By This Is Money Reporters
15.30 (CLOSE): A shock slowdown in US jobs growth and a double dose of economic setbacks in the UK failed to halt the progress of London’s blue-chip shares.
The FTSE 100 Index rose 48.6 points to 6739.9 in the last session of the first full week of new year trading.
Shares climbed in spite of a disappointing gain of just 74,000 US jobs in December, sharply below the average of 214,000 seen in the previous four months, and the lowest number in three years.
Slowdown: US jobs rose by just 74,000 in December, the lowest number in three years.
Meanwhile, official figures showing a slump in Britain’s construction industry in November along with a flat performance for manufacturing also failed to have a negative effect on equities in the City.
Traders appeared to have been reassured by the possibility that the US data was distorted by poor weather during the period while the recovery of the UK remains on track, despite the recent slowdown in growth.
In addition, potential weakness in America could serve to lessen the likelihood of tapering of the US Federal Reserve’s monetary support for the world’s biggest economy, and add to the need for interest rates to remain low for longer.
In Europe, Germany’s Dax and France’s Cac 40 were also on the front foot but Wall Street traders failed to see the positives as the Dow Jones Industrial Average was in the red at the close in London.
On currency markets, sterling slipped by a cent against the single currency to 1.21 euros on the weak UK economic data, while it held firm against the greenback at 1.65 US dollars with America’s currency held back by the weak jobs report.
In London’s top flight, Tesco was a big faller as sentiment towards the supermarket giant remained weak following its poor festive sales figures.
It disappointed the City on Thursday with a 2.4 per cent drop in UK like-for-like sales on a year ago, though chief executive Philip Clarke insisted the company’s 1billion turnaround plan was on track. Shares fell another 2.6p to 321.8p in the latest session.
Tullow Oil surged nearly 8 per cent to the top of the FTSE 100 risers’ board amid speculation that the exploration firm could be a bid target for Norway’s Statoil. The stock was 64.5p higher at 909.5p.
Elsewhere in the oil sector, BP recovered from a downgrade by Exane BNP Paribas to stand 1.7p higher at 497p. Its big rival Royal Dutch Shell was upgraded by the broker and climbed by nearly 2 per cent or 43.5p to 2308p.
A City upgrade also benefited emergency repair firm Homeserve as its shares jumped 9 per cent or 23.5p to 282.5p in the FTSE 250 Index.
Meanwhile, shareholders in Cineworld welcomed a deal that will see it spread its wings into Europe with a deal to buy Warsaw-listed Cinema City, creating a merged group with 1,852 screens across Europe. Shares jumped 13 per cent, or 51.5p to 443.5p.
The biggest FTSE 100 risers were Tullow Oil, up 64.5p to 909.5p, Persimmon up 80p to 1354p, Royal Mail up 22p to 583p and Burberry up 52p to 1473p.
The biggest FTSE 100 fallers were Lloyds Banking Group down 2.2p to 83p, ARM Holdings down 25.5p to 972p, Sainsbury’s down 5.4p to 346p and Royal Bank of Scotland down 3.3p to 356.9p.
14.20: The Footsie almost halved its gains in early afternoon trade, but still remained higher, as traders chewed over the implications of much weaker than expected jobs growth in the United States for future US monetary policy.
The FTSE 100 index saw a knee-jerk drop back from gains of nearly 80 points posted before the US data but then regained their poise, adding 65.0 points at 6,756.3 ahead of the start of trading in New York at 2.30 pm.
US stocks futures pared gains to trade flat immediately after the December jobs report but also bounced back pointing to a volatile Wall Street session today.
Ugly number: New Federal Reserve chairman Janet Yellen could need to temper monetary policy changes after much weaker than expected US jobs growth in December.
US employers hired the fewest workers in almost three years in December, but the setback was seen as temporary amid signs that cold weather conditions might have had an impact.
US nonfarm payrolls rose only 74,000 last month, the smallest increase since January 2011 and well below forecasts for an increase of nearly 200,000, while the unemployment rate fell 0.3 percentage points to 6.7 per cent.
Ishaq Siddiqi, market strategist at ETX Capital said: ‘Questions are arising about how much of weather damage has contributed to this but the big take-away is the big increase in number of people not working or looking for work, up 525,000 to 91.8million.
