LONDON MARKET CLOSE: September Rate Hike In Sight After US Jobs Report

LONDON (Alliance News) - UK stocks closed lower, while the dollar was boosted Friday, after a strong US jobs report saw investors pricing in a September rate hike by the US Federal Reserve.

Job growth in the US slowed for the second consecutive month in July, according to the Labor Department, although its report still showed a notable increase in employment. It said non-farm payroll employment rose by 215,000 jobs in July following an upwardly revised increase of 231,000 jobs in June and a jump of 260,000 jobs in May. The consensus according to FXStreet.com predicted jobs to rise by 222,000, compared to the original 223,000 growth seen in June.

While the job growth came in below the consensus estimate, Michael Moran, chief economist at Daiwa Capital Markets, said the increase is enough to keep the Federal Reserve on course for a September interest rate hike.

"We view it as a positive set of results. The pace of job growth, although less than blistering, was certainly solid. In addition, several other elements of the report added to the positive tone. All told, the report was probably good enough to support the case for policy normalisation in September," Moran says.

The labour report also said the unemployment rate held at 5.3% in July, unchanged from the seven-year low set in June. The unchanged reading matched economist estimates.

Meanwhile, the Labor Department said average hourly employee earnings edged up by 0.2% to USD24.99 in July from USD24.94 in June. The annual rate of average hourly earnings growth ticked up to 2.1% in July from 2.0% in June, but Paul Ashworth, chief US economist at Capital Economics, said "there is still absolutely no sign whatsoever of any meaningful acceleration in that growth rate."

"Nevertheless, Fed Chair Janet Yellen has stressed that an acceleration in wage growth is not a necessary pre-condition for raising interest rates, so it won't prevent a September rate hike," Ashworth added.

However, Jasper Lawler, market analyst at CMC Markets said that whilst the latest job numbers keep the option for a September rate hike intact, the slowing of the pace of growth could cause a delay.

"Surely the Fed is looking for an improvement in economic conditions rather than consistency, let alone a slight worsening? Meaning a September hike is now less likely," Lawler said.

The dollar shot up against other major currencies following the figures. The pound hit its lowest value against the greenback in almost a month at USD1.5423, while the euro hit a low of USD1.0854.

The FTSE 100 closed down 0.4% at 6,718.49, and edged up 0.3% on the week. The FTSE 250 closed down 0.5% at 17,655.83 and the AIM All-Share ended up 0.1% at 753.17.

European equity markets also closed lower, with the French CAC 40 ending down 0.7% and the German DAX 30 ending down 0.8%.

Wall Street was trading lower at the London close, the DJIA was down 0.7%, having touched six month low during trade and heading for its sixth consecutive session in the red. The S&P 500 was down 0.6% and the NASDAQ Composite was down 0.8%.

Mining and oil stocks dominated the list of best performers in the FTSE 100 and FTSE 250, rebounding from recent weaknesses, with BP closing up 1.0% and Royal Dutch Shell 'B' shares up 1.2%. Anglo American was the best performer in the blue-chip index, closing up 2.9%, while Vedanta Resources was the best performer in the mid cap index, up 6.7%.

"Despite a fairly robust recovery from BP, Shell and Vedanta Resources, among other oil and mining stocks, the general dismal nature of the commodities themselves, with copper cementing its 6 year lows, appeared to weigh on investors’ appetite for the FTSE," said Connor Campbell, financial analyst at Spreadex.

Among the worst blue-chip performers, builders' merchant Travis Perkins closed down 1.9% after Panmure Gordon downgraded the builders' merchant to Sell from Buy. Travis Perkins hiked its interim dividend by 20% as it posted a rise in pretax profit on Tuesday. Although the broker says the multi-brand strategy is "clearly" working, it warns that trends are unlikely to surprise on the upside.

William Hill closed as the second-biggest faller in the FTSE 250, down 6.5% after the bookmaker reported a drop in profit in the first half of 2015 as it was hit by tax hikes and a tough comparative period, and said it has bought a stake in online lottery company NeoGames.

The bookmaker reported a 35% drop in pretax profit in the 26 weeks ended June 30 to GBP78.7 million from GBP121.8 million in the first half of the prior year. Revenue, however, grew to GBP808.1 million from GBP805.2 million.

An increase in machine games duty and the introduction of point of consumption tax cost William Hill GBP44 million in the half year, which in turn hit its profit. The half-year also faced a tough comparative which included the 2014 FIFA World Cup, the company added.

In the economic calendar, on Saturday there is Chinese trade balances data at 0300 BST. On Sunday, there is Chinese inflation data at 0230 BST. On Monday, Japanese consumer confidence is due at 0600 BST along with the release of the Bank of Japan's monthly economic survey. After the London open, there is the Sentix investor confidence survey for the eurozone at 0930 BST, and US labour market conditions index at 1500 BST.

In a quiet UK corporate calendar, there are half-year results from motor insurer esure Group, and software and services firm Gresham Computing.

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

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