World stock markets down ahead of US jobs data; dollar stabilizes after sharp falls

By Pan Pylas, Gaea News Network
Friday, October 8, 2010

Stock markets down ahead of US jobs data

LONDON — World stocks fell Friday as investors remained cautious ahead of key U.S. jobs data that could determine whether the Federal Reserve decides to introduce another batch of monetary easing measures.

The FTSE 100 index of leading British shares was down 19.79 points, or 0.4 percent, at 5,642.34 while Germany’s DAX fell 18.63 points, or 0.3 percent, at 6,257.62. The CAC-40 in France was 17 points, or 0.5 percent, lower at 3,753.47.

Wall Street was poised for modest losses at the open — Dow futures were down 24 points, or 0.2 percent, at 10,888 while the broader Standard & Poor’s 500 futures fell 3 points, or 0.3 percent, to 1,153.50.

How stocks end the week will largely hinge on the September nonfarm payrolls figures, which are released an hour before the Wall Street opening bell.

The consensus in the market is that overall employment fell by around 25,000 with the loss of census workers largely behind the decline. And though 75,000 private sector jobs are expected to have been created during the month, the unemployment rate is expected to edge up by 0.1 percentage point to 9.7 percent.

In most months, the payrolls data set the stock market tone for a week or two after their release.

This time, they could prove to be even more important as the Fed decides whether to resume asset purchases of some form or other 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 does have the potential to act as something of a tipping point especially as equities continue to plot a broadly upward trend despite the uncertainties in the medium term,” said Ben Potter, research analyst at IG Markets.

Stocks have been buoyed since Tuesday’s decision by the Bank of Japan to cut its interest rate to near zero percent and its announcement it is preparing a 5 trillion yen ($60 billion) fund to buy government bonds and other assets to prop up the faltering Japanese economy. Investors have 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 morning London time, the euro was flat on the day at $1.3919 while the dollar was steady at 82.34 yen.

“The pullback has been sufficiently pronounced to remind markets that this is not a one-way bet, and will encourage a number of players to consider whether the currently depressed level of the dollar offers good value,” said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole.

While keeping one eye on the jobs figures out of the U.S., 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.

“This underlines the fact that there are still tangible reasons as to why equities can still hold favour,” said IG Markets’ Potter.

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 $1,333.070, while benchmark crude was down 69 cents at $80.98 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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