Surprise fall in US unemployment supports equities
Stock markets on both sides of the Atlantic reversed morning losses following a shock drop in the US unemployment rate
Non-farm payrolls dropped just 11,000 in November—in stark contrast to the previous month, when 111,000 workers were knocked off the payroll—surprising everyone as consensus had been for a drop in the region of 120,000-150,000. The relatively small number of job losses was the best showing since the US fell into recession two years ago. The unemployment rate, which had been forecast to at least remain at October’s 10.2% level or to perhaps tick up a few fractions of a percent, edged down to 10.0% last month. Watch this video on the sustainability of the much-better-than-expected employment situation.
Though the figures clearly don’t mark the end of the struggle for the US labour market, it provided enough cheer for stock markets in both the US and Europe to reverse morning losses.
As such, while Wall Street traded flat, the FTSE 100 index recouped earlier falls to close just a handful of points higher, in line with European peers. The UK benchmark index finished 7.6 points ahead at 5,320.6, up 0.1% on the day, while the FTSE 250 index added 14.7 points or 0.2% to settle at 9,190.5.
Defensive plays accounted for much of the upward force, offsetting a weaker mining sector and extended falls from banking groups Standard Chartered and Royal Bank of Scotland.
RBS has reportedly backed down after previously threatening a boardroom walk out over the government’s plans to restrict bonus payouts in an attempt to avoid a battle with the Treasury. Both RBS and Standard Chartered are among those European banks exposed to Dubai World—shares in each fell back 3.6% and 1.4% on Friday, respectively.
London-listed metal extractors were the main downward force on the blue-chip index as the price of gold continued its retreat from a recent record high and investors took the reassuring US employment figures as an excuse to switch out of the ‘safe haven’ of the yellow metal. Randgold Resources dropped 4.3%, Xstrata lost 3.4% and Lonmin shed 2.6%.
Real estate investment trusts were also down in the dumps on the readacross from mid-cap housebuilder Berkeley’s disappointing first-half results. Berkeley slipped 1.8% on the FTSE 250 index, while peers Persimmon, Redrow and Barratt Developments eased 2.5%-2.7% each. Returning to the top line, commercial property stocks Hammerson, Liberty International, British Land and Land Securities shed 0.9%-2.4% apiece.
Cadbury was another underperformer on Friday, 0.6% weaker, as hostile bidder Kraft formally posted its offer terms to Cadbury shareholders. The US firm is offering 300p in cash and 0.2589 new Kraft shares for each share in the UK confectioner, effectively valuing Cadbury at just under £10 billion. The offer was rejected by Cadbury as derisory.
On the upside, pharmaceuticals giants AstraZeneca and GlaxoSmithKline, alcoholic beverage manufacturers SABMiller and Diageo, and tobacco producers British American and Imperial each climbed between 1.3% and 2.6% as investors sought out stocks with defensive characteristics.
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