- FTSE 100 on track for worst week since early January
- Pound breaks $1.25 after yesterday’s Brexit ruling
- S&P 500 records longest losing streak since 2008 financial crisis
- US presidential elections continue to spook markets
- Investors flee stocks, corporate bonds ahead of US election
- FTSE 100 poised for longest losing streak since December 2015
- US non-farm payrolls miss expectations in October
Pound on track for best week in over seven years
The pound has extended its gains this afternoon and is up 0.6pc on the day at $1.2519. That puts it on track for its best week against the dollar in over seven years after gaining 2.7pc.
It last enjoyed gains of these levels on the week ended October 16 2009, when it rallied 3.23pc.
The global implications of the US elections
Citigroup’s chief US equity strategist Tobias Levkovich looks at the global implications of the US presidential election:
- The bank does not expect a Clinton victory to be especially market-sensitive;
- It thinks a Trump victory could trigger a 3-5pc S&P sell off;
- A Clinton victory could be unhelpful for healthcare stocks;
- A Trump win could offer some respite for Energy and/or utility stocks which have been under environmental scrutiny;
- Emerging markets economies are especially sensitive to global trade;
- Emerging markets equities are vulnerable to a Trump victor- the bank fears an increase in protectionism following a Trump victory;
- Any post-election rally in the US dollar would also be unhelpful;
- Latin American would be the most vulnerable.
Wall Street opens flat as investors await election
US stocks were little changed at the opening bell on Wall Street this afternoon after data showed US non-farm payrolls fell short of expectations and ahead of the US presidential election next week.
The latest Reuters/Ipsos polling showed Clinton, seen as the status quo candidate by markets, maintaining a narrow lead over Trump.
Minutes into trading:
- Dow Jones: -0.05pc
- S&P 500: +0.08pc
- Nasdaq: +0.07pc
FTSE 100 on track for worst day since June 27
If the FTSE 100 maintains its current losses today, it will suffer its biggest daily fall since June 27 (the Monday after the Brexit vote).
It is currently off by 1.5pc. On June 27, it fell 2.55pc.
Markets update: European bourses extend losses
Its a torrid end to the week for European bourses, they have extended their losses as the looming US presidential elections continue to spook markets.
Here’s the current state of play in Europe:
- FTSE 100: -1.44pc
- DAX: -0.64pc
- CAC 40: -0.88pc
- IBEX: -1.04pc
Connor Campbell, of SpreadEx, said: “Well what started as a few jitters morphed into a full on panic attack this Friday, the European indices plunging at the prospect of Trump moving into the White House.
“The FTSE was the worst effected, dropping 1.5pc to dip under 6700 for the first time since mid-September. The Eurozone indices, which had to deal with a series of disappointing services PMIs, were just as bad, the DAX and CAC sliding around 1pc apiece. The pound, on the other hand, took advantage of this dollar and euro weakness, knocking on the door of $1.25 while climbing above €1.125.”
Pound slides from $1.25 after US non-farm payrolls data
The pound has lost some momentum after US non-farm payrolls missed expectations last month, recording an increase of 161,000 – that’s below forecasts of a rise of 175,000.
The pound is now trading at $1.2477 against the dollar, up 0.24pc on the day.
Non-farm payrolls will not stop the Fed from raising rates
Commenting on the non-farm payrolls, Naeem Aslam, of Think Markets, says even though it missed expectations the number isn’t going to stop the Fed increasing rates.
“Things are hot, when it comes to the US economy and today’s number has cement that idea. You can criticise the Fed that they are thinking of increasing the interest rate when the GDP growth could be slowing for the final quarter of this year. But the fact is that the Fed is very close in achieving their GDP, inflation and unemployment target. Throughout this year, they have been aching to increase the rate.
“The wage growth was the shining area in this report without any doubt and this will give them more than enough ammunition to increase the interest rate.
“Going forward, all eyes are going to be on the outcome of the US election, and as long as the outcome is not messy, we think that the Fed will increase the interest rate this year. Although, if the equity market is to behave normally to that reaction, is still under question.”
US employment growth solid, wages jump in October
US employers maintained a strong pace of hiring in October and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve.
Nonfarm payrolls increased by 161,000 jobs last month, the Labor Department said on Friday. August and September data was revised to show 44,000 more jobs created than previously reported.
