FTSE 100 gains as Fed rate hike bets fade

Summary

The FTSE 100 was set to open higher after weaker US jobs data reduced expectations of a near term Federal Reserve rate hike. The S&P 500 and global equities remained on track for a strong week, while Asian markets rebounded as manufacturing activity strengthened across the region. The US dollar eased against major currencies, including the yen, as traders continued to watch for possible Japanese intervention. Gold benefited from the softer dollar, while oil prices remained relatively stable.

Equities

The FTSE 100 closed 1.7% higher on Thursday at its strongest level in more than two months as weaker-than-expected US jobs data eased concerns over further Federal Reserve rate hikes. The FTSE 250 also finished 0.4% higher, supported by broad gains across healthcare, consumer and defence stocks. Investors also responded to lower US rate hike expectations following softer labour market data.

AstraZeneca closed 4.9% higher after announcing a deal worth up to $1.77 billion with China's CSPC Pharmaceutical Group to develop new treatments for kidney disease, helping lift the healthcare sector by 4.4%. Defence stocks also finished higher, with BAE Systems, Rolls-Royce, QinetiQ, Babcock and Chemring closing between 1% and 7.1% stronger. Tesco, Coca-Cola HBC and J Sainsbury ended between 2% and 3.7% higher as consumer-focused shares advanced.

Capricorn Energy surged 19.8% after agreeing to be acquired by Genel Energy in a $360 million all-cash transaction, while Genel shares closed 7% higher. Currys fell 1.4% after warning that a global memory chip shortage could push up prices for smartphones, laptops and other electronic devices later this year. Gold miners also benefited from stronger bullion prices, with the precious metals sector ending 3.3% higher.

In the US, the Dow Jones Industrial Average climbed 1.1% on Thursday to a record closing high after June payrolls increased by just 57,000, well below expectations of 110,000, reducing expectations of another near-term Federal Reserve rate hike. The S&P 500 finished little changed, while the Nasdaq fell 0.8% as semiconductor shares remained under pressure despite broader market strength. The Dow also completed a fourth consecutive week of gains.

Apple rose 4.8% after reports it plans to launch five new iPhone models, providing strong support to the major US indices. Tesla fell 7.5% despite reporting second-quarter deliveries ahead of forecasts, with investors taking profits after recent gains. Semiconductor stocks remained under pressure, with Nvidia closing 1.4% lower, SanDisk dropping 14.1% and the Philadelphia Semiconductor Index falling 5.4% for a second straight session as investors continued to lock in gains following the sector's strong performance this year.

Forex & Commodities

The US dollar headed for its biggest weekly fall since April early on Friday after weaker US jobs data reduced expectations for a near-term Federal Reserve rate hike. The dollar index was lower at 100.7 and down for the week, while US two-year Treasury yields pulled back after three days of gains.

Sterling rose to $1.337, putting the pound on course for its strongest weekly gain in nearly three months. The euro also moved higher to $1.145, while the yen steadied at 161.0 per dollar after recovering from 40-year lows. Japan kept intervention risks in focus, with Finance Minister Satsuki Katayama saying Tokyo remained in regular contact with Washington on foreign exchange issues and stood ready to support the yen.

US nonfarm payrolls rose by 57,000 in June, well below expectations for 110,000, while previous months were revised lower. Markets cut the chance of a September Fed rate hike to just over half, down from roughly two-thirds before the labour data.

Spot gold rose 1% early on Friday to $4,165 an ounce, its highest level since June 23, and was heading for its first weekly gain in five weeks. Silver rose 2.1% to $62.28, platinum gained 2.4% to $1,655 and palladium climbed 0.9% to $1,279. The World Gold Council said central banks added a net 41 tonnes to official gold reserves in May.

Oil edged higher early on Friday before the long US holiday weekend. Brent rose 0.6% to $72.26 a barrel and WTI gained 0.5% to $69.01, as shipping partially resumed through the Strait of Hormuz and Gulf producers worked to increase supply.