Indices continue sharp declines on growth fears as payrolls await tomorrow

Indices around the world continued their sharp declines today, with the FTSE 100 losing another 2% going into the close, whilst US markets lost over 1%.

The losses seen over the last few weeks are easily going to rile the calmest of investors, and with potentially yet more volatility to come tomorrow in the shape of non-farm payrolls, one cannot blame the lack of buy side activity shown from traders this week.

There is a deep concern about global growth and of the state of play in the US in particular. Traders are growing increasingly concerned about a sharp slowdown in US economic activity in the third quarter, with important macroeconomic indicators missing consensus over the last few weeks. What’s more, investors are quickly realising that the US is going to embark on a sharp series of public spending cuts and cost savings, as heralded by the recent bipartisan debt deal, and this could slow business and consumer activity further. Add to the mix existing tensions over Italy and Spain being dragged into the sovereign debt crisis and a sour taste of corporate earnings over the last fortnight, and one can easily rationalise that with a market devoid of positive factors this week, losses have quickly escalated.

The sharpness and severity of equity falls seen in both European and US markets has not been seen since May last year, and this is equally concerning.

A lot of the activity we have seen could hinge on tomorrow’s non-farm payrolls. If we get a bad number, which would be the third consecutive time payrolls would have disappointed, it would justify the bearish moves equities have suffered over the last few weeks. If however we get a strong number, upwards of 100k of non-farm payrolls and 150k of private payrolls, it could trigger some really sharp bargain hunting, particularly having seen stocks fall off so sharply and this would be welcomed with open arms. But there remains a big ‘if’ on that happening.

Gold remains in favourGold remains the safe haven asset class of choice for investors during these times of economic instability. We have continued to see high demand for the precious metal, with prices racing through resistance levels and easily reaching near-term targets. The $1650 target set by traders was achieved earlier this week as stock markets plummeted worldwide. The next upside target seen is the $1727 level, which could be feasibly achieved sooner rather than later should we see non-farm payrolls miss market expectations.