Friday 21:10 BST. Riskier assets enjoyed a bit of “bargain hunting” as traders absorbed a soft US jobs report and surveyed the damage after a week of bad news that brought fears of slowing global economic growth to a new level.
The FTSE All-World index was up 0.2 per cent, though commodity prices were softer and the dollar was weaker, which helped the euro extend gains that had taken it to a five-week high.
Analysts’ consensus was for a net decline of 110,000 positions in June non-farm payrolls – mainly the result of census job losses – and for 112,000 private sector jobs to have been created.
In the event, a headline 125,000 jobs were lost and 83,000 private sector roles were added. The unemployment rate fell from 9.7 per cent to 9.5 per cent as more people stopped looking for work.
Market reaction was muted, with some traders seemingly relieved that the report had not been worse given how other recent data – particularly global manufacturing surveys and US household reports – have provided evidence that the global recovery is faltering.
This, coupled with lingering concerns about the impact of eurozone fiscal woes – in spite of an easing in the region’s interbank tensions of late – has already helped push the benchmark S&P 500 in New York to its lowest close since October, a fall of 16 per cent from April's cyclical peak.
The S&P 500, after climbing slightly higher for much of the the day, was 0.5 per cent lower on the session. A fall in factory orders also weighed on sentiment.
Many attributed the mixed reaction to traders closing positions ahead of the July 4 holiday in the US.
“A sense of at least some degree of exhaustion permeated the landscape as denizens of the market who participated in the morning data-focused session began to exit trading rooms for holiday destinations,” said John Stoltzfus, chief market strategist at Ticonderoga Securities.
To some extent, US stock markets were encouraged by watching the Treasury market, which was softer on the day. But equity traders may have been misled, as bond traders were moving ahead of another round of big auctions next week – $70bn worth of 3-, 10-, and 30-year bonds.
Other metrics also indicated fear was still the dominant mood. Oil fell closer to $70 a barrel, and US 2-year swap spreads, a key gauge of credit spreads, rose 1.4bp. The Vix fear index declined, but still remains near 30, indicating an elevated sense of anxiety.
● Europe. Bourses had a solid start, reflecting Wall Street’s late moves off its lows overnight, and held on to those gains despite a wobble after the US labour data were released. The FTSE Eurofirst 300 is up 0.1 per cent and London’s FTSE 100 is higher by 0.7 per cent with support from resources groups lead following the Canberra tax deal and the view that recent falls may have been overdone.
● Forex. It was an initially quieter session after Wednesday’s astonishing moves, when long-held risk correlations were reversed. Traders had scrambled to react to the dollar’s negative reaction to weak US and global data – catalysts that had previously caused investors to seek the greenback for its perceived haven characteristics.
This switch also seemed to provide further power to a euro rally – initially predicated on hopes for reduced sovereign debt and financial sector risk – driving the single currency up 2 per cent to its best level versus the buck since the end of May.
The dollar is again struggling following the downbeat US data, though it is picking up toward the end of the session. It is now down just 0.2 per cent versus the euro at $1.2554, up from a trough of $1.2611. It is off just 0.4 per cent on a trade-weighted basis.
● Debt. US 10-year Treasury yields were up 3 basis point at 2.98 per cent, having at one stage breached 2.9 per cent on Thursday, as investors analyse the jobs numbers.
Eurozone peripheral sovereign bond yields are generally slightly lower and sentiment towards corporate debt is improving as credit default swap gauges tighten.
● Commodities. Growth worries are pushing the complex lower. The Reuters-Jefferies CRB commodities index is down 0.7 per cent. Oil, which at one point on Thursday was down 5 per cent, is off another 0.8 per cent at $72.39 a barrel.
Gold is bouncing back a bit after a torrid time in Wednesday’s broad sell-off. The precious metal swiftly shed more than $40 dollars to drop below the $1,200 level as funds liquidated short euro/long gold trades as the single currency rallied. Today it is up 1 per cent to $1,211 an ounce.
● Asia. The FTSE Asia-Pacific index was down 0.2 per cent as Hong Kong plays catch-up after a day’s public holiday and the region reacts to Thursday’s US data. The Hang Seng fell 1.1 per cent but the Shanghai Composite has turned round an early fall to advance 0.4 per cent after Beijing revised up its 2009 GDP growth from 8.7 to 9.1 per cent.
The Nikkei 225 in Tokyo rose just 0.1 per cent, though market technicians were pleased to see the index managed to hold above the apparently supportive 9,200 level. Sydney was flat as investors absorbed the implications of the compromise on the minerals tax.
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