FTSE 100 posts biggest jump since March as US economy adds 339,000 new jobs – as it happened

And finally, the London stock market has racked up its best day since late March.

The blue-chip FTS 100 index has closed 117 points higher at 7607 points, up over 1.5% today.

That recovers its losses earlier this week, when recession worries were weighing on the markets.

Insurance group Prudential (+5.6%) was the top riser, followed by copper miner Antofagasta (+5.5%) and commodity giant Anglo American (+5.15%).

Analysts at ABN Amro sum up today’s jobs report:

The takeaway is that the labour market remains both exceptionally strong on the demand side, as signalled by the jobs numbers, but we also see that layoffs are increasing, leading to a rise in unemployment.

This is corroborated by the Challenger job cuts report for May, which shows layoffs somewhat on the high side, though by no means consistent with recession yet. Meanwhile, the JOLTS job vacancy report for April – also released this week – showed a rise in vacancies and an upward revision to previous months, suggesting a lower likelihood that excess demand for labour can be eliminated without a meaningful rise in the unemployment rate.

And that’s all for this week. Have a lovely weekend. GW

The White House has hailed today’s jobs report, pointing out that it extends the jobs gains under the current administration:

Employment has risen pretty steadily since the restrictions imposed to fight the Covid-19 pandemic were eased.

The bipartisan bill to solve the US debt ceiling crisis just days before a catastrophic and unprecedented default is on its way to Joe Biden’s desk, as the US president prepared to address the nation and hailed “a big win for our economy and the American people”.

The compromise package negotiated between Biden and House Speaker Kevin McCarthy passed the US Senate late on Thursday.

Biden acknowledged that it leaves neither Republicans nor Democrats fully pleased with the outcome. But the result, after weeks of torturous negotiations, shelves the volatile debt ceiling issue until 2025, after the next presidential election.

“No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” Biden tweeted after the Senate voted 63 to 36 to pass the deal agreed between Biden and McCarthy last weekend, which passed the House on Wednesday.

Encouraging:

A quick recap:

High interest rates, a recent banking crisis and Washington’s fight over the debt ceiling may have shaken the US economy recently, but the US jobs market continues to show signs of strength.

The US Bureau of Labor Statistics (BLS) reported 339,000 jobs were added in May, surpassing forecasts that predicted the increase would be approximately 190,000 jobs and a sign of continued growth from the jobs market despite the Federal Reserve’s continuing efforts to cool the economy.

But, the US unemployment rate has risen to 3.7%, and wage growth cooled last month.

The latest jobs report has pushed up shares on both sides of the Atlantic, with investors also relieved that the Senate narrowly passed a bill to suspend the debt ceiling on Thursday night.

The pound is track for its best week against the US dollar this year, with the Bank of England expected to keep raising interest rates this year to fight inflation.

World food prices have dipped to their lowest level in two years, as the shock caused by Russia’s invasion driving up commodity prices fades.

Ireland’s domestic economy has escapted a shallow recession, by returning to growth in the first three months of the year.

France is bracing for a possible credit rating downgrade from Standard & Poor’s tonight, when the agency updates its assessment.

A network of underground geothermal plants is being touted as a way to help level up the UK after a report discovered many areas with the greatest geothermal potential lie beneath the towns and cities most in need of investment.

Britain’s electricity system operator is to tell energy developers to get on with their projects or get out of the queue for a grid connection as it struggles to manage the growing backlog of delayed green energy projects.

More than 20,000 rail workers in England have begun a 24-hour strike that will cancel half of the services on affected lines as part of a long-running dispute with train operators over jobs, pay and conditions.

Fiat has called on the government to boost incentives for British motorists to buy electric vehicles, after warning that growth in UK sales of the vehicles has tailed off after a key subsidy was scrapped last year.

Shareholders in Purplebricks have voted overwhelmingly to sell the online estate agent for only £1 to Strike, a competitor backed by the telecoms tycoon Sir Charles Dunstone.

