MARKET COMMENT: UK Stocks Make Gains Ahead Of Key US Jobs Report

Fri, 04th Apr 2014 09:35

LONDON (Alliance News) - Major stock indices are modestly higher across the UK and Europe Friday, while the US dollar is a little firmer across the board as expectation builds for a strong US non-farm payroll jobs report still to come.

By mid-morning Friday the FTSE 100 is up 0.4% at 6,673.35, the FTSE 250 is up 0.3% at 16,403.99, and the AIM All-Share is up 0.1% at 853.10.

In Europe the French CAC 40 is up 0.2%, and the German DAX 30 is up 0.3%.

In the UK, house prices have fallen for the first time in three months, according to the Halifax house price index. The index fell unexpectedly by 1.1% month-on-month in March, reversing the 2.5% rise seen in February. Economists had expected prices to rise by 0.6%.

The listed UK housebuilders are underperforming following the unexpected house price drop. Barratt Developments is down 1.2%, Crest Nicholson is down 0.7%, and Taylor Wimpey is down 0.6%.

In more positive UK data, new car registrations increased at the fastest pace in ten years last month. According to data from the Society of Motor Manufacturers and Traders, registrations increased by 18% year-on-year in March.

In Germany, factory orders increased by more than expected in February, rising by 0.6% month-on-month and 6.1% year-on-year. Economists had expected a rise of just 0.1%, in line with the growth recorded in January.

None of the morning data has done much to the pound or the euro, with the dollar just a little firmer across the board ahead of the main event of the day - the US non-farm payroll jobs report, at 1230 GMT.

Currently, the pound trades at USD1.6595, and the euro trades at USD1.3705, close to a five week low after European Central Bank President Mario Draghi succeeded in talking it down on Thursday.

Draghi gave his clearest indication yet that the ECB is ready and willing to introduce further stimulus measures, including quantitative easing, to boost growth and weaken the euro if necessary. In the key statement Draghi said: "The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation."

Now Draghi has shown the market his potential weapons, analyst suggest he will need to use them within the coming months or risk losing credibility.

"In general you get the feeling that the ECB could be playing for time in the hope a recovering US economy and the Fed will do its work for them, with a stronger US dollar driving the euro back down," says CMC Markets chief market analyst Michael Hewson.

Indeed, the expectation for improved US data has been rising, and Friday economists expect the monthly US jobs report to reveal a fall in headline unemployment to 6.6% in March from 6.7% in February.

The headline rate has lost a degree of importance for markets since the Federal Reserve dropped its 6.5% threshold before which it will look at interest rate rises. However, the non-farm payroll report also is expected to be strong, with economists looking for a rise of 200,000, up from 175,000 previously.

"All eyes are on March?s US employment report in the final hours of the trading week. Leading ISM data points to a sharp pickup in service-sector hiring over the same period, arguing in favour of an upbeat outcome. Such a result is likely to help erode doubts about the continuity of the Fed?s QE ?tapering? cycle, bolstering policy support for the US dollar and driving the benchmark currency higher," said DailyFX currency strategist Iilya Spivak.

Ahead of the report, US futures indicate a higher open on Wall Street, with the DJIA, S&P 500, and the Nasdaq Composite all up about 0.2%.

Among UK equities, along with housebuilders, airlines are higher Friday after easyJet and Flybe Group said they flew more passengers and filled more of the seats in their planes in recent weeks. EasyJet said it flew 5.1 million passengers in March, up from nearly 4.9 million in March 2013, while load factor, a measure of how many seats on its planes are filled, rose to 91.5%, from 90.5%.

Easyjet leads the FTSE 100 gainers, up 2.5%. Small-cap stock Flybe is up 3.3%, while International Consolidated Airlines, owner of British Airways, appears to seeing a read across, with the stock up 1.8%.

Irish flag carrier Aer Lingus, on the other hand, said passenger numbers fell to 703,000 in March, from 757,000 a year earlier. The stock is down 1.4%.

Pearson shares are amongst the biggest FTSE 100 gainers, up 2.5% after receiving an upgrade to Buy from Jefferies. Having visited academics in the US, the bank sees upside to the publisher on the back of improving sentiment there and increased spend on educational resources.

By Jon Darby; jondarby@alliancenews.com; @jondarby100