Stocks gain, USD drops as NFP smashes forecasts but ISM disappoints

Summary:

• Stocks rally as NFP smashes forecasts; 263k vs 191k exp

• Unemployment rate 3.6% - lowest level since 1969

• DE30: Adidads skyrockets after earnings beat

• ISM services PMI misses - 55.5 vs 57.0

• UK service sector recovers but growth still slow

Wall Street is seeking to regain its poise after a couple of wobbly sessions following the Fed decision, with the market receiving a boost from the latest jobs report which showed the unemployment rate in April fall to 3.6% - its lowest level since 1969. This was one of several strong points in the NFP release which showed 263k jobs added, small positive revisions to the prior releases and average earnings hold steady at 3.2% Y/Y against consensus calls for a rise to 3.3%. As far as equities are concerned the NFP release provided a nice mix with stellar jobs figures coupled with lower than forecast wage growth.

Adidas (ADS.DE) is the best performing DAX stock on Friday. The apparel company released earnings results for the first quarter of 2019. Revenue came in at €5.883 billion, 1,5% higher than expected, and EPS turned out to be €3.17, 11.4% higher than the median estimate. The company explained that better-than-expected performance can be mainly ascribed to growth in China and in the e-commerce segment. Double-digit sales growth in China cause Asia-Pacific region to account for a third of total revenue. Online sales grew by 40% YoY. These pleasant developments helped to offset a decline in European sales and a slowdown in the US revenue growth. However, the company is sure that sales on the Old Continent will get back on the growth track by the end of the year.

Not long after NFP the most recent ISM non-manufacturing release came in below forecasts, but while it provided some resistance to the advance in stocks, it is perhaps telling that there wasn’t more of a decline. The print of 55.5 for April was below the 57.0 expected and together with Wednesday miss in the manufacturing equivalent suggests that the US economy is slowing. Drilling down into the subcomponents new orders fell to 58.1 from 59.0 prior while prices paid fell to 55.7 from 58.7.

For April the UK services PMI came in pretty much in line with forecasts at 50.4 meaning that while the index has returned to expansion territory, activity in the country’s largest sector remains subdued. Looking at the components the outlook appears less favourable with new orders continuing to shrink and a reading of 49 means this data point is on its longest run in contraction territory (below 50) in a decade. The release is the 3rd and final PMI reading in as many days and the overall message seems to be that while the UK economy is just about plodding along ok it is far from firing on all cylinders.