European stocks down and US mixed as jobs report outshines expectations

"The oil price regained around 4% from this week's four-month low amid increased future demand expectations as the US labour market remains robust. Gold and silver prices took a nose dive by around 2.5% for the former and over 5% for the latter as the Chinese central bank apparently stopped building its gold reserves at recent elevated levels."

"Today’s US NFP data came in at 272K, while the forecast was for 185K, much stronger than the previous reading of 165K.

"This data print has undoubtedly shut down discussions about a potential interest rate cut in July, and it has sparked discussions about limiting the policy to bring inflation closer to the Fed's target. This particular argument is very strong, and we believe that traders should pay attention to it, as there has been some discussion among Fed members regarding the need for an additional interest rate hike to control inflation.

"Given the strength of the number and the recent weakening of the doves' position, the best argument they can make is that we should wait a little longer to reap the full benefits of their hard work before making another policy error."

“By increasing the number of shares in issue tenfold, the value of each share will fall by 90%. For example, Nvidia is currently trading around $1,200 per share. Based on that price, the shares will trade at $120 on Monday when the stock split has been completed. The total market value of Nvidia as a business won’t instantly change because of this action, only the value per individual share.

“The market value of a company is calculated by multiplying the number of shares in issue by the share price. Nvidia is currently worth approximately $3 trillion. As the number of shares in issue is now increasing tenfold, the share price needs to be altered to achieve equilibrium with the market valuation – Nvidia won’t suddenly be worth $30 trillion just because the company decides to fiddle with the share count.

“Put another way, someone with five shares in Nvidia would have an investment worth $6,000 based on the current $1,200 price. They will qualify for 45 new shares and get them for free, meaning they will have 50 shares in total. Once the share price adjusts on Monday, 50 shares at $120 each will be worth $6,000 in total – so no change to the current value of the pre-split investment.

“On Monday 10 June, some financial data systems might show a 90% fall in the share price versus Friday 7 June’s closing price, hence why there is the potential for some investors to be shocked when they look at the risers and fallers list for the US stock market, particularly if they aren’t aware of Nvidia’s actions. This data discrepancy will be temporary until manual adjustments are made by each data system.”

Many economists are worried about the quality of the data. Consensus is for something pretty steady around 180k, average earnings +0.3% and unemployment rate unchanged at 3.9%. If the ECB is likely heading towards 2-3 cuts this year, the case for the Fed to cut in September is building, as I have outlined here all week. The NFP report will provide the narrative driver on this front into the weekend. EU elections could stoke some volatility in the EURUSD cross.

Labour’s announcement last night of their “freedom to buy” scheme while headline grabbing is unlikely to have any significant impact to the housing market in the short term. In contrast, Labour’s pledge to build 1.5 million homes and overhaul the planning system could initiate far greater change. Addressing the limited housing stock in the UK is the key piece of the puzzle. By increasing the supply of new homes, it will make homeownership more accessible to a broader range of people.

The “freedom to buy” policy aims to help young people get onto the housing ladder by making the mortgage guarantee scheme a permanent fixture. However, the well-meaning scheme introduced by the Tories, has so far been only marginally impactful.

Generally, first time buyers can only borrow up to 4.5 times their annual income, meaning those on average salaries can only secure mortgages slightly over £150k, which doesn’t offer much choice in the current market. Often saving for a larger deposit or receiving financial help from family provides more options.

Additionally, high loan to value ratios increases the risk of negative equity, especially if house prices fall. This could leave new homeowners in a difficult position if they need to sell their property, as they would have to cover the negative equity, moving costs, and a new deposit.

House prices stable in May, nudging down £174, but annual house prices are up for the sixth month in a row (+1.5%). Wage growth and limited supply of homes for sale continues to underpin house prices and with housing front and centre in the upcoming election we can expect political parties of all colours, shapes and sizes to seek to woo first time buyers, home movers and homeowners. House prices are firm without Government incentives, so if some get added to the mix the temperature of the housing market and house prices are likely to rise.