‘An ugly number like this suggests to many that the Fed will have to delay further reduction to tapering if this trend in data continues, meaning that QE will stick around for a little longer than we thought when the Fed started tapering last month.’
Siddiqi added that new Federal Reserve chairman Janet Yellen will now have more pressure on her to construct forward guidance which offers more clarity on thresholds related to the labour market as the Fed have clearly said they are not going to tighten monetary policy but the 6.7 per cent rate hit last month was previously touted by the Fed as a number at which it was comfortable to tighten.
12.25: Strength in mining shares helped underpin big gains for the Footise by midday with the sector lifted by buoyant trade data from China, the world’s biggest consumer of metals.
Overall the FTSE 100 index was up 61.5 points at 6,752.9 as traders looked ahead positively to the latest US jobs data, due in just over an hour, which should confirm the ongoing recovery of the world’s biggest economy.
Among the London-listed miners, Anglo American was up 23.0p to 1,249.5p, while Glencore Xstrata added 8.6p to 318.2p, and BHP Billiton gained 21.0p to 1,793.0p, with the sector shaking off early falls caused by disappointing quarterly results from US aluminium giant Alcoa – the harbinger for an impending fourth quarter earnings season across the Atlantic.
Miners mighty: The mining sector lent its strength to the Footsie today supported by strong China import data
An upgrade in rating by Barclays to ‘overweight’ gave a boost to Glencore, and the bank was also positive on BHP Billiton in a mining review, but it was cautious on the sector as a whole.
And Mexican precious metals miner Fresnillo missed out on the advance, shedding 3.5p to 671.0p, the biggest blue chip faller, after Barclays downgraded its rating to ‘equal weight’.
‘Fresnillo was a very poor performer throughout 2013 and we worry that 2014 may offer little respite given minimal production growth,’ analysts at Barclays said in the UK mining sector review.
Broker comment also weighed on chip maker ARM Holdings, which lost 5.5p to 992p.
Goldman Sachs removed the chip maker from its influential ‘Conviction Buy’ list and lowered its earnings forecasts for the group, a day after Deutsche Bank cut its rating for ARM to ‘hold’.’
But on the up after broker changes, outsourcing group Capita added 16p to 1,038p after UBS raised its rating to ‘buy’.
Tullow Oil was the biggest blue chip riser, up 40.9p at 885.9p on revived bid speculation, although Dragan Trajkov at Oriel Securities was cautious on the talk.
‘This is one of the many stories in the past that has involved Tullow as a take-out candidate. The only thing that makes this one maybe just a touch bit more believable than others is Tullow’s current share price. Nevertheless, we would not encourage investors to act solely based on this speculative article,’ the Oriel analyst said in a note.
09.50: Bid speculation for explorer Tullow Oil helped boost the Footsie higher as the morning session progressed, providing fresh evidence that 2014 may see more takeover deals emerge to keep the stock market buoyant.
Tullow Oil shares topped blue chip leader board, up 27.5p at 872.5p, fueled by speculation that Norway’s Statoil may be eyeing it as a bid target.
Tullow’s gains helped the FTSE 100 index take on 46.3 points at 6,737.6 by mid-morning.
Explorer wanted: Shares in Tullow were boosted by bid speculation today, with Norway’s Statoil seen as a predator
Elsewhere in the energy sector, market heavyweights Royal Dutch Shell and BP went in opposite directions after broker Exane BNP Paribas cut its rating for BP while improving the stance on its rival.
‘European Oils’ FY13 underperformance reflects, in our view, the severe erosion of confidence in the sector’s ability to improve returns and cashflows. That said, we feel that the moves towards greater capital discipline, asset sales and enhanced cash returns could be deepened in 2014,’ Exane BNP Paribas analysts said in a note.
‘This should restore investor confidence and demonstrate that Big Oils are not as structurally challenged as the market prices in … At the stock level, we are repositioning towards names with potential for positive surprise on the restructuring front: we upgrade Shell … and downgrade BP.’
In response, BP shares shed 4.8p at 490.6p, while Royal Dutch Shell gained 37.5p at 2,182.5p.
Among the mid caps, a broker upgrade benefited emergency repair firm Homeserve, helping its shares jump higher to 15.5p to 274.5p.
