LONDON (Alliance News) - UK and European stock indices are trading considerably higher mid-morning Tuesday, as the worse-than-expected US nonfarm payroll figures last Friday suggested that an interest rate hike from the US Federal Reserve may be later than many market analysts had predicted.
The FTSE 100 is up 1.3% at 6,924.26, the FTSE 250 is up 1.1% at 17,463.03, and the AIM All-Share index is up 0.7% at 720.13.
In Europe, the French CAC 40 is trading up 1.2%, and the German DAX 30 in up 1.0%.
Employment in the US rose by much less than expected in March, according to a report released by the Labor Department on Friday. The report said non-farm payroll employment rose by 126,000 jobs in March following a downwardly revised increase of 264,000 jobs in February. Economists had expected employment to increase by about 245,000 jobs compared to the addition of 295,000 jobs originally reported for the previous month.
Meanwhile, the Labor Department said the US unemployment rate held at a six-year low of 5.5% in March, unchanged from February and in line with economist estimates. In addition, average hourly earnings rose 0.3% month-on-month in March, slightly higher than the 0.2% consensus and February's growth of 0.1%.
The low number of jobs created in the US added further support to the view that a summer rate hike from the US Federal Reserve is unlikely, which gave US stock indices a boost on Monday but saw the dollar slip a little against its major currency partners.
"The re-cap of US payrolls is that they were very soft, and while they don't completely rule out a June hike, they do support an even slower pace of rate increases," says Societe Generale analyst Kit Juckes.
However, Juckes notes that while UK Treasury yields, equity futures and the dollar all fell in tandem on Friday afternoon, they have bounced back somewhat since. Ten-year Treasuries are back to near pre-data levels, US stock indices closed higher and the dollar also is rebounding.
"All of this speaks to a market that has been unconvinced about mid-year Fed rate hikes all along, yet still expects the US economy to out-perform its major competitors. And still thinks the Fed will hike 'some day'," Juckes adds.
The pound and euro lost some edge against the greenback Tuesday morning and trade at USD1.4853 and USD1.0848, respectively, following mixed Markit purchasing managers' index readings for Europe and the UK.
The pound initially rose against other major currencies after PMI data showed a better-than-expected expansion in the UK service sector in March. The Markit/Chartered Institute of Procurement & Supply PMI came in at 58.9 in March, up from 56.7 in February and higher than the forecast of 57.0, marking its quickest rate of expansion in seven months.
However, the pound fell back again soon afterward.
"While the data support the view that the next move interest rates will be upward, the lack of inflationary pressures suggests the first [Bank of England] hike remains some way off, and probably not this year unless we see some significant upturn in wage growth," says Chris Williamson, chief economist at Markit.
A final reading of eurozone composite PMI came in marginally worse-than-expected in March, but still managed to reach an 11-month high. The PMI figure came in at 54.0, slightly below the 54.1 flash estimate, but higher than 53.3 in February. Services PMI in the region similarly missed the flash estimate, coming in at 54.2, slightly worse than the 54.3 estimate, but higher than February's 53.7.
On the London Stock Exchange, oil-related stocks are amongst the best performers, following a rise in the price of oil on Monday. On Tuesday, Brent oil has come off its Monday highs but still trades at USD57.50 a barrel, while West Texas Intermediate trades at USD51.35 a barrel.
BG Group, up 3.7%, Royal Dutch Shell 'B', up 2.7%, Weir Group, up 2.5% and BP, up 1.9%, are amongst the biggest gainers in the FTSE 100. In the FTSE 250, Premier Oil, up 8.7%, Hunting, up 6.4%, and SOCO International, up 5.6% are amongst the top risers.
The FTSE 350 Oil Equipment Services & Distribution sector index is the best performing sector, up 2.9%, followed by FTSE 350 Oil and Gas Producers sector, up 2.5%.
On the flip-side travel stocks are amongst the worst performers, with British Airways-owner International Consolidated Airlines Group down 0.8%, cruise operator Carnival down 0.5%, and easyJet down 0.4%.
In addition JP Morgan downgraded IAG to Neutral from Overweight, saying it prefers low cost carriers such as Ryanair, up 1.7%.
Wildhorse Energy shares have more than doubled and lead the AIM All-Share gainers. The company said its shares were suspended on the Australian Stock Exchange pending the potential acquisition of a resource project.
Still ahead in the economic calendar is US consumer credit at 2000 BST.
Futures indicate Wall Street for a flat open, with the DJIA and S&P 500 both pointed flat, while the Nasdaq 100 is expected to open up 0.1%.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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