A smaller-than-expected increase in the number of US jobs created in May instigated panic selling, knocking Wall Street sharply lower at the start of the trading session.
The Non-Farm payroll data released this afternoon indicates that the private sector was fairly reluctant to hire last month, as US companies adopted a wait-and-see attitude amidst heightened Eurozone tensions.
Job creation did happen, albeit at a slower pace than anticipated. US payrolls rose by 431,000 in May, trailing the 536,000 increase shown in a Bloomberg survey of estimates.
Even more disappointing was a 41,000 rise in private sector payrolls. This was expected to increase by 180,000 last month, while the figures for April were revised downward to show a 218,000 gain instead of an originally-reported increase of 231,000. Meanwhile, manufacturing payrolls rose by 29,000, just shy of expectations.
On a more positive note, the US unemployment rate fell more than forecast to 9.7% from 9.9% in April, while average hourly earnings grew 0.3% in May.
In the greater scheme of things, the data emerging from the US isn’t all that bad. It’s the slowdown in the rate of recovery of certain economic data that’s more worrying. Perhaps the problem lies in consensus estimates, which I fear are beginning to appear somewhat optimistic on a day-to-day basis. So tread carefully, because today is a perfect example of what happens when reality bites.
Hopefully the slowdown the pace of the recovery is only a temporary phenomenon, but realistically things in the Eurozone aren’t looking that good, and signs in the banking system and bond markets seem to suggest the situation is poised to get worse before it improves.
As a matter of fact, Hungary’s currency, the forint, tumbled as much as 5.6% against the Euro today on fears that the country faces a Greek-like sovereign-debt problem.
By around 4.00pm (London time) the Dow Jones Industrial Average was trading at 10067.93, representing a 187.35-point (-1.83%) decline from the prior day’s close.
In addition, the broader S+P 500 was 18.35 points (-1.66%) lower at 1084.48, while the Nasdaq 100 retreated 26.13 points (-1.4%) to 1869.53.
The VIX, a volatility index that tends to rise during periods of risk aversion, rallied 9.1% to 32.14 this afternoon, while July light-sweet crude oil futures dropped 2% to $73.14 on fear that a relapse in the global economic recovery will further weaken demand for the commodity.
A broad US Dollar rally, owing to foreign investors increasing their exposure to relatively safer assets such as US government Treasuries, and to a lesser extent gold, also exerted pressure on certain commodity prices this afternoon.
Interestingly, July natural-gas futures bucked the negative trend in the energy, climbing 1.3% to $4.75 per thousand cubic feet. As I mentioned in this morning’s update, ‘investors should keep watch on natural gas, as there has been some talk about the growth in demand for the commodity’.
Metal prices were also in the red today, with the likes of high-grade copper, silver, palladium and platinum for July delivery down between 1% and 2.3% so far this afternoon. June gold futures outperformed, however, falling only 0.3% to $1,204.3 per troy ounce.
Unsurprisingly, mining and energy shares fell this afternoon, with Freeport-McMoRan Copper & Gold retreating 1.6% to $65.14 and Alcoa dropping 1.5% to $11.20. US Steel Corp tumbled 4.4% to $43.28 after Goldman Sachs removed the company from its ‘conviction buy’ on concerns over European credit, Chinese demand and the Gulf of Mexico oil spill. [1]
Meanwhile, BP declined 3% to $38.09 on fear it may postpone dividends to investors in order to deal with the mounting costs associated with the Gulf of Mexico disaster.
Banks were also lower, with the likes of Citigroup, Bank of America and Wells Fargo down between 1.5% and 3% this afternoon.
Bank of New York Mellon lost 2.8% to $26.52 meanwhile, after saying it will offer $700 million of common stock to the public to help fund its previously-announced purchase of a unit of PNC Financial Services Group.
Elsewhere, McDonalds Corp declined 0.74% to $67.35 this afternoon after US officials warned consumers to stop using the company’s Shrek-themed drinking glasses because they contain the toxic metal cadmium. As a result, McDonalds is recalling 12 million glasses.
Source: [1] Bloomberg News (4 June 2010)
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'Spread Betting News 4 Jun 2010', Article by IG Index, last update: 4-Jun-10
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