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Markets drop as US jobs report disappoints

MARKET BLOG: FTSE 100 falls in line with European markets, but Aviva jumps as the insurer starts its disposal programme.

Markets drop as US jobs report disappoints

  • Markets fall as non-farm payrolls report worse than expected
  • Aviva flies on Delta sale
  • Factory gate prices drop for UK manufacturers 
  • Barclays prepares for pay clash with Diamond
  • Shares in landscaping materials company Marshalls slump


15.54: The euro has had a bad week, selling off just over 2%. The single currency is down 0.67% against the dollar today at $1.2307.

The European Central Bank’s shunning of unorthodox measures to boost the economy yesterday, opting just to cut rates, is partly behind this. Kathleen Brooks of adds that politicians’ ‘bickering’ about ‘the idea of extending the powers of the EFSF/ESM and are also against scrapping the seniority clause in Spanish bailout loans’ as another reason.

Today, as the week’s trading in the UK draws to an end, all major markets are in the red.

US markets opened lower – Dow and S&P 500 both down around 1% – after the poor jobs report (see post below).

The UK’s FTSE 100 is off 0.5% at 5,661, but is nonetheless on for a gain for the week of around 1.5%

The Brent crude oil price is down 2%, at $98 per barrel, ending a tumultuous week which has seen the commodity dragged up and down by economic sentiment and geopolitical news from Norway and Iran.

US jobs report disappoints


13.32: Markets have turned lower after a report showed the US economy added just 80,000 jobs in June, lower than expected by economists.

May's data on non-farm payrolls was revised up to 77,000 from 69,000, while the April number was revised lower. 

The jobless rate was unchanged at 8.2% in June (see chart above), according to the report from the US Bureau of Labor Statistics.

The payrolls data is a key indicator of the health of the US economy and today's report will add to expectations for the Federal Reserve to launch another round of easing, or 'QE3'. 

Rob Carnell, an economist at ING, said the report was disappointing, but 'not cataclysmic', with rising average hourly earnings and hours worked counting among 'glimmers of good news'.

'Whilst there will doubtless be talk of QE3 on the back of this, supporting the bond market and weakening the USD, the reality is that this is not bad enough to get the Fed to embark on a new round of money printing just yet,' he said.

Shares were already lower before the closely-watched report, but headed down further. The FTSE 100 was down 0.39% to 5,670. The Eurofirst 300 was 0.5% lower.

Markets continue to show disdain for stimulus measures

11.52: European stock markets are all lower this morning, albeit modestly so as investors await this afternoon’s report on the US labour market.

The worst hit is Spain, with the Ibex index down 1.3% and borrowing costs soaring again: 10 year benchmark bond yields touched 7% this morning.

Investors are continuing to signal their disapproval at the European Central Bank’s lack of nerve yesterday, when it refrained from any unorthodox measures and just cut interest rates, as expected.

The rise in Spanish bond yields also shows investors’ discontent over the results of the EU summit at the end of June, rising back to the levels seen before the plans for union announced in Brussels.

Until this afternoon’s US non-farm payrolls report – perhaps the biggest event on the data calendar – there is not much to guide investors, though figures for German industrial output did come in much better than expected in May, rising 1.6% after a steep fall of 2.1% in April (revised upwards from 2.2%).

Britain’s FTSE 100 is just slightly lower at 5,688.

Aviva flies on Delta sale

09:50: Aviva (AV.L) leads the FTSE 100 after netting £318 million from the sale of part of its stake in Dutch insurer Delta Lloyd.

The deal – announced after yesterday's close – halves its stake in Delta to 20% and kicks off Aviva's disposal programme, which chairman John McFarlane announced on Thursday.

Aviva plans to shed up to a quarter of its businesses in a drive to make Aviva leaner, more focused and more profitable. Analysts like the strategic review, but say execution and pushing the deals through tricky markets will be key. This deal, then, is timed to please, and Aviva shares have risen 2.8%, or 8.2p, to 293p on the news.

Aviva shares have slumped by a third in the past year over concerns about its exposure to the eurozone. Chief executive Andrew Moss was ousted in May prompting McFarlane to start his job early and take on executive responsibilities while a replacement for Moss is found.

UK price pressures ease

09.47: Factory gate prices for UK manufacturers have dropped to their lowest since October 2009, to 2.3% in the year to June, compared with 2.9% the previous month, helped by the falling oil price.

The Office for National Statistics figure, which is slightly lower than forecast, eases the pressure on manufacturers’ margins. 

It should translate into lower inflation for consumers.

Barclays prepares for pay clash with Diamond

08.45: Barclays (BARC.L) is an early faller, down 2p to 166p, as media attention raises anxieties over the bank. Among a flurry of stories this morning the Daily Telegraph reports its board is preparing for a showdown with Bob Diamond over the former chief executive's £25 million pay-off. A source told the paper it was 'fully aware of the high emotions around this and the need for there not to be any false moves'. According to the paper it is checking the legal position over Diamond's £18 million of unvested share options, £4 million benefits and £2 million of year's salary and pension.

Barclays has admitted it has letters from the Financial Services Authority in which it is thought to have raised concerns about the appointement of Diamond as chief executive in January 2011. The Daily Mail says Andrew Tyrie, chairman of the Treasury Select Committee, is asking to see the letters.

The Financial Times says the bank has reached an unusual settlement with the US Commodity Futures Trading Commission over the Libor-fixing scandal. Not only has it agreed to improve its internal compliance, it has also promised to lobby the British Bankers Association and other banks over improving the way the inter-bank lending rate is constructed. One of many surprises from the scandal is the fact that such a key benchmark is left to a trade body to supervise.

Meanwhile, Reuters reports on the increasing likelihood that Barclays Capital, the investment bank that Diamond used to run and where the Libor manipulation occurred, will be separated from the rest of the bank, or shrunk, as a result of political pressure following the scandal. The agency reports that Rich Ricci, head of Barcap, was in tears earlier this week when he told traders that Diamond had resigned. It says his sorrow could equally have been for his division which faces tough times.

Reuters has spoken to Neil Dwane (pictured), chief investment officer Europe for Allianz Global Investors, who says: 'The case for separation grows.' He adds: '(There is) clear evidence in the US and UK that these banks are nearly impossible to manage, orientated to the wrong corporate objectives and still overseen by managers who bust the world and their industry five years ago.' Allianz holds Barclays shares.

These stories highlight the challenges facing Barclays and private investors who, as we reported yesterday have snapped up the bank's shares, which have fallen over 15% since the Libor scandal broke.

Rain causes landslide at Marshalls

08.10: Marshalls (MSLH.L), the landscaping materials company, slides nearly 11% after reporting that the wet spring reduced first-half revenues by 5%. The company, which makes stone and concrete products for landscape gardening, saw sales to the domestic market fall 14%. It plans to cut expenses and inventories to preserve cash. It is taking a one-off charge of £7 million to cover this and a further £12 million to cover asset writedowns. The shares are 9.4p down to 77.5p.

The FTSE 100 has opened 10 points down at 5,682.

All eyes on US jobs report at 13.30

07.50: After the muted reaction to yesterday's moves by central banks in UK, Europe and China markets will hope for a good US jobs report this afternoon to provide an end-of-week lift. Non-farm payrolls data for June is due at 13.30pm and a Reuters poll showed economists are looking for an addition of 90,000 jobs.

For details on trading in the US and Asia read our overnight markets report.

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