Ireland aren’t having the best day at Lords (where England are rollicking along at 465 for 2), and the economic picture in the Republic is a little mixed too.

On the upside, Ireland’s domestic economy has returned to growth in the first three months of the year after a shallow recession, data showed on Friday.

Ireland’s finance minister, Michael McGrath, said momentum was set to continue as the country hits full employment:

“Incoming data suggest that momentum has continued into the second quarter, bolstered by a record low unemployment rate of 3.8% registered in May.”

However, Ireland’s GDP fell 4.6% in the first quarter, a sharp fall. But, GDP is a volatile measure of Ireland’s economic performance, as it can be disruped by multinational companies.

Stocks are pushing higher in London, too.

The blue-chip FTSE 100 index is now up 97 points, or 1.3%, at 7587 points, on track for the biggest one-day jump since 21 March.

Paul Ashworth, Chief North America Economist at Capital Economics, points out that there are sighs of weakness in the US jobs report.

Ashworth says:

The bigger-than-expected 339,000 increase in non-farm payroll employment in May will dominate the headlines, but the employment report was not all positive – with a big drop in the household survey measure of employment driving the unemployment rate up to a seven-month high of 3.7% and average weekly hours worked edging down to a three-year low.

[such weakness could encourage the Fed to resist further rate hikes].

May brought the largest increase in US jobs since January, points out Josie Anderson, managing economist at Centre for Economics and Business Research.

Anderson explains:

“The number of US non-farm payrolls increased by 339,000 in May, roughly in line with the average job additions recorded in the 12-month period to April 2023, of 341,000. It is the first time since January that the increase in payrolls has stood above 300,000, bucking the broadly downwards trend in additions.

After last week’s acceleration in PCE inflation, today’s data on net payroll additions add to the likelihood of another Fed rate rise later this month.”

Shares are rallying in New York in early trading.

The Dow Jones industrial average, of 30 large US companies, has jumped by 351 points or 1.1% at 33,413.

The broader S&P 500 is also 1% higher, while the tech-focused Nasdaq Composite has jumped by 1.1% to its highest level since April 2022.

Simon Harvey, Head of FX Analysis at Monex Europe, says:

A monstrous 339k jobs were added in May, up from an upwardly revised 294k in April. This net employment increase is the largest since January’s whopping 472k figure, which sparked markets to price in a higher terminal rate for the Fed – a contributing to the start of the regional banking crisis just a month later.

Although, despite the recent uptick in the pace of employment, it is worth noting May’s gains are in line with the series +341k twelve-month average. While the net employment figure suggests that labour demand is yet to come off the boil, the rest of May’s jobs report was on the soft side, leaving the market-implied odds of a rate hike from the Fed in June relatively low.

Bad news for US borrowers: Another interest rate hike is in the bag, after today’s jobs report.

That’s the verdict of Seema Shah, chief global strategist at Principal Asset Management, who also argues tha hopes of rate cuts this year are misplaced.

Shah says:

May’s blow out jobs report, combined with an upward revision to April, means that the Fed’s job is not yet done. The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency in the FOMC? Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July.

But overall, this is not a labour market that is slowing – and if it’s not slowing, then inflation isn’t coming down to 2%.

In the past month, incoming economic data has emphasised the continued stickiness of inflation and resilience of the labour market. Markets have repriced their rate outlook significantly but are still over-optimistic about the prospects of rate cuts this year. With May payrolls almost double the average monthly gain in the 10 years pre-pandemic, what reason would the Fed have to cut rates?”

Today’s US jobs report could spur some Federal Reserve policymakers to push for another increase in interest rates this month.

So says Neil Birrell, chief investment officer at Premier Miton Investors, who explains:

“Expectations of a rate rise have been flip-flopping this month, and the employment data has now shown a surprisingly large increase in payrolls.

This may well flip markets back to pencilling in a hike.

The Fed has said it is data dependent and what it reads into this is therefore crucial. This will undoubtedly give plenty of support to the more hawkish members of the Fed.”