US rig numbers rise again
US drillers added oil rigs last week for the sixteenth week in a row.
The Baker Hughes rig count showed 6 oil rigs added to give a total of 703, the largest number since April 2015. Two gas rigs were added to give 173.
The figures give an indication of the growing production from the US, although the pace of additions has slowed in recent weeks as the crude price held below $50 a barrel.
Following the release of the Baker Hughes figures, oil prices edged higher with Brent crude up 1.5% at $49.15, up from a 1% increase.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back on Monday.
European markets close higher
Ahead of the French election, investors seemed to be betting the more-market friendly Emmanuel Macron was likely to win the day, and pushed European markets higher. The moves came despite the better than expected US jobs figures doing little for the American market. On the French elections, Oliver Jones at Capital Economics said:
Investors breathed a sigh of relief after Emmanuel Macron claimed the largest share of the vote in the first round of the French presidential election, and there is scope for a further rally if, as opinion polls suggest, he wins Sunday’s run-off handsomely.
[But]we are not convinced that French bonds and the euro would stay strong for very long. For one thing, political risk will linger ahead of June’s National Assembly elections, especially if Macron doesn’t win the run-off by the wide margin that the polls suggest. A relatively narrow victory would increase the chances that Macron’s party, En Marche!, fails to secure a majority in those elections, which in turn would damage the prospects for his market-friendly labour reforms.
But ahead of all that, the final scores on stock markets showed:
- The FTSE 100 climbed 49.33 points or 0.68% at 7297.43
- Germany’s Dax rose 0.55% to a record high of 12,716.89
- France’s Cac closed up 1.12% at a nine and a half year high of 5432.40
- Italy’s FTSE MIB finished up 1.48% at 21,483.86
- Spain’s Ibex ended 1.11% better at 11,135.4
- In Greece, the Athens market added 0.68% to 753.99
On Wall Street the Dow Jones Industrial Average is currently down 10 points or 0.05%.
Oil bounces back
After the recent falls on worries about oversupply and the (lack of) effect of the producers’ attempts to cap suppliers, oil prices are heading higher again.
Brent crude is now up 1.9% at $49.32 a barrel having fallen as low as $46.64. Chris Beauchamp, chief market analyst at IG, said:
Oil prices have bounced this afternoon, recovering a significant portion of yesterday’s heavy losses, but other than a snap-back rally in an overstretched market there is little sign of a firm fundamental reason.
One piece of news was that China’s crude oil production was down 6.5% in the first quarter, but investors will be keen to see the latest Baker Hughes rig count this evening for an update on US production.
Tsipras says end of Greek austerity in sight
Over to Greece now. With another vote looming over painful pension cuts and tax increases – the price of emergency bailout loans to avoid default – the Greek prime minister has been busily trying to sweeten the pills today telling his own leftist MPS that the end of austerity is in sight.Helena Smith reports from Athens:
It has been four days since Greece cut a preliminary agreement with creditors that paves the way to disbursement of loans in return for more painful reforms and which should open the door to debt relief.
In theory all 153 MPs in prime minister Alexis Tsipras’ two-party coalition will also support the measures when put to parliament for vote on May 16. But disaffection is mounting in the ranks of Tsipras’ own Syriza party with many leftists openly questioning the wisdom of applying measures that will not only deepen Greece’s debt deflationary cycle – and in so doing aggravate a depression now longer and deeper than that suffered in the US in the 1930s – but further impoverish those already hit hardest by the crisis.
With his own legacy now at stake, Tsipras has launched a concerted effort to bring lawmakers on board, telling a gathering of his parliamentary group today that any surplus money will be used to ease the pain of the most vulnerable. After tough negotiations, he said, international lenders had finally agreed to the government’s demands that counter measures be instituted if fiscal targets and budget savings are better than expected.
“When the time comes, the government will hand out … what will be left after having exceeded its [primary] surplus [targets],” he said.
