Global stock markets reached new peaks on Friday, but came off their best levels following disappointing US jobs data.
Only 138,000 jobs were created across the US in May, well below the expected level of 180,000. March and April’s figures were revised down by 66,000.
The jobs figures came a day after upbeat manufacturing surveys from the UK, Europe and US, which helped outweigh concerns about the UK election and Donald Trump’s decision to pull the US out of the Paris climate deal.
The UK outlook was also boosted on Friday by better-than-expected construction figures, with the Markit/CIPS construction purchasing managers’ index climbing from 53.1 to 56 in May, compared with a forecasted fall to 52.7.
The FTSE 100 recorded a new closing high of 7,547, up only slightly after a flurry of buying earlier in the day pushed the intraday peak to 7,598.99. The FTSE 250 also suffered a rollercoaster ride after initially hitting a new record of 20,081 before ending the day at down slightly at 19,977.
Investors shrugged off continuing weakness in the pound as the Conservative lead over Labour continued to narrow in the latest opinion polls.
But the FTSE 100 underperformed compared with its European counterparts, thanks to a slide in the oil price hitting commodity companies. Crude dropped more than 3% in the wake of Trump’s climate decision to below $49 a barrel for Brent crude, which analysts said could prompt US drillers to increase their output. This would outweigh the moves by Opec and its allies to cut production and would put more downward pressure on prices.
The German Dax climbed 158 points to 12,822 while the French CAC edged 24 points higher to 5,343, and the MSCI All-Country World index rose 0.3% to a record high. Meanwhile, the US Dow Industrial Index moved higher in early trading, up 33 points to a fresh high of 21,213.
Analysts at Capital Economics said the modest increase in US jobs was “not too discouraging” and was likely to pick up again over the rest of the summer.
It said: “After all, the employment rate declined to 4.3% in May, its lowest level since 2001. With survey evidence suggesting it will fall below 4% in the next few months, and wage growth likely to pick up before long, we expect the Federal Reserve to raise rates steadily over the next year and a half.”
The US central bank has indicated that it will increase interest rates for a fourth time by 0.25% after taking rates to near zero in the aftermath of the 2008 financial crash. It has taken a cautious approach to increasing rates after the turmoil in global markets triggered in 2014 by hints from Fed bosses that higher long-term interest rates were likely.
A hike could come as soon as a fortnight when Fed boss Janet Yellen and members of the Federal Open Market Committee next meet in Washington. In March the Fed pushed US base rates to 1%, well above the 0.25% set by the Bank of England.
With only a week to go before the UK election and three weeks before the start of Brexit negotiations, Capital Economics said the FTSE 100 and UK economy were in for a bumpy ride.
“Thursday’s general election will command the majority of attention this coming week. With the recent narrowing in the polls and major differences between the main parties both on Brexit and the stance and mix of fiscal policy, the outcome could have a rather greater impact on the economy and markets than the last few elections have done.”
Kully Samra, managing director at the stockbroker Charles Schwab, said the weaker than expected US jobs report was “merely a temporary blip on the radar”.
He said: “Wider US economic data remains buoyant and equity markets resilient, even in the face of the potential turmoil coming out of Washington. Underlying numbers are still robust which should help solidify June rate hike expectations.”
Marc Ostwald, a strategist at ADM Investor Services, said one of the risks to a calm week ahead of the Fed meeting was the appearance of former FBI boss James Comey before a congressional committee on Thursday. He said the UK election outcome and a wide range of economic data from China would also influence investor confidence.