.
Separately, the Institute for Supply Management reported that economic activity in the manufacturing sector fell for the seventh consecutive month in October amid ongoing subdued demand.
The manufacturing PMI declined to 46.5 in October, its lowest reading in 2024 so far, from 47.2 in September. It was worse than the FXStreet-cited consensus, which had anticipated an uptick to 47.6.
The pound was quoted at USD1.2949 at the London equities close on Friday, compared to USD1.2870 at the close on Thursday.
Sterling rallied as a semblance of calm returned to financial markets after nerves caused by the aftermath of the budget.
"We think sterling's weakness following the budget has been an over-reaction, and that the implications should be net positive," said Shreyas Gopal at Deutsche Bank.
"So why is the budget net positive for sterling? Put simply, because it could mean a more hawkish Bank of England," Gopal said.
"Higher policy rates for longer, driven by a demand stimulus that lifts growth and inflation, ought to be positive for the pound in the current market environment," the Deutsche analyst added.
On Wednesday, Chancellor Rachel Reeves announced higher taxes, borrowing and spending in her first budget.
The scale of extra borrowing – around GBP32 billion a year on average – saw yields on government bonds increase as the market responded to the chancellor's plans.
Economists now expect the Bank of England to reduce interest rates at a slower pace than previously thought.
Bank of America projects a quarterly path of cuts until mid-2026 to 3.25%.
Data on Friday showed the UK manufacturing economy made a soft start to the final quarter, falling into contraction territory for the first time since April.
The seasonally adjusted S&P Global UK manufacturing purchasing managers' index dropped to 49.9 points in October from 51.5 in September, also falling short of the flash tally of 50.3. A touch below the 50-point mark that separates growth from decline, Friday's reading suggests the manufacturing sector is in contraction.
It is the first time the manufacturing PMI has landed below 50 points since April, S&P Global said.
On Friday, Bloomberg reported an error by the Office for Budget Responsibility, which potentially fuelled investor concerns about Reeve's first budget.
A footnote in the OBR's outlook on Wednesday said that its March forecasts contained an error in the projections for public sector net financial liabilities, the debt measure now used by Labour’s Rachel Reeves in one of her new fiscal rules. The OBR at the time found the margin in the 2028-29 fiscal year would be GBP62 billion — a figure it’s since corrected to GBP43.9 billion.
Nonetheless, gilt yields remained on an upward trajectory. The yield on a 2-year bond nudged up 1 basis point to 4.46%, while the long-dated 10-year rose 4 basis points to 4.47%.
The euro stood at USD1.0847 at the European equities close on Friday, down against USD1.0859 at the same time on Thursday. Against the yen, the dollar was trading at JPY153.02, up compared to JPY152.45 late Thursday.
On London's FTSE 100, Reckitt Benckiser shares surged 6.6% as investors cheered a vital legal ruling in the US over infant formula, a matter which has cast a dark cloud over the stock in recent months.
On Thursday, Reckitt's Mead Johnson, as well as New York-listed Abbott Laboratories, were cleared by a US jury over claims they hid risks their premature-infant formulas can cause a bowel disease that severely sickened a baby boy. It was the companies' first trial win in litigation over the products.
The ruling in the Whitfield case in the Missouri State Court was welcomed by Mead Johnson.
Barclays on Friday said the latest verdict for the Whitfield will ease investor nerves.
"This was the best case scenario for Reckitt."
"We think this verdict may make Reckitt more attractive to risk adverse investors."
Online retailer boohoo rose 3.3% after promoting Dan Finlay to group chief executive. Finlay was previously CEO of Debenhams, the UK department store whose online operations boohoo acquired out of administration back in 2021.
Shareholder Frasers Group had been looking to install Mike Ashley, the FTSE 100 listing's own founder and majority shareholder, in the top job.
Brent oil was quoted at USD73.64 a barrel at the London equities close on Friday, up from USD72.67 late Thursday.
Gold was quoted at USD2,741.43 an ounce at the London equities close on Friday against USD2,742.90 at the close on Thursday.
Next week's UK corporate calendar sees full-year results from Primark owner AB Foods, half-year results from clothing and food retailer Marks & Spencer and half-year results from grocer J Sainsbury.
The economic calendar has interest rate decisions in Australia on Tuesday, and the UK and US on Thursday. The US presidential election takes place on Tuesday.
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.