Europe

European markets spent the morning session mostly trading sideways, as investors waited to see how today’s US payrolls report for July would pan out.

With most estimates looking for the weakest number this year, just like in June, we got an upward surprise, and a number over double consensus expectations, coming in at 528k.  

The initial response saw markets drift lower, and yields push higher, as markets priced the prospect of another jumbo rate hike from the Federal Reserve in September.

This weakness proved to be relatively short lived and has done little to prevent the FTSE100 and DAX from recovering off their intraday lows. It also keeps both on course to finish higher for the third week in succession, as investors took the view that this was still good news, despite the risk that we could see a much greater risk of higher rates.

Hargreaves Lansdown shares have moved higher despite seeing a 9% fall in assets under management to £123.8bn, and missing forecasts on full year pre-tax profits, which fell 26% to £269.2m. The move higher appears to be being driven by a 92k jump in the number of new clients, pushing the total number of clients above 1.7m.

London Stock Exchange shares are higher after the company announced H1 income of £3.74bn, with data and analytics providing the biggest uplift, with a jump from £1.87bn to £2.3bn, helped by the acquisition of Refinitiv. Consequently, profits before tax have risen to £803m with the company announcing an increase in the dividend to 31.7p per share, and a share buyback of £750m.

Over the last few months, we’ve heard the likes of the social media giants reporting a slowdown in advertising spend. Today’s numbers from WPP suggest that this hasn’t translated into more traditional areas of advertising with the company reporting H1 revenues of £6.76bn and pre-tax profits of £526m. This outperformance has prompted the company to upgrade its full year sales guidance range by 0.5% to 6% to 7%, however investors appear unimpressed sending the shares sharply lower.  

US

US markets opened lower after July payrolls saw 528k jobs added to the US economy, a blisteringly good report, and the second best report this year, while the June number was revised up to 398k.

There was more positive news as wage growth jumped to 5.2%, making the prospect of a Fed pivot on rate hikes even more remote in the medium term, as well as putting a 75bps rate rise in September back in play. The unemployment rate also fell to 3.5%.

AMC Entertainment shares fell after management took the unexpected decision to declare a special preferred stock dividend. This bizarre decision, which in essence is a stock split, was given a collective raspberry by investors who were uniformly unimpressed, and overshadowed the company’s Q2 numbers.

Revenue came in as expected at $1.17bn while losses came in at $0.20c a share. Ticket sales more than doubled from a year ago as the likes of Top Gun: Maverick and Doctor Strange in the Multiverse of Madness got punters through the door. In July the cinema said it had the highest monthly attendance in US theatres since December 2019 as confidence returned, however Q3 is likely to see a slowdown due to the lack of big new releases, however Q4 is expected to be better.

CEO Aron is no stranger to strange decisions having taken a 22% stake in Hycroft Mining earlier this year and which has seen the company write down the value of some of its stake. The decision to offer a special preferred stock dividend seems a strange one given the company's still very high debt levels, which for some reason Aron seems unconcerned about.

Tesla shares are also in focus after shareholders approve a 3-1 stock split, thus making it more affordable to retail investors. CEO Elon Musk also said that he wanted the company to be able to produce 2m vehicles per year by the end of this year.

Virgin Galactic shares have plunged after the company reported a larger than expected loss for the quarter of $0.43c a share. Revenues were better than expected at $0.36m, however that was as good as it got as the company delayed its commercial launch again, this time to Q2 of 2023.

Lyft shares have jumped sharply after reporting Q2 revenue of $990.7m, a rise of 30% as demand recovers after a slowdown in Q1. Active riders rose to 19.9m, while average revenue per rider rose to just shy of $50. Q3 revenue forecasts were estimated to come in between $1.04bn and $1.06bn.   

FX

The US dollar jumped sharply this afternoon after a bumper US July payrolls report. If the US economy is in recession, then the jobs market appears to have other ideas, judging by today’s numbers. Wages growth was also strong, coming in at 5.2%, and reinforcing the tightness of the US labour market.

The fear is that the strength of today’s jobs numbers will embolden the Fed to overtighten and potentially break something, given that a higher US dollar will merely export inflation to the rest of the world, and increase the pressure on those central banks to tighten more aggressively.

Today’s jobs numbers have seen the pound slide back towards the 1.2000 area, further complicating the outlook for the Bank of England, as it tries to deal with the UK’s own inflation problem, which is exacerbated by the weakness of the pound against the US dollar.

The Japanese yen has been the biggest faller today, with the US dollar pushing back above the 135 area as US, Japanese yield differentials widen out sharply.  

Commodities

The sharp rise in the US dollar this afternoon initially saw oil prices slide back to their lowest levels since late February, before the Russian invasion of Ukraine. This didn’t last very long given that a more resilient US economy means that demand is also likely to be more resilient.

Brent crude prices briefly dipped below $93 a barrel before tracking back higher, however it is still welcome news given that oil prices have fallen sharply this week, with December oil briefly trading below $90 a barrel today. If this weakness is sustained it should mean that fuel prices start to come down as well.  

Gold prices have also come under pressure, falling back from one-month highs on a combination of higher yields and a stronger US dollar. Today’s labour market report is bad news for gold bulls, with next week's CPI report the next key test.  

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