LONDON MARKET CLOSE: Gold Sparkles As US Rate Hike Looks Further Away

LONDON (Alliance News) - London's leading share index rose on Friday after data showed that the US economy created the fewest number of jobs in almost six years in May, which could force the Federal Reserve to wait longer before increasing interest rates, hitting the dollar and financial stocks, but boosting gold miners.

Non-farm payrolls rose by 38,000 jobs in May, the smallest increase since September 2010, and much weaker than the 158,000 addition expected by economists. The Labor Department said the figures were partly due to the Verizon strike, with about 35,000 workers not on company payrolls during the survey reference period.

Job additions in March and April were also revised down to 186,000 and 123,000, respectively, reflecting a net downward revision of 59,000 jobs.

"We think June is now firmly off the table in terms of the next Federal Reserve interest rate hike, with our expectation for July. However, post the non-farm payroll release, there is now a serious risk to a July rate hike if job creation continues to decrease," Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, said.

Analysts at Lloyds Bank said the employment report "seems certain" to persuade members of the Federal Open Market Committee to "hold back" from increasing rates in June.

"While the FOMC will not want to be seen as reacting mechanically to just one weak data point, a tightening over the 'coming months' – as suggested by Fed Chair Yellen at the end of May – is now also seen as less likely by markets," Lloyds Bank said.

Chris Beauchamp, senior market analyst at IG, said caution is still required, particularly as Yellen is due to speak at 1730 BST on Monday. "We should be careful however, since Janet Yellen speaks on Monday, and even now she may choose to bang the drum for a possible June move, if only to keep alive the idea that some kind of debate is still going on," said Beauchamp.

"But with slack in the US employment picture on the rise again, the FOMC will find it hard to push for higher rates. The doves, it seems, have triumphed once again," the IG analyst said.

The FTSE 100 closed up 0.4%, or 24.02 points, at 6,209.63, falling from a high of 6,251.74 earlier in the session, and ending the week 1.0% lower. The FTSE 250 closed down 0.1%, or 8.33 points, at 17,067.93. The AIM All-Share closed up 0.3%, or 2.41 points, to 742.35.

In mainland Europe, the CAC 40 in Paris closed down 1.0%, and the DAX in Frankfurt closed down 1.0%.

In the US at the London equities close, the Dow Jones Industrial Average was down 0.4%, the S&P 500 was down 0.6%, and the Nasdaq Composite was down 0.7%.

The pound rose to USD1.4529 at the London equities close, from USD1.4432 the same stage Thursday, and the euro rose to USD1.1338 from USD1.1157 over the same time period.

Gold shot up in the wake of the weak US jobs data. Low interest rates reduce the opportunity of holding assets such as gold, which provide no dividend or interest rate to investors. The precious metal was trading at USD1,240.22, up from USD1,212.02 at the close on Thursday.

Fresnillo and Randgold, two gold miners, led the risers in London's blue-chip index, up 7.6% and 6.8%. Commodity stocks rose, boosted by the fall in the dollar, with Anglo American, up 5.2, Glencore, up 4.2%, BHP Billiton, up 3.5%, and Antofagasta, up 2.6%.

"Once again the FTSE's mining contingent has rescued the index, which remains in positive territory even as all others fall. The faltering rally in mining names has left the index stranded in no man's land lately, and even today's bounce doesn't change the overall picture of a sector that has run out of good news. Revived global growth fears will only lead to fresh losses, even if a weaker US dollar does help cushion commodity prices for the time being," IG's Beauchamp said.

With Brent crude trading at USD49.51 at the London equities close, down from USD49.77 at Thursday's close, BP closed up 1.5% at 358.55p, falling from a high of 362.7p earlier in the day.

The prospect of delays to US interest rate increased hit financial stocks. Banks, which typically enjoy higher margins when interest rates are higher, were joined by life insurers in the list of the FTSE 100's heaviest fallers.

With the likes of Barclays, down 0.4%, HSBC Holdings, down 0.3%, Lloyds Banking Group, down 0.8%, Royal Bank of Scotland Group, down 1.1%, and Standard Chartered, down 0.3%, all suffering, the FTSE 350 Banks Sector Index fell by 0.5%. The FTSE 350 Life Insurance Sector lost 1.1%, hit by falls from Prudential, down 1.5%, Standard Life, down 1.9%, and Legal & General Group, down 1.2%.

In the FTSE 250, Indivior made a late surge after winning a ruling to block generic competitors to its key opioid addiction treatment Suboxone Film until 2024.

Shares in the company closed up 36% at 235.1 pence, comfortably the best mid-cap performer, having risen as high as 247.9 pence shortly after the ruling.

Indivior noted that whilst the ruling marked "a very important milestone" for the company, investors should "remain mindful" that it has ongoing litigation against four other filers of generic competitors, in which it has also asserted its listed patents covering Suboxone Film.

"Our confidence in the long-term future of Indivior has received a good boost today, and we look forward to the next chapter in our development," said Indivior Chief Executive Officer Shaun Thaxter in a statement.

ICAP, the electronic markets and post trade services company, rose 1.5% after winning a technology contract worth USD65 million over three years with China Foreign Exchange Trade System, the country's official inter-bank market trading platform and infrastructure provider.

The deal, under which the company's EBS BrokerTec unit will open a local office in Shanghai and provide the technology for fixed income and foreign exchange electronic execution services in mainland China, marks both a meaningful addition to revenue and a victory as ICAP moves away from voice broking and becomes NEX Group, based on electronic markets, post trade services and its Euclid early-stage financial technology incubator.

Before it can become NEX, ICAP needs the sale of its voice broking business to FTSE 250 interdealer broker Tullett Prebon, its one-time rival, to complete.

CFETS's decision to use EBS BrokerTec's technology for its so-called Next Generation Trading System, Gil Mandelzis, chief executive officer of EBS BrokerTec, said, is a "resounding endorsement" of the business's technology and its role as a trusted provider of trading infrastructure and venues.

On the economic front, Monday brings Chinese foreign exchange reserves, German factory orders at 0700 BST, EU investor confidence at 0930 BST and targeted longer-term refinancing operations data at 1030 BST. In the US, expect the Labor Market Conditions Index at 1500 BST, followed by Yellen's speech at 1730 BST.

In the UK corporate calendar, get ready for May traffic statistics from budget airline easyJet. On Friday, International Consolidated Airlines Group, the owner of British Airways, Ireland's Aer Lingus, and Spanish carrier Iberia, said group traffic, capacity and premium traffic all rose in May.

By Samuel Agini; samagini@alliancenews.com; @SamuelAgini

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