FTSE aims for 6th Straight Week of Gains with Sterling At Fresh 4 Month Lows

The FTSE is on track for its 6th consecutive winning week, led northwards by miners tracing metal prices higher and supported by a weak pound against the dollar despite US jobs data miss. IAG flew up the leader board after reporting a 75% surge in profits, whilst Pearson rallied 7% after finally revealing that they are on track to return to profit growth this year.

Airlines across the board performed well on Friday, lifted by impressive results from British Airways parent company IAG. IAG reported operating profit of €280 million in the first three months of the year, a 75% increase from last year and well ahead of the €206 million forecast. Whilst some of the good news can be attributed to an early Easter, disciplined capital allocation is also playing a part. There was no mention of BA’S increased stake in Norwegian Air from IAG’s Chief Executive Willie Walsh, as the Scandinavian airline rejects two takeover offers from IAG.

Pearson’s traded at the highest level since September 2016, as investors gained in confidence in that the recovery at the educational publishing group is firmly on track. Pearson reported a 1% rise in underlying revenue for its first quarter in the latest sign that the restructuring and turnaround effort are finally paying off.

Dollar Rallies Despite NFP Miss

US jobs report missed on both the headline jobs creation and on wages. 162,000 jobs were created in April, short of the 192,000 expected. Meanwhile wages increased 0.1% month on month and 2.6% year on year, missing forecasts of 0.2% month on month and 2.7% year on year. On the positive side US unemployment dropped from 4.1% to 3.9%, the lowest rate since 2000, as the US labour market continues to tighten.

The dollar has charged higher following the release, even though the headline figure and wages were short of expectations. This was not a bad a report, but it wasn’t an exciting report either; it was just slightly off what the market was expecting. The bottom line is that it is not going to alter the Fed’s intentions for hiking across the rest of the year, with the next rate rise expected in June. The CME Fed Watch has a price hike in June fully priced in, with an additional hike in September also looking highly probable. However, a third increase in December is still below a 50% probability in the eyes of the market at just 36%, below the 42% priced in prior to the NFP release. This means that the market could be easing back slightly on expectations of a very aggressive Fed, with gradual price hikes still priced in.

Fresh 4 month lows for GBP/USD & EUR/USD

Despite the odds of a more aggressive Fed easing investors were still jumping into the dollar on Friday afternoon, pushing the greenback to a fresh 4 month high. GBP/USD tumbled to sub $1.35 for the first time since early January and has dived almost 900 points in just three weeks as central bank policy diverges. Pound traders will now look to the BoE next week for further clues.

The EUR/USD was trading at the lowest level since December, as dollar strength proved too much for the euro and the blocs weak inflation.

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