London close: Stocks close up as investors mull payrolls

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London stocks ended up on Friday as investors bet that the latest US non-farm payrolls will prompt the Federal Reserve to pause on interest rates this month.

The FTSE 100 closed up 0.3% at 7,464.54.

Data released earlier by the Bureau of Labor Statistics showed the US economy added more jobs than expected in August. However, an unexpected jump in the unemployment rate, cooling wages and revisions to the previous months' data raised expectations the Fed will pause on rates this month.

Non-farm payrolls rose by 187,000 from July, coming in ahead of expectations for a 170,000 increase.

But the data for July was revised down to show 157,000 jobs were created, from 187,000 initially reported. The change for June was also revised down, to show a 105,000 jump from an initial estimate of a 185,000 gain.

The unemployment rate pushed up to 3.8% in August from 3.5% the month before, versus expectations for it to remain unchanged.

The figures also showed that average hourly earnings rose 0.2% on the month - the smallest increase since February 2022 - and 4.3% on the year.

Axel Rudolph, senior market analyst at IG, said: "This suggests that labour market conditions are easing in the US, cementing expectations that the Fed won't hike its rates in September. Stock indices rally for the second week in a row, while yields come off their August peaks and the US dollar continues on its upward trajectory.

"With last week's Jackson Hole symposium and this week's US growth, inflation, employment data and China's various stimuli out of the way, next week begins on a quieter footing with many markets shut on Labor Day. Rate decisions from Australian and Canadian central banks and the US services purchasing managers index might provide for some volatility, though."

There was some good news from China, where the latest data from Caixin revealed a return to growth in the manufacturing sector.

The purchasing managers’ index rose to 51.0 from 49.2 the month before, coming in above the 50.0 that separates contraction from expansion. This was also comfortably above analysts’ expectations of 49.3 and marked the highest reading since February.

Wang Zhe, senior economist at Caixin Insight Group, said: "In August, the manufacturing sector showed overall improvement. Apart from sluggish exports, the gauges for supply, total demand, and employment were all in expansionary territory."

On home turf, the releases were disappointing, with a survey showing the contraction in manufacturing activity reached its worst level in more than three years in August with demand hit by weaker domestic and export conditions.

The S&P Global/CIPS manufacturing purchasing managers' index slumped to 43 last month from 45.3 in July.

This was its lowest level since May 2020 and one of the steepest contractions in the survey's history. It was also the sixth straight month of a reading below 50.

S&P Global/CIPS said that constant inflationary pressures and systemic weakness in the UK and abroad drove the biggest fall in new orders since the financial crisis, excluding pandemic years.

Market conditions weakened at home and abroad, with key markets such as the US, Europe, China and South America cutting order volumes.

"August saw a further deepening of the UK manufacturing downturn," said Rob Dobson, director at S&P Global Market Intelligence.

"The PMI sank to a 39-month low as output and new orders contracted at rates rarely seen outside of major periods of economic stress such as the global financial crisis of 2008/09 and the pandemic lockdowns."

Meanwhile, Nationwide data showed that house prices suffered their sharpest year-on-year decline in 14 years in August, amid rising borrowing costs.

House prices fell 5.3% on the year following a 3.8% decline in July and versus expectations of a 3.9% drop. On the month, they were down 0.8% in August following a 0.3% dip the month before. Analysts were expecting a more modest 0.4% fall.

The average price of a home stood at £259,153, down from £260,828.

Nationwide chief economist Robert Gardner said: "The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels. For example, mortgage approvals have been around 20% below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.

"Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations."

In equity markets, Johnson Matthey surged to the top of the FTSE 100 after Standard Industries nearly doubled its shareholding in the specialty chemicals group to over 10%.

Miners were also doing well after the China data, with Glencore, Rio Tinto, Anglo American and Antofagasta among the top performers. Capital Economics said: "While doom and gloom builds around China’s growth, PMIs for August provided some encouragement this week, even if they didn’t paint a picture of booming commodities demand.

"They suggest infrastructure spending has begun to support metals demand and that activity in the oil-intensive transport sector remains robust."

Direct Line lost ground after the insurer agreed with regulators to review overcharging of existing motor and home policyholders in a move that could cost it £30m to fix. Admiral also fell.

Elsewhere, Mike Ashley’s Frasers Group was busy buying up more shares in fashion retailers Boohoo and Asos, lifting its stake in the former to 10.4% from 9.1% and in the latter to 19.8% from 19.3%.

Market Movers

FTSE 100 (UKX) 7,464.54 0.34%
FTSE 250 (MCX) 18,543.36 -0.34%
techMARK (TASX) 4,293.12 -0.19%

FTSE 100 - Risers

Johnson Matthey (JMAT) 1,790.50p 9.85%
BP (BP.) 500.80p 2.73%
Rio Tinto (RIO) 4,972.50p 2.05%
Anglo American (AAL) 2,136.00p 1.69%
Antofagasta (ANTO) 1,471.00p 1.59%
Shell (SHEL) 2,444.50p 1.37%
Glencore (GLEN) 427.15p 1.35%
NATWEST GROUP (NWG) 233.30p 1.26%
Centrica (CNA) 153.55p 1.19%
Barclays (BARC) 149.06p 1.15%