LONDON MARKET CLOSE: Resurgence In US Jobs Growth Supports Stocks

LONDON (Alliance News) - London stock prices closed higher Friday, spurred on by a surge in US nonfarm payrolls in June which reassured investors the labour market is still in good health following the scare in May.

The report from the Labor Department said nonfarm payroll employment rocketed up by 287,000 jobs in June versus economist estimates for an increase of about 175,000 jobs. However, the Labor Department also said the weak growth in jobs in May was downwardly revised to just 11,000 from the 38,000 originally reported.

The weak job growth in May was partly due to a since-resolved strike by Verizon workers, which contributed to the loss of 39,000 jobs in the information sector. With Verizon workers returning to the job, the information sector added 44,000 jobs in June, contributing to the stronger than expected job growth.

Notable job growth also occurred in the leisure and hospitality, health care and social assistance, and financial activities sectors.

The unemployment rate rose to 4.9% in June from 4.7% in May, just higher than expectations for a rise to 4.8%. The uptick in unemployment rate reflected a rebound in the number of people in the labour force, which rose by 414,000 people in June after plunging by 458,000 people in May.

Average hourly earnings rose 2.6% year-on-year, accelerating slightly from 2.5% in May. On a monthly basis hourly earnings rose 0.1%, coming below expectations of a 0.2% rise.

The US Federal Reserve will be pleased that the dismal performance in the labour market in May was not repeated in June but the result is unlikely to have convince the central bank to raise interest rates in its meeting later this month, due to the uncertainty caused by the Brexit vote in the UK. Some believed the UK vote may even delay a Fed rate hike for the rest of the year.

"Going into today's report markets attached only a 12% probability to a US interest rate hike by the end of this year. Today's stronger than expected employment outturn, however, may be the start of a reversal in that trend," said Lloyds Bank.

"Indeed the initial market response has been to raise the likely probability attached to a Fed hike by December to 22%. We expect that the primary driver of Fed policy will be domestic economic developments and that stronger economic data in the second half of 2016 could still push the Fed to raise interest rates before the end of the year," Lloyds added.

The dollar initially rose strongly against other currencies following the jobs data but then swung back the other way. By the London stock market close, the pound traded the dollar at USD1.2957, not far off the USD1.2933 seen at the close on Thursday.

The euro traded the dollar at USD1.1039 at the London equities close, versus USD1.1066 at the same time on Thursday.

The price of gold was also volatile after the jobs report, moving in the inverse direction to the dollar. By the stock market close in London, the metal traded at USD1,351.45 an ounce, compared to USD1,355.97 at the close Thursday.

Brent oil was lower compared to Thursday, having also been weighed down by disappointing Energy Information Administration's crude oil stocks late Thursday. At the close Friday, the North Sea benchmark was at USD46.59 a barrel, compared to USD47.74 on Thursday.

The FTSE 100 closed up 0.9%, or 56.85 points, at 6,590.64. The index managed to cancel out the losses seen earlier in the week over the last couple of trading sessions, closing up 0.2% for the week. The FTSE 250 ended Friday up 1.8%, or 278.94 points, at 16,177.75, but was still down 1.8% for the week as a whole. The AIM All-Share closed the day up 1.0%, or 6.69 points, at 706.07.

In mainland Europe, the French CAC 40 ended up 1.8% and the DAX 30 finished up 2.2%.

Wall Street was trading higher at the London market close. The Dow 30 was up 1.1%, the S&P 500 was up 1.3% and the Nasdaq Composite was up 1.4%.

The broad picture on the London Stock Exchange was similar to that on Thursday, with banks, housebuilders and real estate investors amongst the best performers, while defensive stocks made up the fallers.

Inchcape closed up 7.0% after Berenberg upgraded the car distributor and retailer to Buy from Hold. The bank believes the company's significant overseas exposure will mean it will not only benefit from currency translation effects, given the substantial fall in the pound following the UK's vote to leave the European Union, but its end markets will be more resilient than domestic-focused peers.

SolGold said it has entered into an agreement to issue shares to Maxit Capital to raise funds for the ongoing exploration and development of the Cascabel project in Ecuador.

Maxit can subscribe for a maximum of 238.5 million shares in SolGold, or a maximum stake of 19.9%, before October 6 and is entitled to include any third parties designated by itself or SolGold.

Notably, SolGold said the issue price "will be determined by Maxit, acting reasonably" by notifying the company in writing. SolGold will have to find the proposed issue price "satisfactory" before the shares are issued, but the miner said it expects the price to be a premium to current levels.

SolGold shares closed up 40% at 4.28 pence per share following the announcement. The stock closed Thursday at 3.075p.

In the economic calendar over the weekend, Chinese inflation data is due on Sunday at 0230 BST and Japan's House of Councillors election will be taking place throughout the day.

There is very little in the calendar for Monday, with Japanese machinery orders at 0050 BST, Italian industrial output at 0900 BST and US labor market conditions index at 1500 BST.

In the UK corporate calendar, film studio operator Pinewood Group reports full-year results, while specialist independent financial advisor and asset manager Frenkel Topping Group and recruiter Sthree both report interim results. Household and personal care products company McBride issues a trading statement.

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

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