US non-farm payrolls shock markets; equities sell off

<p>The FTSE 100 lost 50 points within a matter of minutes on Friday as traders sold out of riskier asset classes such as stocks after […]</p>

The FTSE 100 lost 50 points within a matter of minutes on Friday as traders sold out of riskier asset classes such as stocks after US non-farm payrolls shocked the markets with a meagre 54,000 added in May.

Non-farm payrolls added just 54,000 in May, compared to an already downgraded consensus of 150,000. Private payrolls, which some investors see as a more transparent reading, added just 83,000 compared to a consensus of 175,000. The US unemployment rate grew to 9.1%, when a small fall to 8.9% was expected. This means that all three key measures badly missed market consensus.

In truth, the ADP employment report on Wednesday gave the market a strong clue as to what to expect from today’s payroll numbers. The issue is that the market did not expect the negative follow through to be as strong to the downside. The ADP employment change was the lowest reading since September last year and so certainly the warning signs were there, though I doubt many thought the reading would be as low as just 54,000.

The US jobs reading is a bit of a shock to the system and heightens fears of a slowdown in the US economic recovery. We require greater evidence of the labour market stagnating there to convince us of this, but with the week being really bad in terms of US economic data, one cannot blame traders for offloading stocks and downsizing risk ahead as we delve deeper into summer.

It is too early to make calls for QE3 or theats of a potential double dip recession in the US. Though certainly the recent data coming out of the US paints the picture of a sharp slowdown in activity this quarter.

The market’s reaction was quick and fierce. The FTSE 100 fell 50 points almost immediately to trade at a new one week low before finding some support above the 5800 level. The nearest support level for the UK Index is at 5787 and a break below this could open up a bearish return to the 5600 level. A swift return back above the 5860 level could be vital to maintain the FTSE’s 250-point trading range to which the UK Index has persevered within for much of 2011.

Elsewhere the Japanese yen gained strongly against the US dollar as traders left risky investment classes to seek safe haven assets in the midst of the week’s downturn in US economic data.

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