The preliminary agreement, to be complemented by further talks in the coming weeks, is expected to be harshly debated before the vote takes place. Measures include a 13th pension cut of as much as 18% and abolishment of tax breaks that will broaden the tax base.
With the entire opposition refusing to endorse the measures, it is imperative that ruling MPs, who have a narrow majority in the 300-seat House, back them.
“We are standing before a deal which gives us the prospect of an exit [from the debt crisis],” he told MPs, describing it as a “comprehensive agreement.”
“It is in our hand to vindicate the trust that the Greek people showed in us.”
But Tsipras also insisted that creditors “honoured” their side of the deal and outlined medium-term debt relief measures by the time eurozone finance ministers next meet on May 22. His wish is unlikely to be met. The German finance ministry also insisted today that debt relief would only come once the “current adjustment programme” expires in September 2018.
Updated
A U.S. rate hike in June is now a certainty according to market pricing. pic.twitter.com/RUOAsth11z
— Bond Vigilantes (@bondvigilantes) May 5, 2017
Mixed start for Wall Street
US markets are struggling for direction despite the better than expected April jobs figures.
The S&P 500 and Nasdaq Composite both opened more than 0.25 higher but the Dow Jones Industrial Average is currently 27 points or 013% lower, dragged down by a fall in IBM following reports billionaire investment guru Warren Buffett had sold about a third of his stake.
Back with the corporate world, and Pearson’s trading update may have pleased the market, but the company’s shareholders have just staged a revolt against the pay package awarded to chief executive John Fallon despite a number of profit warnings.
The story is here:
Monthly guide to interpreting non-farm payrolls:
— Andy Bruce (@BruceReuters) May 5, 2017
1. "Ooh!"
2. Check revision
3. "Ahh..."
US jobs figures: reaction
The better than expected non-farm payroll numbers mean another interest rate rise from the US Federal Reserve is very much on the cards, analysts believe. Here are some initial reactions to the figures:
James Knightly, senior economist at ING Bank:
Healthy jobs growth has returned and unemployment has fallen again, offering support to the Federal Reserve’s policy of gradually raising rates.
The April US jobs report has non-farm payrolls rising 211,000 versus the 190,000 consensus. There were 6,000 downward revisions to the past couple of months, but this is still much better than 79,000 outcome last month. There was also good news in the form of the unemployment rate surprisingly dropping to 4.4% from 4.5% (It was 4.8% just three months ago). Underemployment also fell sharply (8.6% versus 8.9% previously) to its lowest since late 2007, suggesting more and more people are switching from part to full time work.
The one disappointment was the fact annual wage growth slipped to 2.5% from 2.6% despite the month on month increase matching the 0.3% consensus forecast. The fact that we are still quite a way away from 3%+ wage growth means that there is no real pressure on the Fed to accelerate the pace of interest rate hikes.
Nonetheless, the rebound in employment offers support to the Fed’s assertion from earlier in the week that the slowdown in activity seen in the first quarter is “transitory”. This would suggest the FOMC members’ forecasts that they will hike rates by 25bp on two, possibly three more occasions this year, still holds. The markets remain a little more cautious, pricing in around 40bp of tightening while our official forecast is for just one 25bp hike.
However, this data is not helpful for our call and we will need to see activity numbers continue to disappoint and inflation to come in softer (which is possible given commodity prices). It is also likely that we will need to see President Trump’s tax and spending polices failing to make headway for the Fed to re-evaluate the prospective path of interest rates.
Kully Samra, UK Managing Director at Charles Schwab:
Today’s numbers from the jobs report represent a strong bounce-back following the disappointing figures recorded the month prior and are testament to a growing economy – also the March report reflected payback for weather-related strength in January and February. With the Fed hitting the pause button in May, the recovery in today’s employment data gives weight to the prospect of a further rate hike in June and the possibility of two or three more this year. We continue to believe the bull market in US equities will continue due to decent economic growth and a good profits picture driven by strong underlying fundamentals.
