LONDON (Alliance News) - It was a rocky afternoon for UK stocks Friday after the US jobs report for January provided mixed messages, with nonfarm payrolls coming in below estimates but the unemployment rate unexpectedly dropping and wages growing faster than expected.
The US Labor Department said non-farm payroll employment climbed by 151,000 jobs in January compared to FXStreet consensus of an increase of about 190,000 jobs. The report also said the jump in employment in December was downwardly revised to 262,000 jobs from 292,000 and the increase in employment in November was upwardly revised to 280,000 from 252,000 jobs.
The Labor Department said the increase in employment in January was led by growth in retail trade, food services and drinking places, health care, and manufacturing. However, the report also highlighted declines in employment in private educational services, transportation and warehousing, and mining.
The US unemployment rate edged down to 4.9% in January from 5.0% in December, confounding expectations for the rate to come in unchanged. The unexpected decrease pulled the unemployment rate down to its lowest level since February 2008.
Meanwhile, average hourly employee earnings climbed 0.5% month-on-month in January, ahead of the expected 0.3% growth. On an annual basis average hourly earnings rose 2.5%, matching the December reading.
"The result is an even more confused picture on the likely pace of rate increases from the Federal Reserve, the uncertainty of which is unlikely to be helpful for confidence in markets," said Jasper Lawler, market analyst at CMC Markets.
The Fed will be holding its next two-day policy meeting on March 15-16, and will also have the February jobs report to consider, which is released on March 4.
"The fall in unemployment rate and rise in earnings growth point to potential upside risks to domestic inflationary pressures, which seem to have been all but forgotten by markets amid the concerns about international factors such as China and the oil price," said Michael Sawicki, senior economist at Lloyds Bank.
Michael Moran, chief economist at Daiwa Capital Markets, also saw positives from the report.
"We did not view this report as troubling. To the contrary, we were heartened by the favourable aspects. Several soft reports have suggested that economic activity has slowed, but the labour market data suggest that the economy is not falling off a cliff," Moran said.
The dollar initially wobbled after the data as investors weighed up the numbers, before making gains against other currencies. At the London stock market close, the pound traded the greenback at USD1.4475 compared to USD1.4586 at the close on Thursday. The euro was at USD1.1137 at the close Friday versus USD1.1195 on Thursday.
The stronger dollar also weighed on commodity prices, with gold quoted at USD1,155.50 an ounce at the London close Friday, having earlier hit a high of USD1,163.10 before the jobs report. At the close Thursday gold was at USD1,154.10 an ounce.
Brent oil initially fell as the dollar appreciated, but then made up its losses. At the European equity close Brent traded at USD34.40 a barrel versus Thursday's USD34.62 price.
The FTSE 100 closed down 0.9% at 5,848.06, meaning it ended the week down 3.9%. The FTSE 250 ended down 0.5% at 16,002.28 and the AIM All-Share closed down 0.5% at 689.85.
European stocks also ended lower. The CAC 40 in Paris fell 0.7%, and the DAX 30 dropped 0.1%.
On Wall Street at the London close, the DJIA traded down 1.2%, the S&P 500 was down 1.6% and the Nasdaq Composite was off 2.8%.
In UK corporate news, BG Group closed up 0.4% after it delivered underlying results for 2015 that met expectations as the company managed to turn to a profit from a loss the previous year despite difficult market conditions and the fall in oil prices that have impacted the wider industry.
BG Group appeared to have minimised the impact of lower oil prices throughout 2015 compared to the wider market as the company experienced only a 16% drop in revenue to USD16.14 billion, whilst other London-listed companies, albeit larger firms, have seen revenue drop by more than 35% over the same period.
Despite the fall in revenue, BG swung to a USD2.97 billion pretax profit in 2015 from a USD2.33 billion loss in 2014.
Investors were pleased that underlying results met expectations and will be satisfied that the company managed to turn a profit in its last year as a standalone company before it completes its merger with Royal Dutch Shell, with a rise in the share price Friday building on gains experienced on Thursday after Shell released its full year results.
Elsewhere on the London market, the mining sector made strong gains again, with Anglo American closing as the best performer in the FTSE 100, up 11%, building on its 20% gain on Thursday.
"It was another strong showing for the mining sector, with shorts in names like Anglo American still being forced to run for cover. However, we have yet to see a real shift in the fundamental backdrop to warrant a more extended rally in these beaten-down firms, even if iron ore prices in China have looked firmer of late," said IG's senior market analyst Chris Beauchamp.
In the FTSE 250, Just Eat closed as the biggest gainer 7.1% after the online food delivery company added to its overseas portfolio by acquiring takeaway businesses in a move to beef up its position in four different countries.
Just Eat said it bought Spanish takeaway food business La Nevera Roja and Italian PizzaBo/hellofood Italy from Rocket Internet, and hellofood Brazil and hellofood Mexico from foodpanda. The acquisitions, costing EUR125.0 million in total, are to be paid for with existing cash.
This comes after Just Eat in 2014 merged its Brazilian RestauranteWeb business with online restaurant delivery company iFood.com Agencia de Restaurantes Online.
In the economic calendar, Japanese current account and trade balances are at 2350 GMT on Sunday. On Monday, the eurozone Sentix Investor Confidence survey is at 0930 GMT and the US labor market conditions index is at 1500 GMT. The Shanghai stock market is closed next week to celebrate Chinese New Year, while the Hong Kong market is closed until Thursday.
The only scheduled release in the UK corporate calendar is full-year results from FTSE 100-listed gold miner Randgold Resources.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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