FTSE flat as global rally overshadows Hargreaves decline & oil major losses

Despite solid gains earlier in the day the FTSE slipped into the red towards the close before ending the day just 4 points higher. Hargreaves Lansdown led the charge lower, dropping over 5% on collateral damage from the Woodford saga, whilst heavyweight oil majors tracing oil prices southwards and a stronger pound also dragged on the index. Not even a stronger start on Wall Street could tease the FTSE onto higher ground.

Desperate for a cut; US stocks rise on weak ADP

Wall Street opened firmly in the black as a string of weak data has investors betting on a rate cut by the Fed. Manufacturing activity, retail sales, pending home sales, factory orders and now ADP payrolls all point towards slowing growth as the ongoing trade war weighs on business.

The Fed has finally started paying ball, giving signals to the market that it stands ready to loosen policy to support the economy in the case of a downturn. Wall Street experienced its second-best trading day of the year after Powell’s dovish shift, giving the markets what they wanted to hear. The fact that today’s stronger than forecast ISM non-manufacturing report, shortly after the ADP report put stock indices into reverse goes to show just how keen the markets are for a rate cut.

Mixed signals for Friday’s NFP

ADP payroll figures showed that the US private sector added just 27,000 jobs in May, the fewest number of jobs created since 2010 and sharply lower than the 275,000 created in April. Given the strong positive correlation between the ADP private payroll report and the non farm payroll numbers, today’s stats don’t bode well for Friday’s closely watched Labour Department jobs report. However, on the other hand the employment component of the ISM non-manufacturing was notably strong which is an encouraging sign for Friday’s NFP report. Whilst the ADP numbers will have raised eyebrows, one bad number by no means constitutes a trend. Investors will be more focused than usual on Friday’s jobs report for a clearer picture of how the labour market is holding up and in the case of weaker job creation whether weekly wages have also been hit.

Oil to $50?

Oil plummeted on Tuesday as higher than expected crude oil inventories unnerved investors. Inventories unexpectedly jumped by 6.7 million barrels across the previous week, analysts had been expecting a drawdown of 0.85 million barrels. The timing couldn’t be much worse. The overriding concern here is that inventories are swelling just as Trump’s trade war on multiple fronts threatens future demand. Oil was already at a four-month low; today’s report will ensure that the bears remain firmly in control. A test of $50 for  WTI is almost a dead cert.