Dennis de Jong, managing director of UFX.com:
Following March’s surprisingly low non-farm payroll reading, both President Trump and Janet Yellen will be pleased to see it bounce back significantly in April. There have been a few bumps in the road for the Fed to navigate in recent weeks, but these are expected to smooth out in time.
Low levels of productivity growth is perhaps the biggest concern, although economic confidence remains high within the business community. It clearly hasn’t been plain sailing for the Fed, but the US economy still appears to be on the right path and a further two interest rate hikes this year remains the most likely scenario.
Naeem Aslam, chief market analyst at Think Markets UK:
The number released today is more than twice the March increase and this has provided much aid for the monthly average. The biggest surprise for investors in this report is your big drop in jobless rate to 4.4 % but there is one cloud here, the participation rate has fallen. Trump administration has made a big fuss about the participation rate and given that this rate has dropped even further, investors have the right to know what Trump’s admisnitration will do to address this problem.
Nonetheless, the data has shown that the there is a momentum in the economy and the recovery in the US economy still has strong legs to stand on. It appears that the Fed is on the correct side of the trade. Investors are more likely to believe the Fed’s stance that the weakness in the economic data is only transitory. In short, it is safe to say that we are not going to run into a recession that easily because we need a mammoth shock for that to happen. The jobs’ market is healthy and in order for this to become even more healthier, we need to see the real wage number to continue to improve. We know that inflation has improved, but the wages have not ripped higher that much and this leaves the US economy open to some shocks.
The fact is that as long as the US NFP number stays between 150-250K, the Fed is not going to change their current narrative much. Any number in this range pretty much supports Fed’s stance who thinks that the labour market will improve further. The story of bad weather is behind us and investors are considering this as a positive thing because they can no longer cloud Fed’s judgment.
Neil Wilson, senior market analyst at ETX Capital:
Not too hot and not too cold. As we needed it, today’s nonfarm payrolls are just right to nail on a June rate hike but not enough to make us think the Fed will turn more hawkish. After a big miss in March, the April number was a big beat at 211k.
Markets are pretty well taking this in their stride as the numbers don’t do anything to alter picture in favour of a hike in June and one more after that. The dollar is pretty well at the mid-point for the day against the yen. We saw a big swing in the euro-dollar rate but it’s also trading much on a level for the day. Cable is a shade higher with the pound trying gamely to hold on to the $1.295 handle but struggling.
Judging by these numbers the US labour market remains in rude health and should offer the Fed all the ammunition it needs to raise rates again in June. After some doubts were cast over the pace tightening by the first quarter GDP miss, the Fed looks justified in thinking this would be transitory.
The unemployment rate dipped a little to 4.4%, but with the labour force participation so poor that number means little overall. Earnings continued their steady but unspectacular rise, with a year-on-year gain of 2.5% marginally slower than the previous month,
Revisions were mixed – March was revised even lower, proving just what a big outlier that number was, while February was revised higher. Employment gains in February and March combined were 6,000 lower than we thought but that’s hardly enough to really matter.
We’ve seen a touch of volatility in the dollar but not a lot to worry about. The numbers were more than enough to confirm the base case that the Fed will continue with 2 additional hikes this year but taken alone does nothing to suggest policymakers should turn more hawkish than they have been.
The dollar has lost its initial gains following the employment report, with the yearly drop in wage growth seemingly hitting sentiment.
#Jobsreport April: payrolls strong +211k but wage growth slips +2.5%. #Unemployment rate falls to 4.4% as #participation rate drops to 62.9% pic.twitter.com/nrTZWLAUZv
— Gregory Daco (@GregDaco) May 5, 2017
Updated
The dollar has edged higher after the better than expected April job numbers, but there is little change in the futures market, with the Dow Jones Industrial Average forecast to open slightly lower.
The US jobless rate for April was slightly better than forecast at 4.4% rather than 4.6%, and better than March’s figure of 4.5%.
