US Unemployment Down, Markets Up
Global markets rallied on Friday after the latest US jobs figures showed a surprise drop in America’s unemployment rate.
The FTSE 100 reacted by adding 43 points, or 0.7%, to close at 5,871. The benchmark large-cap index has rallied by just over 2% since the start of the week. Meanwhile, the FTSE 250 also jumped by 107 points, or 0.9%, to close at 12,061. The mid-cap index has risen by nearly 3% this week.
“A dramatic set of jobs data out of the US gave both stocks and the US dollar a knee jerk lift in trading on Friday afternoon with the data showing a surprising fall in the US unemployment rate to 7.8%,” said Joshua Raymond, chief market strategist at City Index.
“The big news about the US labour data is actually not what happened in September, but indeed of the hugely positive revisions made to jobs data for both August and July and the drop in the unemployment rate. A whopping 86,000 jobs have been added to July and August payrolls in a perplexing set of revisions. In September’s jobs data, non-farm payrolls added 114,000 jobs, in line with forecasts and private payrolls added 104,000, short of the 130,000 consensus,” he said.
“The US unemployment rate is now at its lowest levels since January 2009, which is a real surprise,” he said.
Implications for the Upcoming US Election
Many market commentators are pointing out that the US employment numbers could have an impact on the upcoming US presidential elections.
"This report is the most significant report before the US Presidential election on 6 November, so today’s data was always going to be loaded with political importance," said Kathleen Brooks, research director at FOREX.com. "The decline in the unemployment rate is being considered positive for the Obama campaign and is attracting scepticism from Republicans. This makes future months’ data even more important than usual to see if the September data is the start of a trend or just a blip."
Spain's Sustained Pains
Meanwhile, back in Europe, uncertainty continues to persist, with investors questioning if and when Spain will formally ask for a bailout.
“After weeks of speculation we are still no closer to knowing when Spain will finally take the poisoned chalice and accept a bailout,” said Chris Beauchamp, market analyst at IG.
“Financial markets remain stuck in the middle of a standoff between Madrid and the European Central Bank (ECB); the bank will happily lend assistance, but [Prime Minister] Rajoy needs to ask for it, and he still seems unwilling,” said Beauchamp. “Perhaps only real pressure in the bond markets will force his hand, and if he continues to delay then this may become the only means of securing real action.
Three Quarters Down, One To Go
Looking ahead to next week, earnings updates are on the horizon.
"Earnings updates are fast approaching from some of the biggest names in the US," said Mike van Dulken, head of research at Accendo Markets. "As is tradition, aluminium miner Alcoa (AA) kicks off the US Q3 reporting season next Tuesday, setting the scene for the key resources sector. From mining, the excitement moves to
JP Morgan (JPM) [on] Friday for the first update from the equally important banking sector.
"Both companies and their sectors can influence global equities with their communications," warns van Dulken. "With so much of the financial year out of the way, they are in a better position to give guidance for full-year results. In many cases Q3 financials will be a sideshow, with Q4 and thus full-year guidance being the information that moves the markets on both sides of the Atlantic. How they see the rest of the year panning out can have a bearing on how Q1 is expected to fare and thus how the next financial year begins."
Weekly Market Updates
Monday: Unexpected Monday Market Rally
Tuesday: Mixed Emotions on the FTSE
Wednesday: Investors in Wait-and-See Mode
Thursday: UK Markets Remain Range-Bound
Market Performance (October 1 - 5)
FTSE 100: +2.25%
FTSE 250: +2.79%
FTSE All Share: +2.24%
FTSE Small-Cap: +1.30%
FTSE AIM 100: +0.20%
FTSE Fledgling: +0.88%
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