European markets have managed to stabilise a touch after the volatility of recent days, after US non-farm payrolls came in slightly below expectations on the headline number.
Europe
The average nature of today’s jobs report has helped take some of the heat out of the rise in bond yields, pulling them off their peaks, and focused attention on next week’s US CPI report which is expected to show that inflation has slowed further.
Despite modest gains for the likes of the FTSE 250, DAX and CAC 40, the FTSE 100 has struggled close to its March lows with health care and utilities acting as a ball and chain on the day, and as for the performance on the week it’s been the worst week since the sharp falls we saw in March.
Coca-Cola HBC is the best performer after raising its full-year guidance on profits, after a strong showing in today’s H1 numbers, saying that they expect EBIT growth of between 9% to 12%
Following in the footsteps of its US sector peer, Exxon Mobil yesterday, Shell has said that it expects Q2 trading to be weaker as lower demand and lower prices impacts on its operations. Shell also said that its chemicals division is likely to make a loss during the quarter. Despite this warning, Shell is helping to offset the weakness on the back of another weekly increase in oil prices, which is also helping to lift BP.
US
US markets opened slightly lower despite an average non-farm payrolls report for June, which showed that jobs growth slowed to 209,000 from 306,000 in May. There was also a two-month net revision lower of -110,000, taking some of the lustre off recent gains. The unemployment rate still fell to 3.6%, while average hourly earnings growth came in at 4.4%, which was slightly higher than expected.
Today’s numbers have helped blow some of the froth off the spike in yields we saw yesterday with US 2-year yields slipping below 5%, as rate hike expectations beyond July got pared back.
Levi Strauss shares have fallen sharply after lowering its full year guidance, even though Q2 results came in line with expectations. Revenues were $1.34bn, while profits came in at $0.04 a share. For the rest of the year Levi lowered the top end of its revenue forecast to 2.5% from 3%, due to a slowdown in its wholesale business. It also lowered annual profits to between $1.10 and $1.20 a share.
Rivian shares have pushed higher again, up for the 8th day in a row, on the back of a more upbeat outlook and a broker upgrade.
UPS shares have edged higher today after two days of declines over concerns that strikes could cost them dearly in the days and weeks ahead, with the current union contract due to expire at the end of the month.
Meta Platforms shares are in focus after Twitter threatened the company with a lawsuit over the launch of their Threads app, claiming a violation of intellectual property.
FX
The US dollar had already been looking a little on the soft side leading into today’s jobs numbers, so the slightly softer headline number, along with the slide in yields has helped to push it even lower to the lowest levels this month. The biggest decline appears to be coming against the Japanese yen and which appears to be yield driven as the prospect of a September rate hike gets pared back.
The Canadian dollar has also pushed higher after a solid June jobs report, which saw 60k jobs added during the month, with strong gains for full time positions more than offsetting a decline in part time roles. The unemployment rate did rise to 5.4%, however this appears to have been driven by a rise in the participation rate. With the Bank of Canada due to make a rate decision next week, this might prompt the central bank to push rates up by another 25bps.
Commodities
Gold prices are on the up again, as the US dollar and yields slip back, however they seem to be in a range for now between $1,900 and $1,940 an ounce.
Crude oil prices look set to put in their second successive weekly gain, however when you consider the tightness of the market, and the announcement of further output cuts this week, it's somewhat surprising it isn’t even higher. Nonetheless gasoline demand does appear to be picking up in the US which is expected to keep a floor under prices. The uncertainty comes about as a result of concern over demand out of China and the global economy more broadly.
Volatility
Equities sold off heavily across Europe on Thursday but meaningful downside for BNP Paribas left the stock as something of an outlier in terms of price action. Shares have lost around 7% from the highs posted at the start of the week, with around half of that being attributed to a move at yesterday’s open. One day vol stood at 53.26% against 32.48% for the month.
The luxury lifestyle sector was also impacted on Thursday, with losses being seen on stocks across the board. Sluggish economic growth in China and disappointing Eurozone retail sales figures are just some examples of the headwinds being faced by the sector. Each of the 12 constituents in CMC’s proprietary luxury lifestyle basket traded meaningfully lower on the day, with a close on 5% slide at Hermes – one of the heaviest weighted constituents – proving notable. One day vol on the basket sat at 23.46% against 17.13% for the month.
That weak retail sales number from the Eurozone served to exaggerate price action on the common currency, with EUR/USD proving to be the most active in the asset class. One day vol stood at 9.39% against 6.35% for the month.
And in commodities we’ve finally had a move away from grains, with Low Sulphur Gasoil proving to be something of an outlier. The contract sold off meaningfully as the market digested the latest EIA data from the US, before recovering. Distillate stockpiles were down but production levels were up so the net result was for Gasoil to end the session broadly flat. One day vol printed 37.62% against 33.69% on the month.
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