FTSE 100 and 250 Jump after U.S. Jobs Data
Ninety-four out of 100 stocks listed on London’s FTSE 100 Index headed higher on Friday, pushing the index up by 1.8%, or 105 points. The index is now ending the week at 5,901 points, edging its way closer to the 6000-point level. The FTSE 100 has not traded at this level since July 2011.
The market rally was spurred by U.S. economic data showing the American economy created jobs in January at the fastest pace in nine months. The job creation pushed the unemployment rate down to a near three-year low at 8.3%, down from 8.5% in December. The report highlighted significant job additions in professional and business services, leisure and hospitality, and manufacturing.
“U.S. non-farm payrolls blasted past market expectations in January with non-farm payrolls increasing [by] 243,000 when a drop had been expected, giving stocks a strong lift,” said Joshua Raymond, chief market strategist at City Index. “This is a really stellar set of numbers and has surprised many who had expected slow[er] jobs growth after the December holiday period. Not many had predicted U.S. jobs to be this strong at this stage and the market reaction was quick and bullish, with the FTSE 100 rallying an immediate 1% to hit new highs above 5860 ... Make no mistake, the U.S. jobs data was a real surprise ... boost[ing] optimism that the U.S. economic recovery continues. This jobs report didn’t just beat market consensus, it smashed it.”
The U.S. economic news also helped give a boost to the FTSE 250 Index, which added 149 points, or 1.3%, to close the week at 11,235.
Glencore (GLEN) and miner Xstrata (XTA) were notable gainers on Friday. Their shares rallied by another 4.5% and 4.3%, respectively, after huge rallies during the previous trading session. Xstrata announced on Thursday that the two companies were in late-stage discussions about a “merger of equals,” which would create a global mining giant.
Below is a summary of other political, economic and business news that affected the markets this week.
Unemployment Rises Across Eurozone, Highlights National Fault-lines
The release of December unemployment data for the eurozone member states this week highlighted the growing divide between core and periphery nations. Broadly-speaking, the eurozone unemployment rate increased to a euro-era high of 10.4% despite news that German unemployment edged down to 5.5%--the lowest since reunification in 1991. The strength of the German labour market could not present a starker contrast with peripheral nations. Spain, Ireland, Greece and Portugal all registered increases in unemployment during December. Spain, in particular, continues to struggle in dealing with its crippling unemployment rate of 22.9%.
ECB Helps Eurozone Yields Fall, One Way or Another
Since the ECB's introduction of three-year long-term refinancing operations (LTROs), markets have shown a renewed appetite for eurozone sovereign debt. During the week, debt auctions in both Spain and France were oversubscribed, and 10-year yields fell to more manageable levels of 5.4% and 3.1% respectively.
Unlike Spain and France, however, Portugal's debt markets have not responded nearly as favourably to the introduction of LTROs. Following default concerns reverberating in Portugal's debt markets last week, the European Central Bank (ECB) stepped in and purchased Portuguese debt on Monday and Tuesday in an attempt to ward off further increases in borrowing costs. In response to the intervention, yields promptly fell for Portuguese long-term and short-term debt, albeit modestly. Today, 10-year yields on Portuguese debt stand at 15.38%.
Global Manufacturing Data Points to a Turnaround
Purchasing Manager's indices (PMI) rose for the world's largest manufacturing nations this week indicating output expansion and boosting market sentiment about progress towards global economic recovery. The PMI indices are tabulated by Markit Economics and take into account output, new orders, inventory, and employment--broadly speaking, a reading above 50 indicates expansion. Globally, in a survey of 30 countries, the PMI reading was 51.2 for January. In Europe, national fault-lines were readily apparent as Germany's PMI shot up to a six month high of 51 while Greece’s PMI fell to 41. Across the pond, the US PMI surged to 54.1, failing to meet market expectations of 54.5 but nonetheless indicating healthy expansion.
