On 06 November, 2015 – European markets were mixed on weak mining stocks
Stocks were mixed Friday — first in anticipation of the US employment report and later as a reaction to the report itself as analysts try to interpret what the report means for future Federal Reserve policy.
United States
Markets in the US were volatile Friday after the forecast-beating jobs figures were released. The dollar jumped after the figures were released as traders priced in a growing likelihood of a Federal Reserve interest rate increase in December. Bank stocks rose, helped by the possibility of higher interest rates while dividend-paying stocks such as utilities sank. Bond yields rose sharply as bond investors reacted to the jobs number as well. The Dow Jones industrials were up 0.3% and 1.4% on the week. The S&P was virtually unchanged on the day (down 0.73 point) but up 1.0% on the week. The Nasdaq added 0.4% and 1.8% for the day and week respectively.
October nonfarm payrolls added 271,000 jobs, the most since December and nearly 100,000 more than expected. The unemployment rate dipped to a seven year low of 5%. Expectations increased that the Fed would raise interest rates in December. That was evident in the performance of the US dollar, which surged. The euro, for example, was down 1.2% on the day.
The possibility of higher interest rates changes the dynamics for investors in several ways. Dividend-paying stocks, which are typically bought for their income when interest rates and bond yields are low, dropped declined. In contrast, bank shares rose sharply: Higher interest rates mean banks can charge more for lending. Shares of JPMorgan Chase, Bank of America and Morgan Stanley rallied. However, TransCanada dropped after the White House, after years of scrutiny, rejected the company’s proposed 1,200-mile Keystone XL oil pipeline. Weight Watchers jumped after the weight loss company reported better than third quarter results and raised its guidance. Disney also advanced after reporting better than expected fourth quarter adjusted earnings but revenues that were shy of estimates. Men's Wearhouse dropped after the clothing retailer slashed its third quarter and full year profit outlook. ZS Pharma jumped after Britain's AstraZeneca agreed to buy the biotech company for US$2.7 billion.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing dropped US$17.40 to US$1,088.90. Copper futures were down 0.6% to US$2.24. WTI spot crude was down 91 US cents to US$44.29. Dated Brent spot crude was down 56 US cents to US$47.42. The US dollar was up against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was up 1.5%. The yields on both the US Treasury 30 year bond and the 10 year note jumped 9 basis points to 3.09% and 2.33% respectively.
Europe
Stocks were mixed in Europe as well. The stronger than expected US jobs report convinced most investors that the Federal Reserve will begin increasing interest rates in December. Meanwhile, economic data were disappointing, with weaker than expected September German and British industrial production. Both the FTSE and SMI lost 0.2%. The CAC inched up 0.1% and the DAX added 0.9%. The FTSE was down 0.1% for the week but the other indices added 0.4%, 1.8% and 1.3% respectively.
Mining stocks were weak as commodity prices came under pressure. Luxury goods companies were also down following the disappointing financial report from Richemont. However, financial and bank stocks were among the best performing stocks. Allianz declined after reporting third quarter results. Banks including Commerzbank, Deutsche Bank, BNP Paribas, Société Générale and Crédit Agricole advanced. Daimler and BMW gained. Sanofi dropped after stating that it does not expect to show any meaningful bottom line growth over 2016-2017.
BHP Billiton declined after its mining dam collapsed in Brazil killing about 16 people in flooding. AstraZeneca decreased after it agreed to acquire ZS Pharma. International Consolidated Airlines Group gained after it raised its growth target for 2016 to 2020 to over 12% a year. Intercontinental Hotels Group climbed on reports that it is exploring a possible sale of the company. Richemont sank in Zurich after its results for the first half of the year fell short of expectations. Swatch also weakened.
German industrial production unexpectedly decreased for a second straight month in September, signaling that the slowdown in emerging markets, especially China, have begun to hurt demand. Output declined a seasonally and calendar adjusted 1.1% from the previous month. UK industrial production declined in September on the back of a sharp fall in oil and gas extraction, while manufacturing growth gained momentum. Output was down 0.2% on the month.
Asia Pacific
Stocks were mixed as investors stayed on the sidelines before the US employment report which would be released after markets here closed for the week. Mainland Chinese stocks posted strong gains for the third day running, with brokerages outperforming as ordinary investors returned to the market. The Shanghai Composite climbed 1.9% on the day and up 6.1% on the week. The Hang Seng however, dropped 0.8% but added 1.0% on the week. Standard Chartered shares came under selling pressure after Fitch ratings downgraded the bank's long-term issuer default ratings.
The Nikkei was up 0.8% Friday and 1.0% for the week. Bank of Japan Governor Haruhiko Kuroda voiced optimism on pace of economic recovery and reiterated that the BoJ will not hesitate to act, if necessary to achieve the inflation target at the earliest possible time. Honda Motor, Nikon and Canon advanced. Toshiba gained ahead of its half-year results due this weekend. Fast Retailing and Softbank were also up. Takata retreated after Toyota Motor joined Honda Motor in saying they would no longer use its components. Toyota Motor ended flat despite announcing a share buyback.
Both the S&P/ASX and All Ordinaries added 0.4% after they rebounded from early losses after the Reserve Bank said easy policy and a lower currency would support growth. The quarterly statement on the economy was upbeat even though the RBA lowered its growth and inflation forecasts. Both indices lost 0.4% on the week. Both banks and miners were mixed. The Kospi was down 0.4% on institutional selling. It was up 0.6% on the week. The Sensex slipped 0.1% Friday and was down 1.5% on the week.
Looking forward
Monday — Germany posts September merchandise trade. Canada releases October housing starts. In the US, the October labor market conditions index will be reported.
Tuesday — Australia reports September home loans. China releases October consumer and producer price indices. France and Italy post September industrial production. In the US, October NFIB and import/export prices will be released along with September wholesale trade.
Wednesday — the UK posts the October labour market report. In the US, banks are closed for the Veterans Day holiday but markets are open.
Thursday — Japan reports September machine orders and October producer prices. Australia releases its labour force survey for October. India reports October consumer prices and September industrial production. Germany and France report October consumer prices. September JOLTS along with the weekly jobless claims, money supply and Fed balance sheet will be released.
Friday — Germany, France, Italy and the Eurozone post flash third quarter gross domestic product. The Eurozone also posts September merchandise trade. The US releases October producer prices and retail sales, September business inventories and November preliminary consumer sentiment.
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.