Meanwhile, shareholders in Cineworld welcomed a major deal that will see the multiplex operator spread its wings into Europe with a deal to buy Cinema City.
The merged group will have 201 outlets and 1,852 screens across Europe, with the addition of 966 from Cinema City making it the second largest operator in Europe behind Odeon UCI. Cineworld shares jumped 17.75p to 409.75p following the cash and shares acquisition, which values Warsaw-listed Cinema City at around 500million.
On the economic front, British manufacturing and broader industrial output were unchanged in November and construction fell sharply, tempering hopes that the economic recovery was broadening, official data from the Office for National Statistics showed today.
Economists had expected increases of 0.4 per cent for both manufacturing and industrial output.
Craig Erlam, market analyst for Alpari (UK) said: ‘The recovery is still fragile and is being largely driven by rising house prices which are in turn boosting consumer spending as people feel better off. For the recovery to become sustainable, we need to see more business investment which we’re not seeing enough of. Until we do, the recovery will remain fragile and any signs that the recovery is slowing will cause concerns in the markets.’
However, the UK NIESR GDP estimate, for the three quarters to December, which is due to be released at 3.30 pm this afternoon should still confirm that the British economy continued to perform well in the final quarter.
But it will be the all-important US monthly jobs report, due at 1.30 pm which will provide the day’s main direction.
‘As always, this is probably the most important economic release of the month. This is particularly true at a time when the Fed’s monetary policy is such an important driver in the markets as the central bank follows and analyses this release very closely. The Fed is currently in the process of winding down its asset purchase program, known as QE3, and this data is going to be key in determining the pace of tapering,’ Erlam said.
08.30: The Footsie pushed higher in early deals today, rallying after falls yesterday with traders awaiting key US jobs data which should show further strength in the world’s biggest economy and provide a platform for continued growth globally.
Traders expect US non-farm payrolls, due at 1.30 pm, to gain 196,000 jobs last month, slightly below November’s 203,000 gain, but a touch above the monthly average for the three months through November.
In opening trade, the FTSE 100 index was up 28.0 points at 6,719.5, recovering a good chunk of the previous session’s 30.44 points decline.
Friday gains: The Footsie found early gains on Friday as traders looked ahead to a key US jobs report
News on the British economy was slightly mixed today. Retail sales growth slowed in December despite signs of strong consumer confidence, data from the British Retail Consortium showed, raising some questions about the durability of the consumer-led recovery.
But construction firms saw record growth in work in the last three months of 2013 and expect similarly strong growth in 2014, an RICS survey showed on Friday, providing some hope that Britain’s recovery would continue.
Most Asian markets were higher overnight, with the exception of Shanghai which fell back after data showed export growth in China slowed more than expected in December due to a higher comparison base a year earlier and a clamp-down on speculative activities disguised as export deals, missing the official target on foreign trade.
However, Chinese import data grew, beating forecasts which could provide underlying support for the mining sector as China is the world’s biggest of metals.
Countering this good news for the miners, however, were results from US aluminium giant Alcoa which posted a massive quarterly loss and issued an outlook for stagnant growth in global demand for the metal.
Among the blue chip fallers, copper miner Rio Tinto shed 32p at 3,083p, while BHP Billiton lost 2.5p at 1,769.5p.
Stocks to watch include:
TULLOW OIL – State-controlled Norwegian energy firm Statoil is studying overseas acquisitions to reduce its focus on Norway and Tullow Oil is among targets it is studying, Bloomberg reported late on Thursday, quoting unnamed company sources.
JD SPORTS – The sportswear retailer said it was on track to post results in line with market expectations and added it had strong Christmas trading.
SHIRE -The drug maker has extended its tender offer for ViroPharma.
REXAM – Montagu Private Equity has entered advanced talks with Rexam to buy the beverage can maker’s healthcare packaging unit, two people familiar with the transaction told Reuters.
CINEWORLD – The cinema operator has announced plans to combine with rival Cinema City International. Cineworld Group, responding to a report it is close to buying Warsaw-listed Cinema City International’s (CCI) movie theatre operations, also confirmed it was in advanced talks.
GULFSANDS -The oil explorer said its third onshore Morocco well had proven to be a dry hole.
PERFORM GROUP – Perform, which owns digital rights through contracts relating to more than 200 events, said its chief financial officer was stepping down.
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