Non Farm Payrolls Announced

The US saw an addition of 115,000 non farm payrolls and 130,000 private payrolls in April, missing market expectations for a rise of 170,000 and 175,000 respectively, marking the second consecutive monthly miss in jobs figures. However, the US unemployment rate dropped from 8.2% to 8.1%.

The weaker than expected reading is a disappointment, being the smallest rise in non farm payrolls since October last year and strengthens investor concerns that jobs growth may have topped out earlier in the year.

Yet a relatively strong set of upward revisions to March’s payrolls helped to ease the any overly aggresive negative market reaction, with non farm payrolls revised from 120,000 to 154,000, whilst private payrolls were revised from 121,000 to 166,000 in March. The upward revisions leave the data somewhat mixed but nevertheless disappointing.

Market reaction
The immediate market reaction was to shy away from shares and risky asset classes, seeing the FTSE 100 an immediate 30 points lower to trade back towards the 5700 level, with the UK Index trading down by over 1% on the day.

The key elements that investors are attempting to channel their interpretations of the jobs report is whether it will make any significant impact on Fed policy and specifically quicken their desires to announce a third phase of quantitative easing.

Indeed, it is in this scenario that may help to keep stocks from falling too sharply in the medium term as weak US data keeps the QE carrot firmly dangled in front of optimistic investors, keeping them interested in stocks in the longer term, unless we see a dramatic reversal of position by the Federal Reserve, who recently maintained that QE is in their armoury if needed.

The miners were the worst hit stock sector as a result of the jobs data with investors reducing their holdings of risky asset classes. The FTSE 350 mining sector fell 3% on the day in the immediate aftermath of the jobs report, with stocks such as Antofagasta, ENRC and Vedanta Resources all falling over 3.5%.

Indeed with the UK soon enjoying a Bank Holiday Monday, it would not be a surprise if positions were reduced into the UK close as a means of value protection by UK investors ahead of the long weekend away from the markets, and this could exacerbate the payrolls reaction somewhat.