LONDON MARKET CLOSE: December Rate Hike All But Confirmed By US Jobs

LONDON (Alliance News) - UK equities ended firmly in the red Friday after the Organisation of the Petroleum Exporting Countries said they will not cut oil production, which saw the price of oil decline sharply, taking the London stock market along with it.

Meanwhile, a strong US jobs report in the afternoon signalled that an interest rate hike by the US Federal Reserve later this month is all but certain.

A report by the US Labor Department showed employment in the US increased by more than expected in the month of November. The report said non-farm payroll employment jumped by 211,000 jobs in November compared to economist estimates for an increase of about 200,000 jobs.

Job growth in September and October was upwardly revised to 145,000 jobs and 298,000 jobs, respectively, reflecting 35,000 more jobs than previously reported. The Labor Department pointed to notable job growth in the construction, professional and technical services, and health care sectors.

The report also said the unemployment rate held at the more than seven-year low of 5.0% set in the previous month, matching expectations. Average hourly employee earnings rose by 0.2% month-on-month to USD25.25 in November matching expectations but slower than the 0.4% seen in October.

The stronger than expected job growth will further cement expectations that the Federal Reserve will raise interest rates at their meeting on December 15-16.

ING economist James Knightley said, "Given [Fed Chair] Janet Yellen yesterday suggested payroll growth of 'under 100k per month' would be enough to absorb new entrants into the labor force, today's report is surely consistent with the [Federal Open Market Committee] trigger clause for higher interest rates of 'some further improvement in the labor market.'"

The dollar rose against other major currencies following the data. At the London close, the pound traded the greenback at USD1.5112 and the euro traded the dollar at USD1.0888.

The price of gold took an initial hit due to the rise in the dollar but recovered strongly afterwards. At the end of London equity trade the metal was quoted at USD1,087.00 an ounce.

Wall Street was trading higher at the London close after the strong jobs report. The Dow 30 was up 1.4%, the S&P 500 was up 1.3% and the Nasdaq Composite was up 1.2%.

In London, the FTSE 100 index closed down 0.6% at 6,238.29 and ended the week down 2.2%. The FTSE 250 closed down 0.1% at 17,366.94 and the AIM All-Share ended down 0.2% at 740.37.

European stocks also ended lower, still feeling the effect of the disappointing outcome of the European Central Bank's monetary policy decision. The CAC 40 in Paris and the DAX 30 in Frankfurt both closed down 0.3%. The two indices ended the week down 4.4% and 4.8% respectively.

The FTSE 100's decline sharpened after media reports stating OPEC has agreed to set a new oil output ceiling of 31.5 million barrels a day, an increase from a previous ceiling of 30.0 million barrels. OPEC have already been consistently producing over its ceiling.

In the press conference after the meeting, OPEC President Emmanuel Ibe Kachikwu confirmed the cartel will continue production at current levels but did not mention a specific number.

Oil prices dived on the back of the news. Brent oil went from USD44.60 a barrel to a low of USD42.66 a barrel, while West Texas Intermediate went from USD41.66 a barrel to a low of USD39.58 a barrel. At the close Brent oil was quoted at USD43.04 a barrel, while WTI was at USD40.02 a barrel.

Oil related stocks tracked the losses in oil prices. Oil majors BP and Royal Dutch Shell 'A' shares, both down 2.4%, ended amongst the FTSE 100's heaviest fallers. In the FTSE 250 Tullow Oil closed down 5.4%, Weir Group ended down 3.4% and Petrofac closed down 2.5%.

Elsewhere on the London market, Berkeley Group Holdings closed the day as the best blue-chip performer, up 7.5% at 3,602.00 pence, having touched an all-time high of 3,690.00p earlier in the session.

The housebuilder, focused on London and the south east of England, said pretax profit dipped in the first half due to gains it made a year earlier from the sale of ground rent assets, though revenue increased and Berkeley also announced a boost to its dividend programme.

Berkeley said its pretax profit fell to GBP293.3 million in the six months to the end of October from GBP304.9 million a year before, primarily due to the one-off gain made a year earlier from the sale of ground rent assets.

The group said underlying demand in its markets remains robust and the operating environment is still stable and, illustrating its confidence in its outlook, said it would hike it dividend return programme to the tune of GBP500.0 million, with the target of returning GBP16.34 per share in total to shareholders by the end of September 2021. This is increased from GBP13.00 per share previously and means its dividend payout through to September 21, 2016 from now will be 200.00 pence per share, up from 144p.

The robust underlying results had a positive read-across on other blue-chip housebuilders, with Taylor Wimpey ending up 1.4%, Barratt Developments up 1.3%, and Persimmon up 0.9%.

Whitbread, the owner of Premier Inn and Costa Coffee, was one of the biggest fallers in the FTSE 100, down 2.9% at 4,573.00p after Barclays downgraded the company to Equal Weight from Overweight and cut its target price to 5,200p from 5,800p.

Barclays downgraded the stock on expectations for slower revenue per available room growth at Premier Inn.

JD Sports Fashion closed as the best performer in the FTSE 250, up 4.7%. The company said late Thursday that its headline profit before tax and exceptional items for the current financial year to January 31, 2016 is likely to exceed current consensus market expectations of GBP125.0 million by GBP10.0 million.

In giving its expectation, the sports retailer said it recognised the "critical importance" of trading through the remainder of December and early January, and noted "further infrastructure cost increases" during the year to support the increasing international development of the business. The company traded up 2.7% on Friday.

In a quiet economic calendar Monday, German industrial production is at 0700 GMT, eurozone Sentix investor confidence survey results are at 0930 GMT and US labor market conditions index is at 1500 GMT.

In the UK corporate calendar, Scottish Investment Trust reports full-year results, alongside animal health pharmaceuticals producer Eco Animal Health Group and Majedie Investments. Niche plastic products company Plastics Capital reports half-year results. Biopharmaceutical company GW Pharmaceuticals releases full-year results at 2100 GMT.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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