FTSE 100 and US Jobs data

  • Nov 10, 2019 GMT
  • Team Kalkine
FTSE 100 and US Jobs data

The FTSE 100 in London Stock Exchange comprises of 100 British and international companies. The constituents of the Index have the operation in multiple countries with a large portion of their earnings coming from abroad. This very factor also gives the Index safety against the vagaries of the British economy by diversifying it away into the international economic system. While this might have helped the Index mitigate some of the risks, but it is still affected by global factors that are large enough to impact the world economy as a whole.

US Job Data – The US Job data is a vital statistic as far as its impact on the world economy is concerned. US Job data figures are one of the most critical data that the United States Federal Reserve uses to guide its interest rate policy. The US Federal Reserve, like any other Central bank, tries to have a monetary policy that is balanced, it targets, on the one hand, full employment and on the other hand, it seeks to contain inflationary forces. Whenever the Unemployment rate grows higher in the country and the US Federal Reserve feels that it is not in the acceptable levels it generally employs a softer monetary policy and lowers the interest rates which would have an expansionary effect on the economy and take back the US Job data rate to acceptable proportions.

On the other hand, the Federal Reserve raises interest rates if it feels that US Jobs data is in acceptable levels, and there is a general inflationary pressure in the United States Economy. US Job data thus is a critical factor in determining the inflationary forces at work in the United States economy at any point in time.

However, the United States economy being of such enormous magnitude, its policies and actions have a cascading impact on the rest of the world's economy. Usually, a low-interest rate regimen adopted by the Federal Reserve would mean that the world markets would be flush with funds, which would raise the stock market returns of most of the other countries. These surplus funds also go on to push inflationary pressures for the rest of the world with the effect that many countries have to adjust their monetary policies in response to the US Federal Reserve rate policy decisions in order to protect themselves for any adverse effects of the same.

Today we live in a globalized economy. All large economic blocks have some impact on all others whenever they take any policy decisions. May it be a slowdown in the Chinese economy on Brexit in Europe,  they affect everybody. The US Federal reserve realizes this, and its policy statements usually reflect these globalized forces at play other than the Domestic economic factors that were its traditional abode.

Impact on Continental Europe especially the Great Britain

Continental Europe and Great Briton have traditionally been the largest of trading partners on the world. Since the days of World War 2, they have increased their trading activity among themselves by leaps and bound, with the effect that each has had a massive impact on the economic development of the other. Almost all large corporations in the United States first overseas venture is into Europe with a high probability of being in the United Kingdom, and vice versa is the case with European companies and British companies. It is thus clear from the above that flow of funds from the United States of America and the European Union, especially the United Kingdom, is the Highest. Therefore the economic region to be impacted the most after the United States from the US Federal Reserve rate policy is the European countries.

The recent experience of Brexit has clearly demonstrated the effect the United States has on the European Economy. While the US Federal reserve unanticipatedly lowered its rates in the month of October 2019, the Bank of England immediately desisted for going down the same route in fear of aiding any inflationary forces in the United Kingdom, though it was very much anticipated to do so.

FTSE 100 and US Job data

There are a number of Major Companies in the United Kingdom who have broad business Interests in the United States, which include a sizable chunk of the FTSE 100 component companies. Whenever the US Federal reserves lower or raise Interest rates, these companies are impacted in the sense that their businesses and either expanded or contracted by such decisions, not only in the United States but also in the rest of the world due to the cascading effect of such a decision. The companies of the FTSE 100 most impacted are the Banking companies followed by the Oil companies and to some extent travel and leisure companies and their businesses are most intertwined among multiple geographies.

The US Job date thus is indirectly related to the FTSE 100 index and the fortunes of its Constituent companies. The data not only impacts employment patterns and investment patterns in the United States of America but also in Continental Europe. The London Stock Exchange is a Global stock exchange with the effect that companies from across the globe try to list themselves on this exchange to take advantage of its global stature. It is one of the institutions that is most impacted by any global economic factors. The FTSE 100 Index being the Headline index of the London Stock Exchange is also the one which faces the most brunt of the global economic headwinds.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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