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UK and UK stocks hit fresh records: US awaits payrolls

  • FTSE 100 and S&P 500 futures hit new peaks
  • Japan’s Nikkei 225 reclaims the 20,000 mark
  • Dollar and Treasuries steady ahead of US jobs data
  • Brent crude prices hit three-week low
  • Iron ore breaks losing streak but gold falls

Hot topic
Resurgent risk appetite across global markets is helping to deliver a procession of milestones for equity benchmarks.

US index futures show the S&P 500, which closed at a record of 2,430 on Thursday, will add another five points when trading gets under way later in New York.

The Wall Street barometer tends to set the tone for other bourses and so London’s FTSE 100 is up 0.4 per cent to a 7,573, looking to close at its best ever level, while Germany’s Dax is adding 0.7 per cent to 12,757, less than 50 points shy of its record high touched less than three weeks ago.

Japan’s Nikkei 225 on Friday jumped 1.4 per cent to close above 20,000 points for the first time since early December 2015. Likewise, the broader Topix benchmark, up 1.6 per cent, recovered 1,600 points also for the first time in 18 months.

A number of other markets in Asia are also trading at or around multiyear highs. South Korea’s Kospi added 1.2 per cent to a fresh peak, while Taiwan’s Taiex is at its best level since early 2000. Hong Kong’s Hang Seng is at its highest since July 2015.

Investors are buoyed by signs of improvement in the global economy, which they hope will translate into greater corporate profitability.

Ian Williams, strategist at Peel Hunt, said cyclically focused parts of the global equity markets found the going tough during May, “with the reflation trade faltering and investors rotating back towards more defensive sectors”.

But “June has started on a much more promising note in response to another round of encouraging global PMI readings, notably in the eurozone”.

Equities are also being supported by a belief that better economic conditions are yet to translate into building inflationary pressures, allowing central banks to keep interest rates near historically low levels and for some, like the ECB and BoJ, to continue asset purchase programmes.

What to watch
Traders will be mindful of this “Goldilocks” growth scenario — not too hot or too cold — when the US non-farm payrolls report is released at 13:30 BST.

Analysts expect the world’s biggest economy added 185,000 positions in May — though some have nudged up their numbers after the ADP report on private sector employment, published on Thursday, was a forecast-beating 253,000.

The rate of US unemployment is expected to remain at 4.4 per cent, and average earnings to rise 0.2 per cent month-on-month.

But, any signs that wage inflation is accelerating and some investors may start calling into question Goldilocks’ longevity, prompting the Federal Reserve — which is widely expected to raise interest rates by 25 basis points on June 14 — to tighten policy at a faster pace.

Ahead of the NFP report, the dollar index is barely changed at 97.22 and the policy-sensitive 2-year government bond yield is steady at 1.30 per cent.

Ten-year Treasury yields are also becalmed at 2.22 per cent and equivalent maturity German Bunds are a fraction of a basis point firmer at 0.30 per cent.

Forex
Action in currencies is muted as Citi notes that the “looming [NFP] data has cast a long shadow over the FX market”.

The euro is up less than 0.1 per cent to $1.1218 and Japan’s yen is off 0.2 per cent to ¥111.59 per buck as it suffers from the broader market’s upbeat tone which is curtailing haven demand.

The British pound, which has endured some whippy trading of late as traders weighed the outlook for next week’s national election, is down 0.1 per cent at $1.2872 on Friday.

China’s renminbi is 0.2 per cent weaker at Rmb6.8151 per dollar, pulling back from a six-month high as policymakers were said to have supported the currency this week.

The Australian dollar is up 0.2 per cent to $0.7387, recovering from two days of hefty declines following disappointing economic data and weaker commodity prices.

The Aussie has been badly hurt by iron ore prices falling nearly 15 per cent in the past six sessions to trade this week at the lowest level since October.

But the Chinese ore contract is looking to end that losing streak, recovering 2.1 per cent on Friday.

Energy remains under pressure, however, as traders continue to fret that a glut will remain if Opec production cuts are counteracted by increased output from US drillers.

Brent crude, the international benchmark, is down 1.5 per cent to $49.87 a barrel, eyeing a fourth straight day of declines and the possibility of closing the week at its cheapest since May 10. West Texas Intermediate, the main US contract, is shedding 1.5 per cent to $47.62.

Gold is down 0.4 per cent at $1,261 an ounce.