LONDON MARKET COMMENT: Stocks Lower With US Jobs Data, OPEC In Focus

Fri, 05th Jun 2015 09:41

LONDON (Alliance News) - UK stocks are trading lower Friday mid-morning, with the Greek debt negotiations in the background and with US unemployment data due at 1330 BST.

Investors also are awaiting news from the Organization of the Petroleum Exporting Countries (OPEC) meeting taking place in Vienna.

Some analysts say volatility in the bond markets is continuing to weigh on investor sentiment, as it did Thursday following comments by European Central Bank President Mario Draghi, who said on Wednesday that markets have to "get used" to volatility as interest rates are at record lows.

"Renewed volatility in bond markets helped to depress equity indices. The German 10-year bund yield rose almost to 1.0%, before falling back to 0.82%," says Conall Mac Coille, an analyst at Davy Research.

The FTSE 100 is down 0.7% at 6,814.94, while the FTSE 250 is down 0.7% at 17,960.67, trading below the 18,000 mark for the first time since mid-May. The AIM All-Share is down 0.1% at 776.23.

European indices also are lower, with the CAC 40 in Paris down 1.0% and the DAX 30 in Frankfurt down 0.9%.

Greek authorities hardened the nation's stance towards the reform proposals of its international creditors after high-level talks failed to produce a deal for the country to gain access to much-needed money to avoid default.

A proposal presented by the International Monetary Fund and European institutions "contains extreme positions that cannot be accepted by the Greek government," a statement from Athens said late Thursday, a day after a meeting in Brussels with the international creditors.

The statement came after Greece delayed a key debt repayment of about EUR300 million due Friday to the IMF. The Washington-based lender said Thursday that Greek authorities had declared their plans to bundle four payments due this month into a single EUR1.6 billion lump sum now due on June 30.

Berenberg analyst Holger Schmieding says by postponing Friday?s payment, Greece de facto acknowledges that it is running out of money fast. "To pay the IMF on 30 June, it will need to strike a deal with its lenders not much later than 20 June. The EU is reportedly aiming to finish talks by 15 June," says Schmieding. "German Chancellor Angela Merkel, who helped to broker a largely joint position of the three institutions (IMF, EU, ECB) on Monday night, warned last night 'that we're still far from reaching a conclusion'."

Meanwhile, investor focus will shift to the US late Friday, as unemployment and nonfarm payrolls data come a day after Thursday's encouraging initial jobless claims data, which edged down to 276,000, a decrease of 8,000 from the previous week's revised level of 284,000.

The expectation, according to FXStreet.com, is for the US economy to have added 225,000 jobs in May, marginally higher than the 223,000 jobs added in April.

"Today's payrolls report will as usual be seen as probably the number one monthly indicator for the US," says Rhys Herbert, senior economist at Lloyds Bank. "Indeed, the [US] Federal Reserve's identification of further labour market improvement as one of the key pre-conditions for a hike in interest rates has, if anything increased its importance," he notes.

"Recent comments from Fed officials have suggested that a June interest rate hike is now unlikely, but a move in September remains on the cards providing the data shows economic growth rebounding from its first quarter fall," Herbert says.

US futures point to a flat opening, with the DJIA, the S&P 500 and the Nasdaq 100 all pointed flat.

OPEC is expected Friday to define its short-term strategy. "Analysts' consensus is that the organisation will maintain its current level of production and may even slightly increase its output to above 30 million barrels of oil equivalent per day, in order to allow some members such as Nigeria, Iraq and Iran to enjoy higher exports," says VSA analyst Marc Anis-Hanna.

"We expect global over-supply to continue at least until 2016 keeping the oil price at these low levels, especially if Iran reaches a deal on its nuclear installations," writes Anis-Hanna.

Meanwhile, Hantec Markets analyst Richard Perry says comments from Saudi Arabia tend to be the key driver, "whilst there are even suggestions that OPEC could increase production levels which would potentially be a negative impact on prices."

Brent is currently trading at USD61.62 while West Texas Intermediate is at USD57.54.

On the London Stock Exchange, some mining stocks are rebounding after Thursday's losses, as Anglo American, up 2.1%, BHP Billiton, up 1.2% and Rio Tinto, up 0.9%, are in a short list of gainers in the FTSE 100. Meanwhile, Kaz Minerals, up 0.6%, Lonmin, up 1.3% and Centamin, up 1.2%, are amongst the best mid-cap performers.

International Consolidated Airlines Group also is higher, up 0.3% after Aer Lingus Group on said its traffic in May increased on the back of a recovery in its short-haul performance and better long-haul figures. The Irish flag carrier said traffic rose by 6.8% in the month to 1.7 billion revenue passenger kilometres, from 1.59 billion a year earlier.

Aer Lingus is currently the subject of a EUR1.4 billion takeover bid from IAG, a deal which has now received backing from the Irish government. The British Airways owner still needs to secure the support of budget carrier Ryanair Holdings, which owns a 29.8% stake in Aer Lingus.

Vodafone Group shares are down 1.8%. The mobile communications company said it is in early talks with cable company Liberty Global about a possible asset exchange, but said it is not discussing any potential merger with the company. Vodafone added there is no certainty a deal will be made.

Wm Morrisons Supermarkets is down 1.9% at 175.00 pence as Deutsche Bank cuts its price target on the food retailer to 180p from 210p, retaining a Hold stance.

In the FTSE 250, Allied Minds is up 1.8% after it said it has hired the former chairman and chief executive of US drug company Amgen as a director on its board. The US-focused science and technology development and commercialisation company said Kevin Sharer, the former head of Amgen, will help oversee its growing portfolio of life science and high-tech companies.

Betfair Group is the biggest mid-cap faller, down 4.8%, after Numis downgraded the bookmaker to Sell from Reduce.

By Daniel Ruiz; danielruiz@alliancenews.com