The FTSE 100 managed a slight uptick on Friday, closing 7.73 points higher at 10,368.05, despite facing pressure from declining mining shares. This modest gain comes as Wall Street experienced a downturn following unexpectedly robust job figures in the United States, which have raised speculation about an imminent interest rate hike by the Federal Reserve.
Market Performance Overview
In contrast to the FTSE 100’s resilience, the FTSE 250 fell by 241.91 points, or 1.0%, settling at 23,060.74, while the AIM All-Share index dropped 10.99 points to 797.27, marking a decline of 1.4%. Over the week, the FTSE 100 recorded a loss of 0.4%, the FTSE 250 decreased by 1.6%, and the AIM All-Share declined by 2.6%.
Across the Channel, European markets reflected similar sentiments; the CAC 40 in Paris closed down 0.3%, and Germany’s DAX 40 fell by 0.8%.
Wall Street’s Response to Job Growth
On the New York stock exchange, the Dow Jones Industrial Average fell by 0.3%, the S&P 500 was down 1.2%, and the Nasdaq Composite saw a decline of 2.2%. The catalyst for this shift was the release of US non-farm payroll data, indicating an increase of 172,000 jobs in May, significantly surpassing the expected rise of 85,000. Additionally, April’s job figures were revised upwards to a gain of 179,000, while March’s figures were also adjusted to reflect an increase of 214,000, up from an initial estimate of 185,000. The unemployment rate remained steady at 4.3%.
TD Economics analysts commented on the implications of this data for the Federal Reserve, stating, “The narrative has clearly shifted from when they’ll cut again to if their next move is even a cut. Yields across the curve jumped higher post-payrolls, with Fed futures now fully pricing in a rate hike by year-end.” They anticipate that the upcoming Federal Open Market Committee (FOMC) meeting on June 17 may signal a shift in policy tone towards a more hawkish stance, reflecting the strengthening labour market.
Sector-Specific Developments
The leisure and hospitality sector saw significant job creation, adding 70,000 roles last month, well above its average monthly gain of 14,000 over the past year. Diane Swonk, KPMG’s chief economist, noted that this increase was the largest since January 2023, bolstered by hiring related to the forthcoming World Cup matches co-hosted by the US.
The positive job data led to a stronger dollar and rising bond yields, with the yield on the US 10-year Treasury climbing to 4.54% from 4.47% the previous day. The 30-year Treasury yield also increased to 5.01% from 4.97%. In currency markets, the pound fell against the dollar, trading at 1.3371, compared to 1.3436 the day before, while the euro also weakened against the dollar, trading at 1.1542.
Domestic Economic Outlook
In the UK, businesses have indicated a moderation in their price increase expectations following the Iran conflict, although over half still plan to raise prices in response to energy cost pressures, according to Bank of England data. The latest Decision Maker Panel survey revealed that firms expect to increase prices by 4% over the next year, a slight reduction of 0.4 percentage points from April’s predictions. Barclays analysts highlighted the absence of accelerating inflation expectations, suggesting a potential stabilisation in the market.
On a sector-specific note, the FTSE 100 saw notable gains from Imperial Brands, which rose by 75.0p to 2,761.0p, and Unilever, which increased by 110.5p to 4,188.5p. Conversely, mining companies took a hit, with Fresnillo down 198.0p at 2,986.0p and Antofagasta dropping 240.0p to 3,970.0p.
Why it Matters
The slight upward movement of the FTSE 100, juxtaposed against the broader declines seen in Wall Street and European markets, underscores the complexities facing global economies. As robust job growth in the US raises the spectre of tighter monetary policy, UK firms are grappling with inflationary pressures while adjusting their pricing strategies. This delicate balance will be crucial in determining the future trajectory of both the UK and global economies, as businesses and investors navigate an increasingly volatile landscape shaped by geopolitical events and shifting economic indicators.
