Stocks end week lower after US jobs data leaves Fed move unclear

New York (Sept 5)   Stocks on major markets fell yesterday, closing out another tough week for equity markets, after the monthly US employment report failed to provide a clear signal on the likelihood of the first Federal Reserve interest rate rise for nearly a decade later this month.

The US added 173,000 jobs in August, fewer than expected, but job gains in prior months were revised higher and the unemployment rate dropped to a seven year low at 5.1 per cent. “Regardless of the global dislocation for equities, investors still seem to be preparing for a lift-off in the fed funds rate,” said Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut. “There’s not a lot to stop the onset of tightening at some point in the near future,” he added. US, European and Japanese stocks all ended the day and the week lower, though the euro and yen remained firm yesterday, while US Treasury yields edged lower. On Wall Street, S&P 500 index slid 1.53 per cent to 1,921.22 and lost 3.4 per cent for the week, but held above the three year low seen last week, with the Chinese stock market closed for a holiday for the last two days after it saw a two year low the previous week.

The CBOE Volatility Index, Wall Street’s so-called fear gauge, closed up 7.89 per cent at 27.63, at about double the level seen for the most part this year until last months bout of volatility. The pan-European FTSEurofirst 300 index closed down 2.5 per cent to 1,392.63 points, and was off 3.0 per cent for the week. MSCI’s all-country world stock index slid 1.65 per cent, and lost 3.7 per cent for the week, while its emerging markets index fell 1.96 per cent and lost 3.8 per cent for the week. “One of the biggest problems we face is that there is no historical template for current global market conditions so we’re all flying blind to a large degree,” said Deutsche Bank credit strategist Jim Reid. “Never before have so many of the most important countries in the world printed so much money and left base rates so low for so long.” US medium- and long-dated Treasuries prices rose, while short-dated prices were slightly lower. The benchmark 10-year Treasury rose 11/32 in price to yield 2.1297 per cent yesterday, while the US two-year note fell slightly to yield 0.7046 per cent. Euro zone bond yields fell further following a strong signal from the European Central Bank on Thursday that it is willing to take further steps to shore up the currency bloc’s economy.

German 10-year yields, the euro zone benchmark, fell 7 basis points to 0.67 per cent, their lowest level in more than a week. After a two day holiday in China, US investors head into a long weekend with the US Labour Day holiday closing markets on Monday. “The market’s confused. It doesn’t know what to buy,” said John Augustine, chief investment officer at Huntington Trust in Columbus, Ohio. “What markets seem to be playing today is a weaker China and a more hawkish Fed.” The US dollar index of major currencies fell 0.20 per cent, while the dollar last traded at ¥118.99 (RM4.40), or a loss of 0.89 per cent against the yen.

The euro edged up 0.26 per cent at US$1.1150 (RM4.80). Expectations of a September rate hike by the Fed have waned as a slowdown in China has brought increased market volatility across asset classes, causing the US dollar’s rally of the past year to wane. Crude oil futures fell as traders paid little heed to a drop in the number of US rigs drilling for oil, focusing instead on this year’s ongoing supply glut. Brent crude, the global benchmark for oil, fell US$1.07 to settle at US$49.61 a barrel. US crude’s front-month settled down 70 cents to US$46.05. “Oil is only the beginning of this story,” Ian Bremmer, president of Eurasia Group, noted this week. “In fact, the value that producers of oil, gas, metals, minerals and other commodities have lost just in the past year comes to about US$2 trillion, the size of India’s entire economy,” he said. “China by itself accounted for about 17 per cent of the world’s overall GDP in 2014, but its demand for imports has already fallen 14.6 per cent over the first seven months of 2015.”

The Reuters commodity index ended down 0.9 per cent yesterday and is down 14.0 per cent for the year to date.

Soiurce: Reuters