7th Feb 2014 17:38
LONDON (Alliance News) - UK stocks closed higher Friday, and for the week as a whole, despite the much-anticipated US non-farm payrolls reported coming in much worse-than-expected.
Meanwhile, it was a volatile day in the forex market as both the pound and the euro fell against the US dollar in early trading, before rebounding strongly on the disappointing US data.
Although US job growth accelerated rapidly during January compared to the anaemic growth seen in December, the pace of growth still fell well short of economists' expectations, for the second consecutive month.
In a report released by the US Labor Department, non-farm payroll employment was seen to have increased by 113,000 jobs in January, missing forecasts of 185,000.
Adding to the disappointment, there had been hopes that December's weak number would be revised significantly higher to account for the the extreme weather that relentlessly hit the country over the period. However, the reading was only lifted by 1,000 to 75,000.
There was some positive news for the world's largest economy, however. The US unemployment rate unexpectedly fell to its lowest level since October 2008, edging down to 6.6% in January from 6.7% in December. Economists had expected the rate to come in unchanged. Additionally, the number of people in work or looking for work increased to 63% from 62.8%.
"The initial knee jerk reaction saw equity markets drop sharply before regaining their footing and heading back up again, but nevertheless the second disappointing number in a row does raise questions as to whether the US economy is heading for a soft patch," said Michael Hewson, Chief Market Analyst at CMC Markets.
Eventually, the FTSE 100 closed up 0.2% at 6,571.68, which meant the blue-chip index closed 0.9% higher for the week, the first weekly gain in three weeks. The FTSE 250 closed up 0.5% at 15,865.12, and up 1.2% on the week, with the AIM All-Share index up 0.7% at 863.47, and up 0.7% on the week.
Similar positive sentiment was shared around the world Friday. In Paris, the CAC 40 closed up 1%, while Frankfurt's DAX 30 closed up 0.5%. In New York, at the close of the European markets, the DJIA is up 0.5% at 15,703.87, the S&P 500 is up 0.7% at 1,786.44, and the NASDAQ Composite is up 1.1% at 4,103.59.
However, in the absence of a February FOMC meeting, Fed-speak over the coming weeks will now be in focus, "as the difference between tapering (winding down quantitative easing) and tightening (hiking interest rates) is emphasised further,? said Christopher Vecchio, currency analyst at DailyFX.
In the forex market, the pound experienced a roller-coaster day Friday. The currency dipped after UK industrial and manufacturing production readings fell short of economists' expectations, before rising soon after.
The Office for National Statistics revealed that industrial production grew 0.4% in December, after falling 0.1% in November, missing economists' forecasts of 0.6%. Similarly, manufacturing output rose 0.3% month-on-month, offsetting the 0.1% drop in November. It was also forecast to rise by 0.6%.
On a yearly basis, industrial production rose by 1.8% in December, slowing from the 2.1% growth in November and short of economists forecasts of 2.3% growth, with manufacturing production coming in at 1.5% year-on-year in December, slowing from 2.3% in November and missing the 2.3% growth that had been expected
Sterling quickly recovered, however, as UK trade balance numbers released at the same time showed the deficit narrowing.
The euro also suffered a sharp drop in early trading. The currency was hit after Germany's Constitutional Court lodged a complaint about the legality of the European Central Bank's bond-buying programme, referring the case to the European Court of Justice.
Judges said they saw substantial reasons to assume that the programme - which forms a key part of the ECB's efforts to end the eurozone debt crisis - exceeded the bank's mandate.
The court said the programme, "infringes on the powers of the member states," and that it, "violates the prohibition of monetary financing of the budget."
The German court also said it will rule on March 18 on the legality of the eurozone's permanent bailout scheme, the European Stability Mechanism.
However, both the pound and the euro jumped later in the day on the back of the much weaker-than-expected US non-farm payrolls.
The dollar fell heavily against both currencies. At the close of the London equity market, sterling trades at USD1.6393, while the euro trades at USD1.3609.
Also in the data calendar Friday, the National Institute of Economic and Social Research released its GDP estimate for the UK economy over the last three months. The reading for January was revised up to 0.8% from 0.7%.
Meanwhile, German industrial production declined unexpectedly in December after recovering in November. Output fell 0.6% from November, when it was up by revised 2.4%, the Federal Ministry of Economics and Technology said.
In a quiet day in the corporate calendar, rival corporate calendar, rival pharmaceutical companies Shire and AstraZeneca moved in different directions Friday.
Shire, down 1.6%, closed the day as one of the FTSE 100's biggest fallers. The company's share price was hit after it announced that it will abandon clinical development of Vyvanse for the potential treatment of major depressive disorder after it failed late-stage trials.
AstraZeneca, on the other hand, closed up 0.6%. Liberum Capital said the company was now its top pick among global pharmaceuticals and called the stock a Conviction Buy. The brokerage said that the company's turnaround is well underway and, although Thursday's guidance was disappointing, pipeline progression is being overlooked by the markets.
AIM All-Share-listed Octagonal, closing down 20%, ended the day as the index's biggest loser. The company said it raised GBP670,000 after a mixture of existing shareholders and new investors subscribed for about 223.3 million new shares, a move it says will strengthen its balance sheet and give it the working capital to look for and make new investments and acquisitions.
The shares were issued at 0.30 pence each and represent 41.85% of the company's enlarged share capital.
In a quiet economic calendar Monday, French industrial output is scheduled to be released at 0745 GMT, ahead of the Italian figure at 0900 GMT. Sentix investor confidence data for the eurozone is released at 0930 GMT.
In the corporate calendar, FTSE 250-constituent Catlin Group releases its full-year results for 2013, while Essar Energy releases third-quarter results.
By James Kemp; [email protected]; @jamespkemp
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