The unemployment rate fell one-tenth of a percentage point to 4.9 percent, in part as people dropped out the labor force.
The closely watched employment report was published four days before the Nov. 8 presidential election. It came on the heels of data last week showing an acceleration in economic growth in the third quarter. But economists see little impact from the report on an increasingly bitter and divisive campaign.
“There is so much noise out there right now, everyone is screaming from the rooftops. I just don’t know that any particular data point is going to have a great bearing on the election, in and of itself,” said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Though the U.S. central bank is expected to increase borrowing costs next month, that decision will likely depend on the outcome of Tuesday’s election. The tight race between Democratic candidate Hillary Clinton and her Republican rival Donald Trump has rattled financial markets.
Economists polled by Reuters had forecast payrolls increasing by 175,000 jobs last month and the unemployment rate falling one-tenth of a percentage point to 4.9 percent.
The Fed on Wednesday left interest rates unchanged but said its monetary policy-setting committee “judges that the case for an increase in the federal funds rate has continued to strengthen.” It lifted its benchmark overnight interest rate last December for the first time in nearly a decade.
“The election could still derail the Fed’s plans, particularly if a very close result led to one or both candidates contesting it via the courts,” said Paul Ashworth, chief economist at Capital Economics in Toronto.
Report from Reuters
Breaking: US non-farm payrolls miss expectations in October
US non-farm payrolls fell short of expectations in October, rising 161,000 compared with forecasts of 175,000.
Meanwhile, September’s reading was revised upwards from 156,000 to 191,000.
Political tremors send global stocks to lowest since July
Global share prices retreated to their lowest levels since early July on Friday after two weeks of relentless losses dominated by uncertainty about the outcome of the U.S. presidential election and, as of Thursday, Britain’s path out of the European Union.
A London High Court ruling on Thursday dealt a big blow to Prime Minister Theresa May’s plans to launch formal Brexit talks next March, prompting speculation of an early national election and sending sterling spinning higher.
The pound was up another 0.1 percent in early trade on Friday. London’s FTSE indices were down across the board, with the blue chip FTSE100 .Europe’s worst performer with a 1.4 percent loss.
The dollar at the same time has been hammered by a surge for U.S. Republican presidential candidate Donald Trump in opinion polls in the past week. Investors believe this may prevent the U.S. Federal Reserve from raising interest rates next month.
Broader jitter about the shape of global trade and growth under a Trump presidency have also helped send shares down across the globe, and the major markets in Europe and Asia were all again in retreat on Friday.
MSCI’s global share index . slipped just under half a percent to its lowest since July 11 and is down almost 5 percent over the past two weeks.
“With only a few days left until Americans go to the polls many traders are continuing to reduce their risk exposure further,” said Markus Huber, a trader with brokers City of London Markets.
Stock markets in Germany, Spain , France and Italy all fell around 1 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent after brushing its lowest levels since early August. It looked set for a loss of 1.7 percent for the week.
Report from Reuters
US futures little changed ahead of monthly jobs data
US stock index futures are little changed ahead of monthly employment data.
Investors have been rattled by signs the US presidential race between Democrat Hillary Clinton and Republican Donald Trump is tightening, after Clinton had until recently been thought to have a clear lead.
This afternoon’s non-farm payrolls data is expected to show an increase of 175,000 last month, up from 156,000 in September.
Ahead of the opening bell, S&P 500 futures are trading down 0.01pc, the Nasdaq is down 0.06pc and the Dow Jones has dipped 0.1pc.
Volatility index hits highest level since June 27
The Volatility Index, which is considered the best gauge of fear in the market, was up over 14pc yesterday, closing above 22. That’s its highest level since June 27 (in the immediate aftermath of the Brexit vote).
Jim Reid of Deutsche Bank flags: “The post-Brexit high for the VIX is 25.76. Meanwhile sovereign bond markets continue to be a bit directionless. Yields in Europe were generally 2-3bps higher while 10y Treasuries were 1bp higher at 1.812%. It’s a lot more obvious where the momentum is in currency markets though. The USD index (-0.25pc) was down for the third day in succession with the Yen (+0.31%) once again benefiting. The Mexican Peso (+1.00pc) did rally back after the latest ABC News/Washington Post tracking poll had Clinton now swinging back to a 2pc lead at 47pc to 45pc, albeit still within the sample margin of error.”
