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LONDON (Alliance News) - UK stocks ended higher Monday, with a summer US interest rate hike now looking less likely to investors in the wake of poor nonfarm payrolls data on Friday, which hit the dollar and consequently lifted commodity prices.
Attention will be on a speech by Federal Reserve Chair Janet Yellen at 1730 BST in Philadelphia, and investors will listen for clues as to whether the Federal Open Market Committee meetings scheduled for June 14-15 and July 26-27 could still bring a rate hike in the US.
The weak nonfarm payrolls report hit the dollar heavily, after showing just 38,000 jobs added in the US, way below consensus expectations of 158,000, pushing further into the future expectations for the US Federal Reserve's next rate hike.
Although some investors may think the chances for a rate hike in summer are now quite limited, there are analysts who believe the Fed may make no changes to its tightening intentions.
Fawad Razaqzada, market analyst at FOREX.com and City Index, said that sellers of the dollar are worried that Yellen "may spoil the party for them" with her comments later Monday, "as she may stand firm on her recent call [for] a rate hike in 'coming months'."
"After all, some would argue that one month's worth of data is insignificant and that there is a danger the Fed will be losing (more) credibility if it once again backtracks on its promise of raising rates," Razaqzada noted.
Analysts believe a move by the Fed in the meeting scheduled for September 20-21 is more likely, as June seems too near and a move in July would oblige the central bank to call a press conference not currently in the schedule. Others have warned that a rate hike in September would be just over a month away from the US Presidential election in November.
Razaqzada said the "real danger" is that the market may be under-pricing the odds of a rate increase in June or July, "which would imply that a sharp rally in the dollar may be forthcoming if Yellen delivers a hawkish assessment of the [US] economy". However, the analyst said, if Yellen sounds dovish, then the dollar will most likely fall further.
At the London close, stocks in New York were higher, with the Dow 30 up 0.6%, the S&P 500 up 0.5% and the Nasdaq Composite up 0.4%.
In London, the large-cap FTSE 100 index rose 1.0%, or 63.77 points, to 6,273.40, with miners and oil producers firmly on the green. The FTSE 350 Mining Sector index closed 6.1% higher, by far the best performing index, with Royal Dutch Shell 'A' shares and BP up 1.5% and 2.8%, respectively.
Gold shot up in the wake of the weak US jobs data on Friday, and increased those gains on Monday. The precious metal was trading at USD1,246.45 an ounce at the London equities close Monday, up from USD1,240.22 at the close on Friday.
Crude prices also rose on the back of the weak dollar, with Brent oil standing at USD50.54 a barrel at the London equities close, compared to the USD49.51 at the close on Friday. Blue-chip air carriers easyJet and International Consolidated Airlines Group, closed down 1.1% and 2.0%, respectively.
easyJet reported growth in the number of passengers it carried in May, but its load factor slipped year-on-year. The budget airline said it carried 6.9 million passengers in May, a 5.7% increase on the 6.5 million it carried in the same month a year earlier. Load factor, however, slipped by 0.1 percentage point to 91.5% from 91.6%. easyJet noted that there were 173 cancellations during the month as a result of air traffic control strikes in France and bad weather conditions.
Also among the biggest decliners in the FTSE 100 were housebuilders, with Persimmon the most hit, down 1.5%, after new polls gave the Leave campaign the lead ahead of the UK's June 23 referendum on whether to remain in the EU or exit.
Over the weekend, a YouGov poll for ITV's Good Morning Britain found support for the UK leaving the European Union at 45%, compared to 41% for remaining. Meanwhile, a survey from TNS found 43% of respondents would vote for the UK to exit the EU, against 41% who said they would vote to remain. The two-point lead for the Leave campaign has a narrowed from the three-point lead held two weeks ago.
Another poll released on Monday by ICM showed a 48% support for the Leave campaign, while 43% of respondents said they will vote for Remain.
Following the polls, the pound fell heavily but had recovered some of the ground lost at the London close. Sterling fell to a three-week low of USD1.4353 Monday morning, having stood at USD1.4529 at the London equities close on Friday. However, the pound recovered a little to stand at USD1.4461 at the equities close.
The mid-cap FTSE 250 underperformed its larger sister index, still rising 0.7%, or 113.83 points, to 17,181.76, as the companies listed in that index are considered more UK-focused, thus more exposed to the economic effects of Brexit. The AIM All-Share rose 0.1%, or 0.99 point, to 743.34.
Indivior ended as the worst mid-cap performer, down 11%, after Bank of America Merrill Lynch downgraded the company, which focuses on its suboxone film medication for opioid dependence, to Neutral from Buy. The stock gave up some of its gains from Friday, when it closed up 36% after winning a ruling to block generic competitors to its key opioid addiction treatment Suboxone Film until 2024.
In Europe, the CAC 40 in Paris ended flat and the DAX 30 in Frankfurt rose 0.2%. At the London close, the euro was at USD1.1361 compared to USD1.1338 at the close on Friday.
In the UK corporate calendar Tuesday, Royal Dutch Shell is set to host a capital markets day, with an update on the future of a business enlarged by the acquisition of BG Group completed in February. In focus are Shell's dividend, capital expenditure, cost and asset sale plans.
Iomart Group, Carclo, BP Marsh & Partners, VP and Fulcrum Utility Services release full-year results. IDOX, RWS Holdings and Gooch & Housego publish half-year results.
In the economic calendar, the Reserve Bank of Australia releases its interest rate decision at 0530 BST. The Japan leading economic index is due at 0600 BST. Germany's industrial production data are due at 0700 BST, while trade data from France are due at 0745 BST. UK's Halifax house prices are due at 0830 BST, while eurozone's GDP data are at 1000 BST.
In the US, the redbook index is due at 1355 BST, while the American Petroleum Association weekly crude oil stock data are due at 2130 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
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