LONDON (Alliance News) - The FTSE 100 hit its highest level in nearly five months and the dollar slid sharply against other majors Tuesday after key US jobs data missed expectations, heightening speculation that US fiscal policy makers will delay the start of reducing the flow of cheap money into the economy.
The highly-anticipated non-farm payrolls report, which had been delayed by over two weeks by the partial US government shutdown, showed that the US economy added 148,000 jobs in September, well below the 180,000 increase that economists expected.
The data has reinforced expectations that the Federal Reserve will maintain its asset purchase program at the current pace for the foreseeable future. Previous expectations had been that the Federal Reserve would start tapering its so-called quantitative easing programme before the end of the year, but predictions were pushed back after the political stalemate over the US budget and debt ceiling that was only ended with a short-term deal.
The "figures certainly do not point to the marked improvement in the economic backdrop that some FOMC members want to see before starting the taper," said Rob Carnell, chief international economist at ING. "There is no sign of tightness in the labor market, so the Fed will probably feel assured in keeping quantitative easing at current levels for some time yet."
"A weak labour market means that Fed tapering is firmly on the back burner," echoed Kathleen Brooks, research director at FOREX.com.
The non-farm payrolls data for the next two months is likely to be distorted by the government shutdown which started October 1.
The data prompted an immediate slide in the dollar, with the pound and euro trading at USD1.6225 and USD1.3787, respectively, at the close of the London equity markets. "One of the biggest car crashes of the dollar pairs was against the euro, with it sliding to its lowest levels in nearly two years," said Alex Young, senior sales trader at CMC Markets.
Blue chip equities rallied in the wake of the release, as a continued supply of cheap central bank money is deemed positive for companies and the wider economy. The FTSE 100 closed up 0.60% at 6,695.66, having hit its highest level since May 29, reaching 6,719.27, earlier in the day. In the US, the Nasdaq was up 0.10%, while the DJIA and S&P were both up 0.40% at the London close.
Smaller stocks in London fared less well, with the FTSE 250 closing down 0.10% at 15,512.49, while the AIM All-Share closed up 0.10% at 802.99.
The US employment figures weren't all bad. The unemployment rate dipped to 7.20% in September from 7.30% in August, whereas economists had expected the rate to be unchanged. The unexpected decrease meant unemployment is as its lowest level since hitting 6.8% in November of 2008.
At the individual UK equity level, AIM-listed John Lewis of Hungerford closed up 60% at 1.84 pence after the company said it expects to report a small underlying operating profit for its last financial year after it continued to trade strongly in the second half of the year, while orders in the current year are also looking strong. The company said it made revenues of about GBP6.5 million in the year to end-August, while orders and dispatched sales in the first quarter of the new year are up 13% at GBP1.7 million. The company was hit hard by the economic crisis and related downturn in home improvements, but is now showing signs of a turnaround.
Reckitt Benckiser, closing up 5.7% at 4,755.5507p, was the biggest winner on the blue-chip index. The consumer goods company reported a 5% rise in revenues in the third quarter, driven partly by strong flu remedy sales, and bowed to investor pressure, launching a review of its underperforming pharmaceuticals business that could be worth GBP3 billion if sold. The company said it expected the review of the pharmaceuticals business, which posted a decline in sales in the third quarter, to last some time and expects to update markets on progress "during the course of 2014," but analysts said they expect it to result in a sale of the unit.
After a volatile day of trading, ARM Holdings, down 1.80% at 1,020.7321p, closed the day as one of the biggest fallers on the FTSE 100, despite the company posting rising pretax profits in its third quarter, boosted by strong revenue growth. The technology company's share price was hit after it reported slower royalty revenues, says Nick James, analyst at Numis. Public domain royalty growth rate slowed sharply to 12%-14%, having averaged 26% year-on-year over the past four quarters. Liberum Capital was also disappointed by the public domain royalties of USD122 million, which was 5.9% lower than the brokerage's expectations. "The on-going weakness in high-end smartphone and tablet demand is responsible for this slow down, a trend which is expected to continue," Liberum said. "Investors need to keep in mind that even though ARM's licensing strength has defied expectations for some years now, it is unlikely to continue in the longer term," the brokerage added.
Travel and Leisure stocks were also amongst the biggest fallers on the FTSE 100. EasyJet, closing down 2.7% at 1,321.8382p, International Consolidated Airlines, closing down 1.8% at 357.9848p, and TUI Travel, closing down 0.40% at 380.8p, all suffered from a read across from disappointing morning results from Lufthansa. The German airline revised its operating profit expectations down to be in the range of EUR600 million to EUR700 million for 2013.
In a relatively light data calendar Wednesday, UK mortgage approvals data is scheduled for 0930 BST. In the US, mortgage applications are expected at 1200 BST, ahead of export and import price index figures at 1330 BST, with house price index data at 1400 BST. EU consumer confidence data is set to be released at 1500 BST.
GlaxoSmithKline, Home Retail and ASOS all report results Wednesday, while British American Tobacco, Computacenter and Sports Direct International all give trading statements.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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