Before the bell: Markets muted as US jobs report in focus
It was a mixed bag for European equity markets yesterday as the FTSE 100 closed modestly higher while the indices in mainland Europe posted losses. The same old themes were in the mix as the health crisis is playing on traders’ minds but at the same time, the news surrounding vaccines is doing the rounds too.
The UK is hoping to issue the first doses of the Pfizer-BioNTech vaccine within a few days, while it is looking likely that vaccines won’t be distributed in the EU until early January.
The European Medicines Agency (EMA) has received some criticism for not acting as swiftly as the UK regulator, but it is arguing that it is adopting a more in-depth approach to examining the drugs. “The relative underperformance of eurozone stocks could be attributed to the fact the EMA is taking longer to go through the authorisation process,” David Madden, market analyst at CMC Markets UK, tells City A.M. this morning.
The FTSE 250 was the standout performer of European indices yesterday but that was also on account of the optimism surrounding the UK-EU trade talks, Madden continued, pointing out that discussions are still ongoing and for the last two days, the negotiations continued on into the late hours. The Irish Foreign Minister, Simon Coveney, said yesterday that talks are approaching the ‘very end’. Sterling was lifted too on the back of the hopes.
Pfizer
Towards the end of the US trading session, Pfizer cut in half its planned vaccine delivery targets for this year on account of supply issues – raw materials didn’t meet their standards. Pfizer-BioNTech will up vaccine production in 2021 to make up for the difference.
“The update from the pharma giant caused the S&P 500 to retreat from its new intra-day record high. With respect to the proposed US coronavirus plan there is growing support for the $908bn package,” Madden said.
Markets in Asia are muted and European indices are tipped to have a quiet start as the US jobs update is on the radar.
US job figures today
The US non-farm payrolls report will be released at 1.30pm UK time and it is expected to show that 469,000 jobs were created last month, and that would be a drop from the 638,000 registered in October. The unemployment rate is tipped to be 6.8%, down from the 6.9% in previous update, and the yearly average earnings metric is expected to slip from 4.5% to 4.3%.
“A fall in wages could be viewed as positive for the economy as it could be an indication that more lower-income workers have returned to the workforce,” Madden clarified.
The participation rate in October ticked up to 61.7% – its joint highest reading since the health emergency happened. “It would appear that more people are actively looking for work and that should be interpreted as an increased sign of optimism within the labour market,” he said, adding that, during dire economic times, some unemployed people stop looking for work as the environment is so bad, and therefore it is encouraging to see the participation level edged up in October.
After much back and forth OPEC+ decided to row back on their production cuts of 7.7m barrels per day (mbpd) to cuts of 7.2 mbpd. The change in production will commence in January.
Service reports across Europe
The major economies of Europe revealed their latest services reports for November yesterday and the impact of the lockdowns was evident. “There was a clear drop off in activity but in most cases the readings were not as low as economists had predicted,” Madden explained, singling out France, as the country suffered the most as the metric tumbled from 46.5 to 38.8, while the British reading was 47.6, which easily topped the forecast of 45.8.
The dollar’s decent continued as it fell to a new 31 month low. US equities gained ground yesterday and the S&P 500 racked up yet another intra-day all-time high. Lately the greenback has attracted safe haven flows so it seems the dollar is suffering on account of the risk-on mood. “It is worth remembering that the Federal Reserve are committed to doing what it takes to assist the economy,” Madden said.
Gold was given a hand by the weakness in the dollar. Since Tuesday, the commodity has been recovering from the painful sell off that it endured in late November. “Further gains from here could run into resistance in the $1,850 area – which was a closely watched support region in recent months,” Madden concluded.