Centrica bid full of hot air

A welcome pickup in US job growth meant markets were a little more becalmed on Friday. Sliding oil prices and geopolitical tension at the G20 meant a decisive rebound from the recent heavy selling in stocks and bonds was hard to come by.

Stocks

The beginning of the second half of the year appears to have brought a little less confidence in stock and bond markets. Equity benchmarks markets have far exceeded expectations at the beginning of the year so some reassessment at the halfway point makes sense.

Takeover talk and a broker upgrade meant Centrica and EasyJet led the gainers on a finely-balanced FTSE 100. A drop in the British pound rekindled interest in British multinationals but weakness in media and oil firms was a drag. The rather paltry 4% jump in Centrica shares would suggest the market has open ears but isn’t fully convinced a takeover of the British Gas-owner is likely. There are two consortiums of buyers cited in the report on ‘Wall Street Wires’. Energy supply is heavily politicised at the moment so getting a deal through regulators could be tough.

FX

The dollar rose as currency traders reacted to the big beat in headline US jobs figures rather than the unexpected rise in unemployment or lacklustre wage growth. Monthly jobs gains above 200,000 are the sweet spot to keep investors confident in the US economy. Weaker than expected earnings growth confirms our view that inflation will likely remain below the Federal Reserve’s annual target of 2%. The reason the market was able to look through the weaker wage growth is because the Fed seems to be doing the same via its pre-set course of interest rate rises.

Sterling was hit by a quadruple whammy of bad news for British economy. UK industrial production slowing for a fourth month, a surprise contraction in construction output in May, house prices dropping 1% in June according to Halifax and the trade deficit widened. Maybe some mitigating factors like the warm weather effect on utility output affected industrial production but it’s hard to ignore multiple signs of slowing momentum in the UK economy.

Commodities

Crude oil headed dramatically lower again on Friday ahead of US rig count data which will likely explain the rise in production reported in weekly US inventories data. The rally from $45 per barrel in Brent crude looks like it was probably a dead-cat bounce. Gold prices turned lower as the dollar rallied, re-testing the pivotal $1220 per oz level.