European markets rallied sharply on Thursday after a closely watched US employment report came in well below forecasts, easing pressure on the Federal Reserve to raise interest rates.
The FTSE 100 closed up 174.53 points, or 1.7%, finishing the session at 10,652.87, its strongest single-day gain in several weeks.
The FTSE 250 also advanced, ending up 87.51 points, or 0.4%, at 23,417.58, while the AIM All-Share edged higher by 1.40 points, closing at 777.45.
Gains were broad across the continent, with Paris’s Cac 40 (^FCHI) rising 1.7% and Frankfurt’s Dax 40 (^GDAXI) climbing 2.2% by the close of European trading.
US non-farm payroll employment rose by just 57,000 in June, a steep drop from 129,000 in May and far short of the 110,000 consensus forecast cited by FXStreet.
The May payroll figure was also sharply revised downward, from an initially reported 172,000, while the April reading was cut to 148,000 from a previously reported 179,000.
The unemployment rate dipped to 4.2% in June from 4.3% in May, slightly beating expectations that it would hold steady at 4.3%.
“We’re in a ‘bad news is good news’ situation as weaker than expected US jobs data spurred a stock market rally,” said Dan Coatsworth, head of markets at AJ Bell.
“Markets have interpreted the employment figures as making it less likely the Fed will raise interest rates,” Coatsworth added, reflecting a broadly held view across trading floors.
Analysts at TD Economics noted that market odds for a July US rate hike were “completely pushed back” following the release, with a hike having been 30% priced in ahead of the payrolls data.
All attention now turns to June’s consumer price inflation data, due on July 14, which could yet shift the debate back toward policy tightening depending on the reading.
ING said the jobs figures have “taken the wind out the sails for calls for imminent rate hikes,” adding that a soft July CPI report “should boost the case for a prolonged Fed pause.”
The pound strengthened to 1.3367 dollars on Thursday afternoon, up from 1.3273 on Wednesday, and firmed against the euro to 1.1681 from 1.1657.
Bank of England governor Andrew Bailey drew attention with remarks insisting the central bank is “not complacent” about bringing down inflation, following earlier warnings from chief economist Huw Pill.
Bailey told CNBC: “We’re not complacent. It’s perfectly reasonable for people to take different views. One of the strengths of our committee is that you do have quite different views that are expressed, and that’s good, I welcome that.”
Pill had told the Press Association earlier this week that the Bank “should not be complacent” about the threat of CPI rising due to oil and gas price surges amid the US-Israeli war with Iran.
On the FTSE 100, defence contractors Babcock International and BAE Systems (BA.L) both jumped 5.5%, leading the blue-chip risers, with FTSE 250 peer Qinetiq climbing 7.1%.
AstraZeneca (AZN.L) and GSK (GSK.L) rose 4.9% and 3.8% respectively, while Diageo (DGE.L) advanced 3.6% as broader risk appetite returned to London markets.
Capricorn Energy surged 20% after accepting a 360 million dollar takeover offer from London-based Genel Energy, which valued each Capricorn share at 4.74 dollars, or 357 pence.
PPHE Hotel Group fell 4.2% after confirming it is no longer in discussions with any party regarding a possible sale “that the board considers to be deliverable.”
Baltic Classifieds dropped 5.8% after issuing revenue growth guidance of around 10% for 2027, below the company-compiled consensus expectation of 13%.