MARKET WRAP: Weak NFP but taper still on track, WTI breaks above $80

imageEconomy11 hours ago (Oct 08, 2021 16:33)

© Reuters.

Key Points

  • FTSE 100 closing price of 7,093.43, +0.2%
  • Nonfarm Payrolls misses expectations, unlikely to alter taper plans
  • Oil rises to multi-year highs
  • BP and Shell lift FTSE
  • IAG soars as UK cuts travel red list
  • US Dollar Index lower but remains above 94.00
  • Bitcoin remains elevated after test of $56,000

By Samuel Indyk – The FTSE 100 finished higher on Friday but failed to close above 7,100 with focus on the US labour market report. The US created just 194,000 nonfarm jobs in September, well below expectations of 500,000, according to the Bureau of Labor Statistics.

However, it wasn’t all bad with the unemployment rate dropping to 4.8% and average hourly earnings increasing. The labour market figures are unlikely to stop the Fed from beginning to taper asset purchases from next month’s meeting, but a larger headline figure would have likely cemented the decision.

“It makes it a much closer call, but we still narrowly favour it [Fed taper] happening,” said analysts at ING in an emailed note. “Private payrolls still posted a reasonable increase and with the wage story moving higher and companies struggle to find staff it continues to be a labour supply issue that is holding back jobs rather than demand.”

WTI and Brent crude futures resumed their upward trend after a midweek wobble with the former rising above $80/barrel for the first time since November 2014. The recent OPEC+ decision not to pump more than the already planned increase of 400,000 barrels per day (bpd) is continuing to support prices. The surge in natural gas prices is also having an impact with some analysts expecting the switch from gas-to-oil boosting demand by as much as 500,000 bpd.

With the continued jump in oil prices, Royal Dutch Shell (LON:RDSa) and BP (LON:BP) once again traded at the top of the FTSE 100. In a trading update this week, Shell detailed how they expect a boost to free cash flow in the coming quarter due to higher energy prices boosting their trading performance.

Elsewhere, British Airways parent IAG (LON:ICAG) saw its shares trade higher after the UK government updated its red list of countries – the nations where travellers returning from are mandated to undertake quarantine. 47 countries were removed from the list, including India, South Africa and Turkey, with only seven countries remaining.

The government also added that they plan on removing the need for a costly PCR test upon returning from abroad and instead allow cheaper lateral flow tests.

The USD maintained its losses after the soft nonfarm payrolls report although the US Dollar Index remained above 94.00 heading into the weekend.

GBP is set to have its best week against the EUR since May, with EUR/GBP dropping over 0.8% in the last five trading days as markets continue to bring forward their expectations of a rate hike from the Bank of England. On Thursday, Huw Pill, the Old Lady’s new Chief Economist, said the size and duration of the recent inflation increase is proving to be greater than previously expected.

Bitcoin remains above $54,000 after the recent surge took the price above the September high.

“After surviving multiple tests of $40,000, the cryptocurrency broke above $45,000 and from there the bulls were back in control,” said OANDA Senior Market Analyst Craig Erlam. “And they’ve made up some impressive ground on the back of that to now trade around $55,000, with sights firmly set on making new all-time highs.”


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MARKET WRAP: Weak NFP but taper still on track, WTI breaks above $80

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