Average hourly earnings month on month were in line with expectations with a rise of 0.3%. But the year on year increase fell from 2.6% to 2.5%.
Updated
US jobs beat expectations
BREAKING:
The US non-farm payroll numbers for April have come in better than expected, with a 211,000 rise compared to expectations of a 190,000 increase.
But ast month’s figure, the surprisingly low 98,000, was revised down to an even lower 79.000.
February’s number though, was revised up from 219,000 to 232,000.
So the chances of April’s figure staying at 211,000 must be slim.
Updated
Petrol prices to fall?
The falling oil price could bring some good news for car owners. Patrick Collinson reports:
Motorists could see around 3p chopped off the price of petrol this weekend if supermarkets match the sharp falls in the underlying oil price, according to the RAC.
The national average price for unleaded should fall from 118p to 115p, the motoring group said, although it warned that many forecourts have been slow to pass on the savings and are instead increasing their profit margins.
Earlier this week most supermarkets cut their petrol prices by 1-2p a litre, falling to around 114p, but the RAC said they should now fall further.
The oil price has plummeted to a five-month low amid soaring US fracking production, weak demand in China and a failure by Opec to organise supply cuts to reduce the persistent global glut of crude.
The full story is here:
US jobs preview
Looking ahead to the US non-farm payroll numbers for April, and there is expected to be a strong recovery after the surprisingly weak figure for March. But there is plenty of divergence in analyst expectations.
Eric Lascelles, chief economist at RBC Global Asset Management:
Job creation could be on the order of 200,000-plus in April after the prior month’s weak 98,000 outturn. Employment growth has been edging slightly lower over time, but we don’t believe the deceleration was truly as sharp as claimed in the March figures. Most employment figures remain cheery and our model still points to above-consensus strength.
Unicredit economics team:
Non-farm payrolls likely rose a more solid 175,000 in April, following a disappointing 98,000 in March. The April report should represent the first “clean” report this year, with the numbers for the past several months having been affected by unusual weather patterns.
Looking through the monthly volatility, average employment gains have averaged 163,000 over the past six months, and 178,000 over the past three months. Weekly jobless claims indicators suggest that underlying momentum has not changed in several months. The jobless rate likely edged up again by 0.1 percentage points to 4.6%, a small technical correction after the rate dropped by 0.3 percentage points over the past two months.
Michael Hewson, chief market analyst at CMC Markets UK:
Today’s payrolls are expected to come in at 190,000 for April but there will also be particular scrutiny on any revision to the surprisingly low March number of 98,000, especially in light of the fact that the equivalent ADP number was so strong at 263,000. Weather related arguments don’t really stack up when there is that sort of divergence.
The unemployment rate is expected to tick up slightly to 4.6%, but the more important factor will be what wages do. Yesterday labour costs for the first quarter shot up to 3% from 1.3%, so you would expect to see equivalent inflationary pressures in average hourly earnings, however expectations here are for an unchanged number of 2.7%. Ultimately investors will be looking for evidence of a tightening labour market but thus far there has been little evidence of that despite jobless claims being at multi year lows.
Ipek Ozkardeskaya, senior market analyst at London Capital Group:
The expectation is 190,000, a touch superior to the 12-month average of 188,000. A solid read could revive the short-term US dollar bulls, while a second month of disappointment should dent the US dollar appetite before the weekly closing bell and help the euro and the pound fighting the 1.10 and 1.30 resistances respectively.
We warn that the hawkish Federal Reserve expectations may have shattered the upside potential in the greenback and the enthusiasm on an eventually strong read could be short-lived. The pricing in the market already factors in 93.9% chances of a June Fed rate hike.
