Sports Direct Share News (SPD)

LONDON (Alliance News) - A miss in US nonfarm payrolls on Friday helped the pound bounce back from its collapse overnight against the dollar, but sterling's weakness meant the FTSE 100 outperformed its peers in the UK and in Europe.

The Labor Department report showed US employment increased less than expected in September. Nonfarm payroll employment climbed by 156,000 jobs compared to economist estimates for an increase of about 176,000 jobs. Job gains in August were upwardly revised to 167,000 from 151,000, while the July figure was downwardly revised to 252,000 from 275,000.

The unemployment rate edged up to 5.0% in September from 4.9% in August. Economists had expected the unemployment rate to remain unchanged. Average hourly employee earnings rose 2.6%.

Despite the weak jobs report, analysts say it does not put off the prospects of a US interest rate hike in December.

"A 156k payroll gain – easily clearing a low bar set by [Federal Open Market Committee] members in recent speeches – has heightened expectations that the Federal Reserve will be able to tighten policy at December's meeting," said economists at Lloyds Bank.

Deutsche Bank economist Joseph LaVorgna agreed: "With respect to the Fed, the September employment figures are sufficient for policymakers to hike interest rates again, most likely in December. To be sure, this assumes that the next two employment reports show no material weakness."

The Fed next meets on November 1 and 2, but the market believes the central bank is unlikely to take any action in this meeting given the risk from the US presidential election which takes place just a week after. The focus is therefore on the Fed's meeting on December 13 and 14.

The dollar lost ground against other currencies in the wake of the jobs report. At the London stock market close, the euro was quoted at USD1.1167, but still just short of the USD1.1170 seen at the close on Thursday.

For the pound it was a different story. In the Asian trading session the pound fell over 6% in just two minutes to reach a new 31 year low of USD1.1806, although it quickly bounced back. Causes of the flash crash are unclear, but the Bank of England said it is "looking into the cause of the sharp fall".

Simon Wood, treasury investment director at Standard Life Investment said the selling could have been triggered comments from French President Francois Hollande, who on Thursday said the European Union should negotiate toughly with the UK to avoid fallout from member states.

"There were not many resting sterling bids in the market overnight due to the proximity of the Non Farm payroll release on Friday, so a moderate amount of selling volume caused an outsized move which then triggered more stops, especially from options traders. Many of the stop orders would have been held in systems and triggered automatically, hitting any bids available no matter how reasonable," Wood explained.

By the London close sterling had made up some ground to trade at USD1.2420, but was still lower than its price of USD1.2646 at the London stock market close on Thursday. At the start of the week, the pound had traded the dollar at USD1.2975.

The weak pound supported stock prices of London's blue-chip companies, which derive a large proportion of their revenues overseas. The FTSE 100 index ended up 0.6%, or 44.43 points, at 7,044.39, closing the week up 2.1%.

However, the weak pound was not good news for all companies, with Sports Direct International issuing a late profit warning as a result of the depreciated currency.

The sporting goods retailer said "extreme [currency] movements overnight" will hit its underlying earnings before interest, tax, depreciation and amortisation expectation for the year to the end of April by GBP15 million, and if the current sterling to US dollar exchange rate persists to the end of the year, it will see a further GBP20 million hit.

The stock ended down 9.2%, the biggest faller in the FTSE 250.

The mid-cap index as a whole ended down 0.7%, or 120.73 points, at 17,995.16, but up 0.7% for the week as a whole. The AIM All-Share rose 0.33 point, at 826.57, and up 0.9% for the week.

The BATS UK 100 index closed up 0.5% at 11,936.87, the BATS 250 ended down 0.9% at 16,401.54, and the BATS Small Companies index closed down 0.6% at 11,260.38.

In mainland Europe, the French CAC 40 and the German DAX 30 both closed down 0.7%.

On Wall Street at the London close, the Dow 30 was down 0.2%, the S&P 500 was down 0.3% and the Nasdaq Composite was down 0.2%.

Elsewhere in UK company news, the UK Chancellor of the Exchequer Philip Hammond said the government has withdrawn its planned retail sale of its 9.1% stake in Lloyds Banking Group, and will instead sell the stake via a trading plan as "ongoing market volatility" means it is "not the right time" for a retail offer.

The government said that a trading plan will ensure it gets back all of the GBP20.3 billion that taxpayers injected into Lloyds during the financial crisis.

"I have listened to the experts. Ongoing market volatility means it is not the right time for a retail offer. Our plan will get back all the cash taxpayers invested in Lloyds during the financial crisis and leave the bank in a better place to continue the crucial role it plays in supporting individuals, families and businesses up and down the UK," Hammond said.

The stock closed down 4.5%, one of the worst performers in the FTSE 100 index.

Financial markets technology provider Fidessa Group ended down 5.9%, after it was cut to Sell from Neutral by UBS. The Swiss bank said the stock's upwards re-rating since the UK's European Union referendum result has gone too far, as challenges for Fidessa's financial-services customers continue.

Brammer was the biggest faller in the FTSE All-Share, down 29%, after it warned 2016 will be the first year the company will not make a dividend payment for over a decade, and detailed plans to launch a rights issue to address its balance sheet.

The industrial supplies and service company paid a dividend of 10.7 pence in 2015 after booking a pretax profit of GBP13.5 million. This was down by almost one-quarter from 2014, and was its its third annual decline in profit.

This year has seen further deterioration and the impact on its financial results has been significant. Brammer turned to a pretax loss of GBP13.9 million in the first six months of 2016, swinging from a GBP9.1 million profit a year earlier, on the back of impairments.

The price of gold was a touch lower on Friday, quoted at USD1,252.07 an ounce at the European equity market close compared to USD1,253.92 at the same time on Thursday.

Brent oil was largely unchanged from the close on Thursday, trading at USD52.26 a barrel on Friday at the close versus USD52.36.

In a thin economic calendar for Monday, German trade balances are at 0700 BST and the Sentix investor confidence survey for the eurozone is at 0930 BST. Before that is the Caixin China services purchasing managers' index is at 0245 BST on Saturday.

The Tokyo market is closed on Monday for Health-Sports Day and the Honk Kong exchange is closed for Chung Yeung Day. However, the Shanghai market will be back after a week-long holiday.

In the UK corporate calendar, there are full-year results from market research company YouGov, ceramic brake discs maker Surface Transforms, and engineering and environmental consultant Waterman Group. Indian miner Vedanta Resources reports second quarter production results, while Macau Property Opportunities Fund and City of London Investment Group release trading statements.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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