World stock markets remain lower after soft jobs report; losses minimized by Fed easing hopes

By Pan Pylas, AP
Friday, October 8, 2010

Weak US jobs data keeps stocks in retreat

LONDON — World stocks traded lower Friday after a disappointing U.S. jobs report cemented market expectations that the Federal Reserve will introduce another batch of monetary easing measures next month.

The prospect of more dollars in the system helped prevent a rout in stock markets but kept the pressure on the U.S. currency ahead of a key meeting of finance ministers in Washington D.C.

In Europe, the FTSE 100 index of leading British shares was down 17.71 points, or 0.3 percent, at 5,644.42 while Germany’s DAX fell 31.97 points, or 0.5 percent, at 6,244.28. The CAC-40 in France was down 22.71 points, or 0.6 percent, at 3747.76.

Wall Street was poised for a retreat at the open — Dow futures were down 22 points, or 0.2 percent, at 10,890 while the broader Standard & Poor’s 500 futures fell 2.2 points, or 0.2 percent, to 1,154.10.

The news that overall nonfarm payrolls in the U.S. fell by a greater than anticipated 95,000 in September, despite a 64,000 increase in private sector jobs, kept stocks on the back foot. It did not prompt a huge retreat, however, as investors now think it’s a near certainty that the Fed will resume asset purchases to help the economy in the next few weeks — the most likely date is thought to be Nov. 3 at the conclusion of its next rate-setting meeting.

“This is a soft jobs report and the gain in private sector employment is still not strong enough to absorb entrants coming into the work force where you need jobs growth of at least 150,000 per month,” said Neil MacKinnon, global macro strategist at VTB Capital.

Stocks have been buoyed since Tuesday’s decision by the Bank of Japan to cut its interest rate to near zero percent and prepare a 5 trillion yen ($60 billion) fund to buy government bonds to prop up the faltering Japanese economy. Investors concluded that the Fed will likely be the next central bank to effectively start up the printing presses again.

While stocks have risen, the dollar has been hit hard by the prospect there will be more dollars swirling around the financial system.

At one stage on Thursday, the euro pushed back above $1.40 for the first time in eight months while the dollar sank below the level that had prompted the Bank of Japan to intervene in the markets last month to rein in the export-sapping appreciation of the yen.

However, since then the dollar has clambered off lows and by mid afternoon London time, the euro was down 0.2 percent at $1.3883. The dollar was down 0.3 percent at 82.02 yen, just above an earlier 15-year low of 81.97 yen.

Now that the jobs data are out of the way, traders across all financial assets will be monitoring developments in Washington D.C. as the finance ministers from the Group of 20 leading industrial and developing countries meet ahead of the half-yearly meetings of the International Monetary Fund and the World Bank.

The volatility in the currency markets will clearly form the backdrop of the discussions but analysts do not expect any dramatic moves apart from the usual lambasting of China’s currency policy. China effectively keeps its currency artificially low against the dollar in order to boost exports, which in the process is blamed for the imbalances in the global economy.

On Thursday, European Central Bank president Jean-Claude Trichet appeared to voice some concerns about the recent ascent in the value of the euro, when he said that currency rates should reflect the fundamentals and that excessive volatility risked damaging economic growth.

Meanwhile, the latest U.S. quarterly corporate earnings season kicked off Thursday, with better than expected earnings from aluminum company Alcoa Inc.

Earlier in Asia, Japan’s Nikkei 225 stock average lost 75.93 points, or 1.0 percent, to 9,588.88 amid renewed concerns over the yen’s rise — on Thursday, the dollar dropped to a fresh 15-year low of 82.12 yen.

Shares in mainland China jumped, with investors playing catch-up as financial markets reopened after the weeklong National Day holidays. The Shanghai Composite index vaulted 3.1 percent to 2,747.80.

Hong Kong’s Hang Seng index gained 0.3 percent to 22,944.18.

In the commodity markets, gold, which is considered a safe alternative to the dollar, hit another record of $1,366.00 an ounce Thursday before pulling back to $1,342.60, while benchmark crude was down 27 cents at $81.40 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.56 to settle at $81.67 a barrel on Thursday.


Associated Press Writer Alex Kennedy in Singapore contributed to this report.

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