We’ve already highlighted that if the S&P 500 falls again today it will be its longest losing streak since 1980.
However, Mr Reid said: “Of the 20 losing streaks equal or worse, this is the 2nd mildest so far with the index only down -2.91pc. So it’s more notable by its consistency than its depth at the moment.”
Paddy Power cashes in on summer of sport and sterling plunge
On an otherwise torrid day for the FTSE 100, Paddy Power has bucked the trend rising 3.6pc after it hiked its full-year earnings guidance following its third quarter results. Harry Yorke reports:
Ahectic summer of international football and the fall in the value of sterling lifted Paddy Power Betfair’s profits in the three months to September 30.
The Dublin-based bookmaker, formed in a £7bn merger earlier this year, reported a 68pc surge in underlying operating profits to £95m.
Paddy Power Betfair was buoyed by a 26pc increase in sportstakes on the back of Euro 2016, which generated revenues of £16m during the period, and £38m in total. This helped push total revenues up 25pc to £404m.
The sharp decline in the value of sterling following the EU Referendum in June also benefited the company’s non-UK earnings to the tune of £28m. On a constant currency basis, stripping out fluctuations in the exchange rate, revenue rose by 15pc over the quarter.
Paddy Power Betfair has now increased its full-year ebitda guidance to between £390m and £405m.
Housebuilders tumble as gloomy predictions weigh on sector
Housebuilding stocks are among the biggest fallers on the FTSE 100 this morning. Rhiannon Bury reports:
Shares in the some of the UK’s biggest housebuilders have slipped this morning as gloomy predictions about the state of the market weigh on investor confidence.
Taylor Wimpey was down 3.4pc to 142.1p, while Persimmon was down 3.58pc to £16.95 and Barratt Developments sunk 2.77pc to 456p, making the firm’s some of the FTSE 100’s biggest fallers.
Savills warned this morning that house price growth will be flat across the UK next year due to economic uncertainty, adding to wider concerns that the housing market in the UK has peaked.
Earlier this week, figures from Nationwide Building Society showed house price growth ground to a halt in October after 15 successive month-on-month increases. Prices rose by 4.6pc in the year to the end of October, down from 5.3pc growth in September.
US election trading has Brexit echo
Neil Wilson, of ETX Capital, says markets are on “a knife-edge” after Donald Trump closed the gap on Hillary Clinton in the polls.
“There is a definite sense we’re heading for a Brexit-like event – if Trump wins there could be a sharper selloff in risky assets like stocks and the US dollar. If Clinton wins, a rally is on the cards,” he continues.
“Ignoring the longer-term implications, there is a strong chance of immediate and significant movements in prices – particularly as we get results in from key swing states such as Ohio and Florida. And because so many hang in the balance there is a strong chance that markets will overreact when an individual state is called.
“Back in June the pound plunged 5pc in a matter of seconds when Sunderland voted heavily for Leave. We could see similar gyrations in a broader range of markets, particularly if volumes are down overnight. There is a worry that thin liquidity could result in whippy trading conditions and we’re upping staffing levels overnight to cope with the expected turbulence. As we saw with Brexit, when trading volumes soared to record levels, clients want to trade around events like this and we will be ready to offer them access to the markets.
“Market volatility has already risen sharply, with various gauges of implied volatility in stocks and currencies hitting their highest levels since the UK’s June referendum.”
FTSE 100 on track for longest losing streak since December 2015
The FTSE 100 is on track to record its longest losing streak since December last year. It has fallen for five consecutive trading sessions, that’s its longest spell in the red since December 2015 when it fell for eight consecutive days (from December 3-14 2015).
A Trump victory could see ‘an immediate flight to safety’
As Republican candidate Donald Trump inches ahead in the polls, Caxton FX analyst Alexandra Russell-Oliver examines what this will mean for the currency markets:
- A Trump victory would likely see “an immediate flight to safety” – including government bonds and the Swiss Franc;
- There would also be volatility in the dollar;
- It could also call into question the future of the Fed. In an extreme scenario Yellen could resign, Caxton says, which would have implications for future interest rates and the dollar’s strength.
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