Oil slumps, pulling FTSE lower

- US wages fail to keep up
- ADP payrolls show marginal gains
- Volatility rising ahead of jobs report
- Oil stocks rise, prices fall, miners tumble

European and US markets spiked higher today following a somewhat limp ADP payrolls and unit labour cost numbers out of the US. Tumbling unit labour costs show that employees’ wages are failing to keep up with improvements in the economy, rising productivity and inflation. This will no doubt be perceived as an issue by Janet Yellen and co. We are certainly still in a place where bad news is seen as good news owing to the impact it has upon rate hike expectations.

With the release of the ADP non-farm payrolls report, markets had the opportunity to once again focus on the state of the US economy, giving traders a brief reprieve from Chinese-driven anxiety. The ADP survey may not be considered the most accurate gauge of what Friday's US jobs report will show us, but it is certainly something the Fed will be watching. The ADP report found that job creation grew less than expected, while last month's figure also saw a strong downward revision. The report had something for everyone, with job growth continuing to rise, yet at a significantly slower rate than anticipated. I expect a September rate hike to be highly unlikely given the Chinese economic slowdown and subsequent market volatility. Today’s release is unlikely to change any minds at the Fed, and should Friday's NFP number look anything like this, I think we would be saying goodbye to a September hike.

This week will only get more volatile and more unpredictable as we approach the business end of the week, which culminates in Friday's US jobs report. There does not appear to be any major economy which is particularly outperforming on the global stage, and with the Chinese crisis yet to fully feed into Western economic data, central banks will no doubt be braced for unsteady times ahead.

Crude oil prices tumbled as inventories rose for only the second time in six weeks. This comes at a time when Saudi Arabia continues to produce more than its OPEC quota, making it clear that the supply glut dominating the oil market is not over. With US driving season out the way, demand will certainly wane into the winter months, and with Iran bringing increasingly more crude to market, there is a good chance that oil prices could fall once more. As prices have tumbled in the face of rising stocks, this is being felt keenly by UK mining firms, which has helped pull the FTSE lower to erase many of today's early gains.