Disappointing U.S. jobs report could hit world equities

NEW YORK/TOKYO — Reuters

World stock markets look poised to fall early next week and safe-haven government debt prices could rally after U.S. employment figures fell short of expectations on Friday.

U.S. stock futures fell more than 1 per cent and Treasuries prices rallied after U.S. payrolls grew by 120,000 in March, far below the expected gain of 203,000 jobs.

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The MSCI All-County World Index has dipped 2.9 per cent after hitting an eight-month high on March 27. Concerns about slower growth in the United States and China, along with a revival of worries about the euro-zone debt crisis, have reduced appetite for stocks.

“I think the market will grind higher, but it will be at a much slower pace,” said Jack Ablin, chief investment officer at Harris Private Bank. “Earnings and jobs aren’t helping.”

The focus next week is likely to be on several key economic releases from China and the beginning of U.S. earnings season.

Signals that central bankers are unlikely to inject more stimulus has undermined demand for equities.

The S&P 500’s loss for the week of 0.7 per cent was its biggest weekly decline of the year as yields on Spain’s debt marched higher and its equity market plumbed lows not seen since the height of the euro zone’s crisis last year.

Spain’s rising bond yields, which have renewed concerns about Europe’s debt problems, could temper buying interest in coming weeks. Along with Spain, yields in highly indebted Italy rose on Thursday, boosting investors’ safe-haven appetite for U.S. Treasuries and German Bunds, as well as gold.

The euro-zone debt crisis receded from the headlines after heavy doses of stimulus from the European Central Bank late in 2011.

A slew of data due next week from China, the world’s second largest economy after the United States, deterred investors in Asia from taking fresh positions at the end of the week. Signs of a sharper-than-expected slowdown could further undermine sentiment.

“The data from China will be the key measuring stick on how confidence will hold up,” said Yoon So-jung, an analyst at Shinyoung Securities.

China is set to release first-quarter gross domestic product, inflation figures and trade balance data.

U.S. markets next week will focus on the beginning of earnings season, as bellwethers J.P. Morgan Chase & Co. and Google Inc. are expected to report results.

U.S. earnings growth is expected to come in at 3.2 per cent for the first quarter, but that figure falls to 1.8 per cent year-over-year growth when Apple Inc. , the world’s biggest company by market value, is excluded.

The weak U.S. payrolls report for March could renew hopes for more stimulus from the Federal Reserve. That could conceivably help stocks and hurt the dollar.

However, this week’s release of minutes from the Fed’s March meeting suggested less appetite for additional buying of government debt, even as committee members expressed worries about the sluggish pace of U.S. growth.

“The question for the dollar is whether this is as viewed as an outlier in an otherwise improving trend in labor markets or if it’s viewed as enough to revive talk of another round of Fed policy easing,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.

The euro rose against the dollar to $1.3087 after hitting a three-week low of $1.3035 on Thursday, while the dollar index, measured against key currencies, slipped from three-week highs to 79.86.

Trading volumes were light because of the Good Friday holiday and market closings in Europe, and Treasuries rallied sharply, with the benchmark 10-year note up 1-2/32 in price to yield 2.065 per cent.

S&P 500 futures fell 16.2 points, or 1.2 per cent, to 1374, suggesting a weak open on Monday. Nasdaq 100 futures dropped 1.1 per cent, or 31.25 points, to 2722.50 in thin trading. Dow futures dropped 137 points, or 1.1 per cent, to 12,841.

Gold ticked higher to $1,637.99 an ounce in thin trade on Friday but ended down 1.8 per cent on the week. Bullion hit a near three-month low of $1,611.80 this week.

Oil rose on Thursday after two straight days of losses on firm U.S. data and fears of Iran-related supply disruptions. Brent crude futures climbed 0.89 per cent to settle at $123.43 a barrel, and U.S. crude jumped 1.81 per cent to settle at $103.31.

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