Updated
Here’s a succinct summary of the oil situation from the Economist Intelligence Unit:
Oil mkts gloomy about #OPEC continuing its production restraint. We still think they will but too small given rising output elsewhere
— Robin Bew (@RobinBew) May 5, 2017
Updated
As well as the US non-farm payroll figures later, there are also the latest figures from Baker Hughes on the number of oil rigs working in the US last week. This of course has an influence on the crude price, showing as it does the growing US production which is offsetting the attempts by Opec and other producers to cap supplies. Here’s a Wall Street Journal graphic showing the Baker Hughes rig count and the oil price:
#Oil correction could go further until US rig count comes back to earth https://t.co/kINrjDCGbc pic.twitter.com/lsEIMkRtR0
— Nate Taplin (@nate_taplin) May 5, 2017
Updated
Joshua Mahony, market analyst at IG, said the decline in oil prices may have eased but there could be further losses ahead:
The FTSE has managed to recover early losses, as news-driven gains for the likes of Pearson, M&S and IAG dragged the index back into the green despite the negative sentiment from a week of plummeting crude prices.
It seems the markets have given up all optimism when it comes to OPEC’s ability to dictate oil prices. For whatever OPEC does from here, it will either be undermined by low conformity (if the cut is too large) or a like-for-like rise in US production (in response to higher prices). In a world where Donald Trump is encouraging even greater US production, there is reason to believe the losses seen this week could be just the beginning.
Here are the biggest movers in the FTSE 100:
And here are the sector movements:
After the drop in oil prices, there are now signs crude may be stabilising.
Brent has now edged up 0.5% to $48.65 a barrel after falling as low as $46.64. West Texas Intermediate - the US benchmark - is up 0.26%.
So the FTSE 100 - filled to the brim with oil sensitive commodity companies - has recovered from its early fall, and is now up 12 points or 0.17%.
British Airways owner beats forecasts
And British Airways owner International Airlines Group has soared more than 4% after a record first quarter performance.
Operating profits rose a better than expected 9.7% despite a 2.8% fall in revenues. Chief executive Willie Walsh said, “This is a record performance in the first quarter, traditionally our weakest quarter, with the improving trend in passenger unit revenue continuing.”
Updated
Pearson shares climb after update
Elsewhere educational specialist Pearson has jumped 10% making it the biggest riser in the leading index.
After several profit warnings, there was relief its latest trading statement was in line with forecasts, with underlying sales up 6%. However analysts at Shore Capital were not convinced, saying:
Although we see long-term growth in global learning spend as a potentially attractive opportunity for Pearson, we remain cautious on near term trading prospects and on the challenges involved in negotiating the substantial organisational and cultural change required to realign itself to a digital future. This morning’s update provides a degree of comfort on trading (in that it is not a warning), but another raft of reorganisation and repositioning provides further evidence of the complexity of this change process.
Updated
InterContinental Hotels boss to retire
For a Friday, there’s a lot of company news around. Apart from Marks & Spencer appointing Archie Norman as chairman which has lifted the retailer’s shares by 5%, there is news that Richard Solomons, the chief executive of InterContinental Hotels is retiring and will be succeeded by chief commercial officer Keith Barr. The news was accompanied by news that revenue per available room - a key indicator for the hotel sector - had jumped from 1.7% in the fourth quarter to 2.7% for the first three months of the year. But this was less well received, with InterContinental’s shares down more than 2%, making them the biggest faller in the FTSE 100.
Analysts at Numis moved from hold to reduce, saying:
The outperformance was mainly in Europe, which experienced a strong recovery in capital cities and benefited from a favourable trade fair calendar in Germany. Overall, first quarter growth was boosted by Easter falling in the second quarter which we estimate may have added 50-100 basis points to RevPAR.
Updated
The fall in oil prices bring them back to an appropriate level given the fundamentals of the market, says Norbert Rücker, head of macro and commodity research at Julius Baer :
Concerns about the persistent supply glut and US production growth pressured prices, with yesterday’s down move likely accelerated by long covering in the futures market. Scepticism about the effectiveness of the supply deal had grown in recent weeks with global oil inventories receding much slower than anticipated.
