Global Market Overview

Last updated: November 2, 2012 7:10 pm

Wall St resumes drop after US jobs report

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Friday 20.10 GMT. Initial optimism over a stronger than forecast US jobs report faded and US stocks resumed their declines as caution returned to markets ahead of the presidential election next week.

Some analysts said the upbeat employment news could eventually lead to reducing the longevity of the Federal Reserve’s asset purchasing programme, a concern illustrated by action in the bullion market, where gold – usually sensitive to expectations of quantitative easing – fell $36 to $1,678 an ounce.

Investors were also wary of the potential impact of Hurricane Sandy on the US economy.

“The lasting impact from today’s data may be dampened somewhat by proximity of the US elections and subsequent budget negotiations,” said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank. Meanwhile “growth could clearly lose some momentum, at least temporarily, as the economic impact of Hurricane Sandy hits home.”

The FTSE All-World equity index fell 1 per cent, while the FTSE Eurofirst 300 closed 0.5 per cent higher.

On Wall Street, the S&P 500 fell 0.9 per cent on the day but ended the week 0.3 per cent higher.

Most US markets remained closed for two days at the start of the week and that has helped create a backlog for corporate borrowers in the debt market, analysts said.

Some $13bn in deals was set tor price on Friday, led by $3bn in 30-year bonds from Verizon and Microsoft. That comes after $11bn in deals priced on Thursday.

“We had a backlog of deals after being offline for several days earlier this week,” said Edward Marrinan, head of Macro Credit Strategy at RBS Securities.

The dollar rose broadly, with the dollar index, which usually displays a negative correlation to risk appetite, adding 0.6 per cent. But US Treasuries pared losses and turned higher in late afternoon trading. The yield on the 10-year Treasury note ended the week 4 basis points lower to 1.71 per cent.

Regional equity market performances were muddled because Asia had its first chance to react to Wall Street’s 1.1 per cent jump on Thursday, which came on the back of new-month fund flows and, particularly, a well-received batch of data that included rising consumer confidence and expansionary factory activity in October.

Together, these reports had raised hopes that the US recovery is gaining pace, and – along with recent evidence showing an upturn in China manufacturing – had bolstered investor sentiment globally.

The FTSE Asia Pacific index on Friday was up 0.7 per cent after Tokyo’s Nikkei 225 rose 1.2 per cent, the Shanghai Composite index added 0.6 per cent and the Hang Seng index in Hong Kong advanced 1.3 per cent to breach the 22,000 mark for the first time in 15 months.

But this rosier economic scenario faced a critical test on Friday, with the release of the US non-farm payrolls report.

Analysts’ consensus forecasts were for a net 125,000 jobs to have been added in October and for the unemployment rate to rise from 7.8 per cent to 7.9 per cent, according to Reuters.

In reality, a net 171,000 positions were created and the unemployment rate did indeed rise to 7.9 per cent. The report also showed an extra 84,000 jobs were added in August and September than originally thought.

“A better than expected payrolls number continues the recent run of better economic data from the US, and should boost the Obama campaign ahead of next week’s election,” said Ian Kernohan, economist at Royal London Asset Management.

But he warned: “After the election, the market is likely to shift its focus very quickly to the fiscal cliff debate. A failure to reach a compromise here would have a detrimental effect on the economy next year”.

The euro fell 0.8 per cent to $1.2831 after a Greek court ruled that planned pension cuts may be unconstitutional, throwing into doubt whether Athens can secure agreement with its lenders over aid conditions.

The development comes alongside a report showing the Greek economy continues to deteriorate at an alarming rate ahead of the parliamentary vote on the budget next week. It will inevitably revive fears among some traders that Athens may be forced out of the eurozone, reigniting uncertainty over the region’s political and economic prospects.

A survey released on Friday showed the eurozone’s manufacturing base in October contracted for the 15th consecutive month. “Safety” is thus in demand, pushing Bund prices higher and nudging 10-year yields down 2 basis point to 1.46 per cent.

Additional reporting by Jamie Chisholm in London and Michael Mackenzie in New York

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