Must read: oil, US jobs report, ASOS/Softcat, NatWest

After an impressive six-week rally, stock markets are pausing this morning. Our head of investments rounds up the action.

GLOBAL MARKETS 

European markets are trading lower, with the FTSE 100 leading the declining, inching closer to support at 7,500. Oil and mining companies like Rio Tinto Registered Shares (LSE:RIO) and BP (LSE:BP.) are trading near the bottom of the UK index after markets in China fell overnight.

The dollar is treading water, in wait-and-see mode ahead of this lunchtime’s closely watched US jobs report.

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OIL

The European Union reportedly has cautiously agreed to a $60 price cap on Russian oil, with plans to adjust the cap so that it remains at 5% below the oil price. The next step is for the proposals to be approved by all EU governments. 

This week, oil has been staging gains amid optimism towards the potential loosening of Covid restrictions in China and the opening up of its economy at last, which could potentially unleash demand for crude oil from the world’s second largest economy.

Meanwhile, oil prices are trading modestly lower ahead of the OPEC+ meeting on Sunday. Analysts are divided on what the cartel will decide to do on 4 December. At its October meeting, OPEC+ cut its daily oil production by 2 million barrels per day to try to boost prices. A recent media report that the cartel was considering hiking production was quickly refuted by Saudi Arabia. Given this week’s rally, perhaps the cartel will hold off from doing anything at all until China’s demand trajectory becomes clearer. 

After a surge in oil prices in the first quarter following Russia’s invasion of Ukraine, Brent crude has been slowly pushing lower since March. However, this week has reinvigorated the crude bulls.

US JOBS REPORT 

The US nonfarm payrolls (NFP) figure is expected to slow in November to 200,000 job additions declining versus 261,000 in the previous month, which was the softest print since December 2020, in a tentative sign of deceleration in the US economy. However, October’s reading surpassed forecasts, suggesting that the labour market is still relatively tight. 

This week’s US ADP private payrolls report for November increased by 127,000 jobs, falling short of expectations for 200,000, potentially setting the scene for an NFP miss today.

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A stronger-than-expected NFP figure could provide some short-term relief to the US dollar index which is down 6% over the last month, having peaked in late September. Improving US inflation data and dovish Fed talk have fuelled expectations that the central bank could start to slow its pace of tightening, taking the wind out of the dollar bulls’ sails. 

The PCE price index, which is one of the Fed’s preferred measures of inflation increased by 6% year-on-year in data released this week for October, slowing from 6.3% in September to reach the lowest reading of the year, adding to the case of a more moderate approach to tightening from the FOMC.

ASOS / SOFTCAT 

ASOS (LSE:ASC)’ interim CFO Katy Mecklenburgh will step down in six months as she takes up the equivalent role at Softcat (LSE:SCT). Mecklenburgh has been the interim CFO of the online fashion retailer for the last month after former finance chief Mat Dunn stepped down at the end of October. 

ASOS has been facing a major C-suite shake-up with a new CEO Jose Antonio Ramos Calamonte since June who has been tasked with trying to improve the retailer’s supply chain, reduce costs and ultimately reinvigorate its bottom line. In October, investors cheered ASOS’ plans to overhaul its business model after reporting an 89% slide in full-year profits as the pandemic online shopping boom faded away. 

Shares in ASOS are trading lower, with the leadership uncertainty weighing on investor appetite for the stock. It has been a tough year for the stock which is down by over 70% year-to-date.

NATWEST 

NatWest Group (LSE:NWG) has reportedly offered 39,000 of its lower paid staff a £2,000 salary increase and a one-off £1,000 payment in response to union demands. It comes as many workers across the UK struggle with falling real wages as double-digit 41-year high inflation outpaces salary increases, putting pressure on households which are grappling with the rising costs of food, fuel, energy, and other essentials. 

However businesses including NatWest are facing increasing costs of their own, with rising wage bills adding to that burden. In its latest earnings report, NatWest shares slumped in October after the lender warned of rising costs. Despite this, shares have largely been rebounding since mid-October, gaining around 20% off the lows, helping to lift shares by 10% over a one-year period.