Equity markets look to US employment report

June 3, 2016

European markets have got off to a positive start ahead of this afternoons keenly awaited US jobs data. Investors could do with some good news this week given that we’ve seen declines every day this week for the FTSE100, despite the fact that the oil price looks on course for its fourth successive week of gains, with Brent prices looking to gain a foothold above $50 a barrel.

The basic resource and oil and gas sectors are leading the gainers early on with BP leading the way on reports that it has settled a lawsuit in respect of the 2010 Gulf oil spill for $175m. Amongst the mining stocks on the up we have Glencore and Fresnillo.

On the data front the latest European services PMI’s pointed to a slightly softer picture in May with Italy slipping into contraction at 49.8, though Spain continues to outperform as the tourist season gets into full swing and seasonal jobs surge.

In the UK concerns about the health of the UK economy abated somewhat after services PMI for May came in much better than expected at 53.5 after slipping back to 52.3 in April. While the rebound is welcome it doesn’t completely alleviate concerns that Q2 will still be significantly weaker than Q1, but nonetheless it does give encouragement that the April slide may have just been a blip.

As we look ahead to the US open, companies in focus include Apple after its users experienced problems accessing the company’s services as a series of outages hit its iTunes and App store overnight. The problems appeared to be resolved after 7 hours but nonetheless the problems did generate quite a bit of negative chatter on social media.

On the retail front clothes retailer Gap reported May sales numbers came in better than expected which prompted a nice rebound in after-hours trade.

Having closed at its highest levels this year US markets are likely to find the bar quite high to further gains ahead of today’s payrolls numbers. What is clear that divisions remain among Fed policymakers about the timing of when rates should rise with Chicago Fed chief Charles Evans suggesting that it might be prudent to wait until inflation hits 2% before moving in comments made this morning.

It is expected that the US economy will have added 160k new jobs in May, while the unemployment rate is expected to drop to 4.9%. If the jobs number drops sharply to 130k or anywhere near that, quite possible given the Verizon strikes and the slowdown in manufacturing hiring then any prospect of a move in rates in June, already seen as fairly low could well diminish further.

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