Financial Times - US, UK and German equities at record levels
the media pirateJune 3, 2017. Jamie Chisholm.
Dollar and Treasury yields sink on meek US jobs growth.
What you need to know
● S&P 500, FTSE 100 and Dax push higher
● Japan’s Nikkei 225 reclaims the 20,000 mark
● Dollar and Treasury yields slip after soft US jobs data
● Brent crude prices hit three-week low
● Iron ore breaks losing streak and gold gains
Hot topic
Resurgent risk appetite across global markets is helping to deliver a procession of milestones for equity benchmarks.
The S&P 500 ended the day up 0.4 per cent to take its weekly advance to a shade under 1 per cent, while the Nasdaq 100 index climbed 0.9 per cent on the day to extend its gain this year to 17.1 per cent.
The bouncy US trading day came after another decent showing by European and Asian bourses. London’s FTSE 100 rose 0.1 per cent, matching its best ever finishing level, while Germany’s Dax inched past its previous record high touched less than three weeks ago before closing 1.3 per cent higher.
Japan’s Nikkei 225 on Friday jumped 1.4 per cent to close above 20,000 points for the first time since early December 2015. Likewise, the broader Topix benchmark, up 1.6 per cent, recovered 1,600 points also for the first time in 18 months.
A number of other markets in Asia are also trading at or around multiyear highs. South Korea’s Kospi added 1.2 per cent to a fresh peak, while Taiwan’s Taiex is at its best level since early 2000. Hong Kong’s Hang Seng is at its highest since July 2015.
Investors are buoyed by signs of improvement in the global economy, which they hope will translate into greater corporate profitability.
Ian Williams, strategist at Peel Hunt, said cyclically focused parts of the global equity markets found the going tough during May, “with the reflation trade faltering and investors rotating back towards more defensive sectors”.
But “June has started on a much more promising note in response to another round of encouraging global PMI readings, notably in the eurozone”.
Equities are also being supported by a belief that better economic conditions are yet to translate into building inflationary pressures, allowing central banks to keep interest rates near historically low levels and for some, like the ECB and BoJ, to continue asset purchase programmes.
In focus
Traders were mindful of this “Goldilocks” growth scenario — not too hot or too cold — when the US non-farm payrolls report was released early in the New York morning.
And the data has played to this theme. The Labor Department said the world’s biggest economy added a net 138,000 positions in May — less than analysts' forecasts of 185,000 — but the unemployment rate fell to 4.3 per cent, its lowest in 16 years
Average earnings grew 0.2 per cent month-on-month, in line with forecasts, but the annual rate was 2.5 per cent, a touch softer than expectations of 2.6 per cent.
The steady if unspectacular jobs growth and meek wage inflation may prolong Goldilocks’ longevity, helping the Federal Reserve — which is still widely expected to raise interest rates by 25 basis points on June 14 — to tighten policy at a cautious pace.
“Today’s jobs report was a mixed bag,” said Kully Samra, UK managing director at Charles Schwab. “[But] US economic data remains buoyant and equity markets resilient, even in the face of the potential turmoil coming out of Washington. Underlying numbers are still robust which should help solidify June rate hike expectations.”
Still, the miss on the headline jobs number weighed on the greenback, with the dollar index falling 0.6 per cent to 96.667, and the 10-year US government bond yield slipped nearly 6 basis points to 2.16 per cent, the lowest since mid-November.
Most European bond markets also rallied on Friday, with the 10-year German Bund yield edging 3bp lower to 0.27 per cent.
Forex
Action in currencies was initially muted as Citi noted that the “looming [NFP] data has cast a long shadow over the FX market”.
But with the weaker jobs number sparking a burst of buck selling, the major crosses saw some notable moves.
The euro gained 0.6 per cent to $1.1283 and Japan’s yen climbed 0.8 per cent to ¥110.43 per buck.
The British pound, which has endured some whippy trading of late as dealers weighed the outlook for next week’s national election, was unable to benefit from the greenback’s retreat, and was roughly flat at $1.2887 towards the end of the New York trading day.
Action in the currency options markets shows investors are seeking more protection against further losses for sterling. The sterling/dollar 1-month risk reversal has moved from minus 0.2 per cent a week ago to minus 1.56 per cent, a slide that shows increased demand for put options (a pound bearish bet) relative to calls.
China’s renminbi was 0.4 per cent weaker at Rmb6.774 per dollar, pulling back from a six-month high as policymakers were said to have supported the currency this week.
The Australian dollar rallied 0.9 per cent to $0.7441, recovering from two days of hefty declines following disappointing economic data and weaker commodity prices.
Commodities
The Aussie has been badly hurt by iron ore prices falling nearly 15 per cent in the past six sessions to trade this week at the lowest level since October.
But the Chinese ore contract has managed to break that losing streak, recovering 1.2 per cent on Friday.
Energy remains under pressure, however, as traders continue to fret that a glut will remain if Opec production cuts are counteracted by increased output from US drillers.
Brent crude, the international benchmark, dipped 1.1 per cent to $50.02 a barrel, its fourth straight day of declines. West Texas Intermediate, the main US contract, also shed 1.1 per cent to end the week at $47.83.
Gold enjoyed the falling dollar and Treasury yields, bouncing 1 per cent to a five-week high of $1,279 an ounce.
Read more paid articles free: https://t.me/media_pirate