The revived US shale boom undermines the Middle East’s restriction efforts, among other sources of near-term supply growth. US oil production surpassed expectations in terms of an early bottoming and swift up tick, and is set to expand further based on the latest drilling momentum.
Prices are back to fundamentally justified levels and should somewhat tame the latest shale boom frenzy, which is necessary for longer-term stability in the oil market. An extension of the supply deal beyond June looks likely but its effectiveness will remain questioned.
The past months reveal the new oil market realities where the responsiveness and competitiveness of the US shale industry prevents prices from rising sustainably beyond $50 per barrel. On the other hand, we are unlikely to rewrite the story-book of last year’s oil collapse. We raise our view to neutral from bearish and roll our three-month price target to $47.5 from $50 per barrel. Moreover, with our target prices reached we close our short position in Brent futures initiated late January.
M&S appoints Archie Norman as chairman
Marks & Spencer has appointed retail veteran Archie Norman as its new chairman.
Norman, whose previous roles include Asda chief executive and ITV chairman, will take up the role from 1 September, replacing current chairman Robert Swannell who will retire from the board.
Norman, 63, said:
I am looking forward to taking on the role of the chairmanship of Marks & Spencer as the business under Steve Rowe’s leadership faces into the considerable challenges ahead in a rapidly changing retail landscape.
Investors have welcomed the news, with M&S shares currently up 3.6%.
European markets fall
Europe’s major markets have followed Asia lower in early trading, as the lower oil price weighs on shares.
The scores so far:
- FTSE 100: -0.1% at 7,243
- Germany’s DAX: -0.3% at 12,606
- France’s CAC: -0.5% at 5,347
- Italy’s FTSE MIB: -0.2% at 21,134
- Spain’s IBEX: -0.3% at 10,984
- Europe’s STOXX 600: -0.3% at 391
Brexit will 'stall' City of London, Goldman Sachs warns
Another Brexit warning, this time from the chief executive of Goldman Sachs, the world’s second largest investment bank.
Lloyd Blankfein said London’s financial centre would “stall” due to the turmoil of the Brexit process.
He told the BBC:
[The City] will stall, it might backtrack a bit, it just depends on a lot of things about which we are uncertain and I know there isn’t certainty at the moment. I don’t think it will totally reverse.
Blankfein said that he was hoping to avoid moving large numbers of staff out of the UK, but added the bank had held discussions in a number of European cities as part of Brexit contingency plans.
“We don’t have big plans now, we are looking – we are trying to avoid [it].
Obviously, a lot of people elect to have their European business concentrated in a single place, and the easiest place, certainly, for the biggest economy in the world [America] to concentrate would be the UK - the culture, the language, the special relationship, and we are an example of that.
The price of Brent crude oil has not been lower since November 2016, before Opec’s last agreement on production caps.
The FTSE is expected to open lower this morning:
Our European opening calls:$FTSE 7236 -0.17%
— IGSquawk (@IGSquawk) May 5, 2017
$DAX 12632 -0.12%
$CAC 5361 -0.21%$IBEX 11016 +0.03%$MIB 21141 -0.13%
The agenda: oil prices fall; US non-farm payrolls day
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Brent crude is down a further 2% this morning at $47.51 a barrel, the lowest level in more than five months.
So the sharp sell-off that began yesterday continues, and has driven shares lower in Asia, with the Hang Seng down 1% at 24,435.
A combination of concerns about slowing demand from China, rising oil production in the US, and a lack of commitment to further supply cuts from the Opec oil producing nations, are all weighing on prices.
US West Texas Intermediate crude oil was also down 1.9% at $44.66 per barrel.
Another key focus today will be the April non-farm payrolls report in the US, which is due to be published at 13.30 UK time. It is expected to show a pick-up in job creation last month, with 185,000 jobs added, compared with just 98,000 in March. Analysts will also be looking for any revision to that weaker-than-expected March number.
