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LONDON (Alliance News) - UK stocks were lower Friday, while Wall Street was called for a negative open, as investors prepared for the US nonfarm payrolls report, seen as a litmus test for the likelihood of a US interest rate hike at the Federal Reserve's September meeting.
US shares were pointed to open lower, with the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100 seen all down 1.1%. The three indices ended mixed Thursday, with Dow and the S&P 500 both up 0.1% while the Nasdaq Composite ended down 0.4%.
Wall Street will be closed on Monday for the US Labor Day celebration.
At 1330 BST Friday, the US Department of Labor will release nonfarm payroll, unemployment and wages data. The nonfarm payrolls number is expected to show 220,000 jobs were created in August, slightly higher than the 215,000 in July. The unemployment rate is expected to drop to 5.2% from 5.3% in July, while average hourly earnings are expected to grow 0.2% month-on-month, matching the growth seen in July.
Heightened emphasis is being placed on the August jobs report after the Fed said in the minutes of its July policy meeting that it "anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the US labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term".
Analysts at Nomura said they expect nonfarms to show another gain of over 200,000, pushing the US labour market towards full employment and keeping the Fed on track for raising rates this year. However, the Nomura analysts think that the lack of inflation pressure will see the Fed hold off until December.
"With core inflation losing some upward momentum in recent months and 'some' [Federal Open Market Committee] participants raising concerns about the inflation outlook, we believe that the Committee will want more evidence that inflation is moving in the right direction before raising interest rates, supporting our call for lift-off in December," Nomura said.
Michael van Dulken at Accendo Markets also said he believes the Fed will not be ready for a "lift-off" at the two-day meeting on September 16 and 17, even if the job numbers are good.
"We still say 'no': jobs data may be solid but absent inflation and market volatility are just too much of a headwind," said van Dulken.
At midday in London, the FTSE 100 index was down 1.8% at 6,081.65, the FTSE 250 down 1.2% at 16,882.85 and the AIM All-Share down 0.3% at 732.70 points. In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt both were down 2.1%.
Stocks across Europe were giving back most of the gains seen on Thursday after a doveish press conference by European Central Bank President Mario Draghi in which he said the central bank stands ready to act again to spur growth and inflation in the eurozone.
The ECB maintained it has "a willingness" to act using all the tools at its disposal to meet its annual inflation target of just below 2%, including adjusting "the size, composition and duration" of its EUR1.1 trillion monetary stimulus programme, Draghi told a press conference after the central bank maintained all of its key interest rates unchanged.
Weak inflationary pressures, along with renewed economic and market tensions triggered by the slowdown in China, have increased the pressure on the ECB to consider launching more action to head off the threat of deflation.
Draghi said the ECB was revising down its 2015 inflation forecast to near zero, warning that consumer prices could fall back into negative territory because of slumping oil prices.
The Frankfurt-based central bank also trimmed its euro-area growth projection for the year to 1.4% from 1.5% previously, as demand from the world's leading emerging economies, notably China, contracts.
"Equity traders decided that the ECB?s comments indicated that the current September [2016] date for the end of their QE programme was now likely to be extended," said IG analyst Alastair McCaig. "Not only had a sizeable amount of the anticipated QE boost to sentiment been eroded by the troubles surrounding Greece earlier in the year, but these weaker growth and inflation expectations had been compiled before Black Monday, suggesting that things will get worse before they get better."
Stocks in Asia declined Friday, though Shanghai remained closed to celebrate the 70th anniversary of China's victory over Japan in the Second World War. The Japanese Nikkei 225 closed down 2.2%, while Hong Kong returned to trade after a holiday on Thursday, with the Hang Seng index ending down 0.5%.
On the London Stock Exchange, with all FTSE 100 constituents in the red, Next was the biggest faller, down 3.6% at 7,560.00 pence after being cut to Underperform from Neutral by Exane BNP Paribas, which lowered its price target on the stock to 7,400p from 7,700p.
Also weighing on Next shares, the BDO High Street Sales Tracker survey for August on Friday showed the UK high street had its worst month since November 2008, with sales declining year-on-year as consumers decided to desert the high street in favour of taking holidays abroad. The survey showed UK high street sales were down by 4.3% in August, the worst performance for the sector since the financial crisis in 2008 and the fourth consecutive month of like-for-like declines. Shares of fellow retailer Marks & Spencer Group were down 1.8%.
GKN was down 3.5% at 271.5p. Investec moved its recommendation on the stock to Hold from Buy and has cut its target price to 300 pence from 370p. The broker adopted a more cautious view on the outlook for the engineering company's driveline and powder metallurgy revenue and profit growth to reflect a potential slowdown in automotive production in China and other emerging markets. Overall, Investec cut its earnings per share estimates for 2015 by 3% and by 10% for 2016.
Meanwhile, in the FTSE 250, Booker Group was amongst the best performers, up 1.0% at 177.90p. JP Morgan raised its price target on the grocery wholesaler to 200p from 174p previously, and reiterated an Overweight rating.
The change came one day after Booker said that sales fell in the ten weeks to August 28, hit by the ban imposed on small stores displaying tobacco products, though its non-tobacco sales edged higher. Shares in the company were boosted earlier this week when its acquisition of Musgrave Retail Partners GB was approved by the UK's Competition and Markets Authority.
In the AIM All-Share, IS Solutions was up 33%. The software company said its revenue and profit are both set to beat market expectations for the full year amid strong trading in its analytics products and from the acquisition of 'big data' company Celebrus late in 2014.
The company reported strong underlying demand for its analytics products, with sales "well ahead" of its expectations. It has won two major contracts from financial services sector clients for its analytics platform, which will be worth around GBP4.0 million in revenue for the year to the end of March 2016 and which will add around GBP350,000 a year in recurring revenue from thereon.
Meanwhile, Kodal Minerals was the worst performer, down 37%. The mining and exploration company wrote off the carrying value of its Kodal phosphate and iron project in southern Norway as it slumped to a GBP4.0 million pretax loss in the year ended March 31, compared with the GBP232,705 loss in the prior year. The impairment charges were booked due to slumping iron prices, and the company said it will be cautious as it works on its projects due to the wider commodities sell-off. It will continue to appraise low-cost opportunities.
By Daniel Ruiz; danielruiz@alliancenews.com
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