FTSE finishes the week on a sour note on US jobs stagnation

The FTSE 100 finished the week on a sour note after investors decided to downsize the amount of risky assets that had built up throughout the bullish start to the week as US jobs badly missed analyst forecasts. It was the moves by investors to shy away from risk that locked in a sour end to the week, with the FTSE 100 losing over 2% going into the close having rallied 5% in the first two trading days of the week with the UK index failing to breach technical resistance levels.

A 3% fall in the price of crude on fears over the state of the global economic recovery, along with a 1% fall in Copper prices weighed on the key miners and oil firms. Investors therefore sold out of the heavyweight miners and oil stocks, which were the key drags on the UK Index, recycling funds into the typical safe haven asset plays such as Utility stocks, which were the only stocks to see gains on the day, Gold, which surged back towards the $1880 level, and the Swiss Franc, which strengthened 1.4% against the euro.

UK banks also saw weakness, with investors quick to cash in their profits after yesterday’s gains for Barclays, Lloyds and RBS on speculation that banking reform may be delayed.

With Monday being US labor day also, meaning that US markets are shut, investors are also trying to minimise risk ahead of an expected leave of absence from the markets for the long weekend and unfortunately todays non farm payrolls has speeded that motivation somewhat.

US jobs stagnate in August
It was a bad number for US jobs in August, which showed zero change for non farm payrolls whilst private payrolls also disappointed, creating just 17,000 jobs when a figure closer to 100,000 was expected. The US unemployment rate held steady at 9.1%. Equally troubling could be the fact that average working hours fell from 34.3hrs to 34.2hrs, which could indicate that companies are trying to scale back employment costs.

Considering the shockingly bad US consumer confidence number we saw for August, which was at a two year low, one should not necessarily be too surprised that businesses failed to hire more staff last month. There are also several exceptional circumstances that may have influenced these numbers too, such as the Verizon jobs strike. Realistically speaking, we will need to see more evidence of a stagnation and potential contraction in the US jobs market for the case for a ‘double dip recession’ rather than anaemic growth can strengthen.

The reaction in the markets was a continuation of stock selling of the morning trade to force the FTSE 100 lower by 2.3%, losing some 60 points or 1% in the initial minutes after the US jobs data was released, with the miners, oil and banking firms suffering the most from the selling. However, losses could be tempered by a realisation that this poor set of jobs numbers will heap yet more pressure on the Federal Reserve to stimulate growth. One supposes that a positive aspect from these numbers is that it could help to free the hands of the Fed to act by tempering the political antipathy shown from US politicians when considering QE3 in the first place.