FTSE rallies 1 5 after US jobs growth surprise

Investors bought into stocks on Friday with higher appetite for taking on risk after data showed that the US labour surprisingly improved in January, smashing expectations for jobs growth to slow. Adding to the positive session was also stronger than expected US ISM non manufacturing data, as strong buying into the close lifted the FTSE 100 around 1.5% on the day.

FTSE eyeing the 6000 level

The FTSE 100 has now firmly broken past resistance at the 5800 level to close the week higher by over 2% and at its week’s trading highs. This is a positive sign for the FTSE and if the Bank of England can deliver next week with announcing more quantitative easing, there is every chance that the FTSE 100 can recover the 6000 level sooner rather than later. However, strong resistance lays in waiting at the 6000 level and so traders need to be on guard for profit taking considering the stronger start to the year.

US jobs smash expectations

Make no mistake, the US jobs data was a real surprise, and has had a hugely positive influence on the short term market reaction as it boosts optimism that the US economic recovery continues.

This jobs report didn’t just beat market consensus, it smashed it. Not many predicted that jobs growth could be this strong after Christmas and as a result, stocks received an immediate lift. Within minutes, the FTSE 100 was trading over 1% higher from where it rested before the data was released, and that bullish streak continued into the close.

A recovering labour market is crucial for US growth given the fact that US activity is strongly reliant upon consumer spending. This is the fifth straight decline in the US unemployment rate, which now stands at 8.3% and it’s hard not to look at the fact that US unemployment has dropped steadily from a peak of 10% in October 2009 to the 8.3% level it stands at currently, and how this translates into a labour market recovery and likely US growth.

That said, we should take this figure with a pinch of salt for revisals given how many jobs report have seen significant revisals of late, and the fact that the Fed turned more dovish recently creates a lingering uncertainty over what may be laying in wait further down the road for US growth.

US ISM non manufacturing data also beat expectations, coming in at 56.8 against consensus views for a smaller rise to 53.3 from 52.6. One of the positives from the ISM data was a surge in new orders, which helps to raise optimism that businesses are growing more optimistic.

From a sector perspective, as one might expect with outperforming US labour data, it is the heavyweight miners and banking sectors leading much of the charge higher for the FTSE 100. The mining sector rallied over 1%, continuing a winning streak over the last 72 hours that has seen the sector rally over 8%, whilst the banks were the strongest investment areas, rallying over 2%.

BoE QE on watch for next week

The positive session sets us up nicely for next week’s trading which is expected to see the Bank of England announce further asset purchases as part of its new and invigorated quantitative easing programme. This could see the Central Bank announce as much as an additional £75bn in extra stimulus.