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US jobs report injects life into idle markets

US jobs report injects life into idle markets

UPDATE: European equity markets have been awoken from their Friday slumber by a report showing that the US economy added 155,000 jobs in December.

The nonfarm payrolls figure was slightly higher than had been expected by economists, but down from an upwardly-revised figure of 161,000 for November, while the unemployment rate was unchanged at 7.8%.

Britain’s FTSE 100 rose by 0.4% to 6070 and the Eurofirst 300 was 0.15% higher. US futures pointed to small opening gains.

The US dollar rose by 0.5% to 80.8 as measured against a basket of major currencies.

The report is among the most closely-watched by investors who are attempting to second-guess the US Federal Reserve's next steps in its battle to keep the world's largest economy on track.

'The good news is that hiring has proven resilient to fiscal cliff concerns; the bad news is that there are no indications the US economy is about to enter into an above-trend phase of growth,' commented Julia Coronado of BNP Paribas. 'Importantly, there is nothing here to suggest the Fed will see indications of a "substantial" improvement in the jobs outlook that would lead them to back away from their QE policy,' she added.

Markets had been cautious this morning ahead of the numbers: see earlier report below.

Gold price slides as Fed signals ends to stimulus (09:01)

The price of gold dropped sharply, while the US dollar rose, after policymakers at the Federal Reserve spooked investors by indicating that they would end their bond-purchase programme this year.

Alongside small share price losses, unnerved investors pushed spot gold down to as low as $1,634 per ounce this morning, while the US dollar rose 0.44% to 80.7 as measured against a basket of major currencies. The two tend to move inversely, with expansionary monetary policy seen as a support for gold, a traditional inflation hedge. 

Some policymakers thought asset buying should be slowed or stopped before the end of 2013 while others highlighted the need for further stimulus, the minutes of the Fed’s latest meeting showed.

‘QE has been one of the major drivers or gold in recent years and this surprise admission will truly become a test of gold investors resolve,’ commented Saxo Bank's head of commodity strategy Ole Hansen after the release of the Fed minutes.

While some forecasters still expect gold to hit record highs of $2,000 this year – partly supported by strong emerging market demand – even before the Fed minutes analysts at HSBC yesterday became the latest to cut their forecast for gold in 2013 to $1,760 per ounce, down from $1,850.

According to Bloomberg, gold is poised for the longest run of weekly losses since 2004, having rallied for years.

New Year exuberance fades

In contrast to Wednesday's market exuberance over a deal to see off a fiscal cliff in the US, shares on Wall Street dropped after the publication of the Fed minutes, with most Asian and European indices also lower this morning.

'The concern amongst investors seems to be that there is no real reason behind the Fed’s hinting a possible end to QE, is it because the economy doesn’t need it or is it because QE simply isn’t working?' said Angus Campbell of Capital Spreads.

Some economists suggested that it was unlikely that the Fed would put on the breaks in 2013 as it had committed itself to maintaining its stimulus measures until US unemployment falls below 6.5%.

Investors are also increasingly fearful that US budget problems will come back to haunt markets in the near future.

See our Q&A about Wednesday's fiscal cliff deal

But any major stock market moves in either direction were capped ahead of this afternoon’s jobs report from the US, one of the most important data releases in the calendar. The consensus among economists is for an increase of non-farm payrolls of 150,000 for December, up from the prior month’s 147,000.

Fresnillo and M&S suffer from downgrades

Britain’s FTSE 100 managed to stay flat, holding above the psychologically important 6,000 mark it breached on Wednesday – after news that a fiscal cliff had been averted in the US – at 6,046.

Fresnillo (FRES.L) was the top faller in London, down 5% after analysts at UBS cut their rating on the silver mining company's shares to 'neutral'. Other mining companies also dropped, with Randgold (RRS.L) off 3.5% and Polymetal International (POLYP.L) 3% lower.

Shares in retailer Marks & Spencer (MKS.L) dropped by 2.4% as analysts at Nomura reduced their full year profit estimates for the high street company ahead of a trading statement next week.

British American Tobacco (BATS.L) managed to top the FTSE 100, up 1.5%, even as analysts at Credit Suisse cut their target price on the shares from 3430p to 3380p.

BP (BP.L) wasn't far behind, up 1.1% after Transocean, which owned the rig at the centre of the 2010 Gulf of Mexico oil disaster, agreed to pay $1.4 billion to settle US government charges over the spill.

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