London close: Stocks higher as investors digest US jobs data

3rd Jul 2024 15:04

(Sharecast News) - London's stock markets closed on a positive note on Wednesday, buoyed by a wave of economic data from the United States and renewed hopes for interest rate cuts.

The FTSE 100 index rose by 0.61%, ending the day at 8,171.12 points, while the FTSE 250 saw an even stronger performance, climbing 1.66% to close at 20,529.42 points.

In currency markets, sterling was last up 0.6% on the dollar, trading at $1.2761, while it edged up 0.1% against the euro to change hands at €1.1817.

"UK stocks are in a positive mood on the final day of election campaigning, with most investors looking forward to the installation of a Labour government with a large majority, providing stability and removing political risk from the outlook for the time being," said IG chief market analyst Chris Beauchamp.

"When the election is out of the way, the next focus will be a possible UK rate cut, helping to give the economy a much-needed shot in the arm.

"Prominent among today's gainers have been miners, boosted by a weaker dollar and rallying commodity prices."

Beauchamp said that while US markets had started the session quietly thanks to poor ADP payrolls and ISM numbers, stocks in Europe were continuing to roar higher.

"As expected, a swathe of candidates in the French elections have stood down, allowing for a united front against the far right.

"While this means France is set for a period of political deadlock, it does mean that neither left nor right will have the upper hand.

"In the short-to-medium term, this should help European equities to keep moving higher, though the longer-term view is less encouraging."

US jobs data, UK services sector in focus

In economic news, fresh figures from the US Department of Labor showed an increase in initial jobless claims in the US.

For the week ended 29 June, claims rose by 4,000 to 238,000 from the prior week's revised level of 234,000.

That kept claims near the 10-month high of 243,000 recorded earlier in June.

Continuing claims also increased by 26,000 to 1.85 million, with the four-week moving average rising by 2,250 to 238,500, highlighting ongoing labour market challenges.

Private sector employment in the US meanwhile saw a less-than-expected rise in June, according to ADP.

Employment grew by 150,000 jobs, falling short of the anticipated 165,000, while May's figures were revised up slightly to 157,000 from 152,000.

Job gains were noted primarily in medium-sized businesses, which added 88,000 positions.

The service sector contributed significantly with 136,000 new jobs, whereas the goods-producing sector added 14,000 jobs.

However, the rate of annual pay increases for job-stayers slowed to 4.9%, the slowest since August 2021, with pay gains for job-changers also decelerating to 7.7%.

"Job growth has been solid, but not broad-based," said Nela Richardson, chief economist at ADP.

"Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month."

On another note, the Institute for Supply Management reported a sharp slowdown in US services sector activity for June.

The services PMI fell to 48.8 from May's 53.8, against expectations of 52.5.

Key subindices showed declines, with production dropping from 61.2 to 49.6, new orders from 54.1 to 47.3, and employment from 47.1 to 46.1.

Price pressures slightly eased, with the price subindex decreasing from 58.1 to 56.3.

"Alongside a decline in the ISM manufacturing index, these surveys suggest that GDP growth will remain weak in the third quarter," said Olivia Cross, North America economist at Capital Economics.

"They also add to evidence that labour demand is softening, and inflation will remain on a downward trend."

On home shores, the growth rate in the UK services sector softened in June, influenced by the upcoming general election.

The S&P Global UK services PMI business activity index declined to 52.1 from May's 52.9, the slowest growth since November.

The composite output index, which includes both services and manufacturing, fell to 52.3 from 53.0 in May.

Respondents indicated a slowdown in new business and job creation, as clients waited for the election outcome before making decisions.

"We are seeing some evidence of a pre-general election seize-up across the UK services economy, with growth in business activity slowing to a seven-month low in June," said Joe Hayes, principal economist at S&P Global Market Intelligence.

"Nevertheless, we're on track for another quarter of GDP growth, according to the composite PMI data ... albeit one that will be less punchy than the first quarter's 0.7%.

"The recovery of the UK economy from its late 2023 lull adds another dynamic for policymakers to consider, should strong economic conditions motivate more companies to raise their prices."

The eurozone meanwhile experienced a slowdown in growth for June, driven by a weak manufacturing sector.

The HCOB eurozone services PMI was revised to 52.8, slightly up from the initial 52.6 but down from May's 53.2, marking a three-month low.

The composite PMI, combining services and manufacturing data, fell to 50.9 from 52.2 in May, indicating softer growth across the region.

Finally on data, China's services sector growth also eased, hitting an eight-month low in June.

The Caixin services PMI dropped to 51.2 from 54.0 in May, below the expected 53.4.

Despite that, the index remained above the 50.0 threshold that signifies expansion, although at a reduced pace.

Diageo in the green, JD Sports and 3i fall

On London's equity markets, Diageo climbed 1.83% following an upgrade to 'buy' from Citi.

The firm highlighted that with earnings and valuation metrics bottoming out and destocking headwinds likely diminishing, positive earnings momentum is expected in 2025.

Citi anticipated that Diageo's upcoming 2024 results in July would be a pivotal event, encouraging investors to reconsider the company's long-term growth potential.

Baltic Classifieds Group saw a substantial increase of 4.36% after reporting a 20% jump in full-year EBITDA and a 19% rise in revenue.

The company attributed the strong financial performance to robust growth across its various business lines.

Vodafone Group edged up 0.29% after the company and Virgin Media O2 announced an extension and enhancement of their existing mobile network sharing agreement for over a decade.

The agreement included plans for a new company that would invest £11bn in the project, contingent on the merger of Vodafone and Three.

Direct Line Insurance Group reversed earlier losses to close up 0.87%, despite Berenberg lowering its price target for the stock.

The bank cautioned that the risk of disappointment for investors was rising.

Wizz Air Holdings gained 0.29% following the departure of its president, Robert Carey, prompting a senior management reshuffle.

Carey, who joined Wizz in 2021 from easyJet, left to pursue other interests.

On the downside, JD Sports Fashion fell 4% after a downgrade to 'underweight' by Barclays.

3i Group dropped 1.22%, influenced by a downgrade from Morgan Stanley to 'equalweight' from 'overweight'.

The bank reduced the price target to 3,192p from 3,246p, noting that the risk/reward balance has become more neutral following a strong performance.

Despite 3i's appeal due to strong assets, the valuation nearing historical peaks and anticipated modest growth led to the downgrade.

Outside the FTSE 350, Keywords Studios rose 2.67% after announcing a takeover by European private equity firm EQT in a deal valued at £2.1bn.

Reporting by Josh White for Sharecast.com.

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FTSE 100 (UKX) 8,171.12 0.61%

FTSE 250 (MCX) 20,529.42 1.66%

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