US jobs report shows lag in payroll, though unemployment rate down: Morning market insights

The New York Stock Exchange fell on Friday night (AEST) as a much anticipated US job report came out showing payrolls climbed only 115,000 in April, the smallest gain in six months and below analyst’s estimates. The good news was the US unemployment rate unexpectedly fell to a three-year low of 8.1%.

Concern about Europe’s debt crisis also helped send stocks lower as services and manufacturing output in the euro region shrank, as France and Greece prepared for elections over the weekend.

Equity futures briefly rose after the jobs report was released before Wall Street’s morning bell, as some investors speculated the US Federal Reserve may consider additional steps to spur growth. If economic data continues to disappoint the central bank may announce a third-round of asset purchases, or money printing (now called quantitative easing (QE)), Keith Wirtz, at Fifth Third Asset Management told Bloomberg.

“The labour report may be the first beat on the drum for QE3,” Wirtz said. He oversees $15 billion worth of investments as chief investment officer for Fifth Third Asset Management in Cincinnati. “As we proceed into summer, watch the releases. Negative beats will lead to Fed actions before Labour Day – ironic by accident.”

“The data point to sluggish job growth, declining labour market participation and for those employed, stagnant purchasing power,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an email today. “Consumption is less dynamic at a time when headwinds from Europe and a potential fiscal cliff are still material.”

The overall jobless rate declined to 8.1% from 8.2%, a three-year low as more than 340,000 people stopped looking for work and dropped out of the labour force. New jobs created in March were revised higher to 154,000 from an initial reading of 120,000, while the gain in February was revised up to 259,000 from 240,000.

Scott Brown, chief economist at Raymond James & Associates in St Petersburg, Florida accurately forecast the new 8.1% unemployment rate.

“We’re still very much on the recovery path, but we’ve got a huge amount of ground to make up in the labour market,” Brown told CNN Money.

The S&P500 Index was down 1.61% to 1369.10.

The Dow Jones Industrial Average was also down 1.27% or 168.32 points to 13038.30.

The NASDAQ Index fell 2.25% or 67.96 points to 2956.34.

“It’s a bump in the road,” Jeffrey Saut, chief investment strategist at Raymond James & Associates told Bloomberg. His firm oversees more than $300 billion. “The economic data has turned softer. I wouldn’t be surprised to see the jobs report tomorrow disappoint. All that will do is allow the market to work off its over-bought condition.”

The West Texas Intermediate (WTI) oil price was down 2.69% to $US95.84 a barrel overnight.

Gold was also down 0.48% to be trading at $US1637.30 an ounce.

The Australian dollar was down, buying $US1.0132 at 8.40am AEST.

Europe

European sharemarkets were down on Friday night ahead of elections in Greece and France, and as weak US job figures were released.

The London FTSE 100 closed down on Friday night 1.93% to 5655.06. The German DAX was also down 1.99% or 132.97 points to 6561.47, while the European Stoxx50 index fell 1.69% to 2248.34.

National benchmark indexes fell in 15 of 18 European financial markets last week. The UK’s FTSE 100 Index (UKX) and France’s CAC 40 lost 2.1%. Germany’s DAX dropped 2.6% for its biggest weekly fall in 2012. Spain’s IBEX 35 Index was down 2.2% as it entered its second recession since 2008.

The French presidential election result had been priced in by financial markets as the socialist challenger François Hollande has been expected to win for weeks. Hollande did win overnight with an estimated 51.7% of the vote to President Nicolas Sarkozy only recording approximately 48.3%. Hallande says he will work to slow the austerity policies in France, and even Europe.

Reports from Athens say the New Democracy party has won about 18.9% of the vote, according to projections from partially counted ballots on state-run Greek NET TV. Pro-bailout socialist Pasok received 13.4% of the vote. Both of these parties imposed the austerity program. On the other side of the debate, anti-bailout party Syriza got 16.6% and Independent Greeks got 10.5%. Based on those figures, Pasok and New Democracy would fall one short of the 151 seats needed to win a majority. The Communist Party won 8.5%, according to the projections, and will receive 22 seats. Anti-immigrant Golden Dawn party got 7% of the vote, entering the Greek Parliament for the first time.

The political uncertainty may last for up to a week as they count every vote for every seat in Parliament.

“Greece needed this election like it needed a hole in the head,” Nicholas Spiro managing director of Spiro Sovereign Strategy in London told Bloomberg. “There’s no political consensus for the kind of reforms that Greece must implement if it wants to remain in the euro zone.”

New Democracy leader Antonis Samaras said he wants to put together a coalition government that will keep the country in the euro area.

“We decided to take over an initiative to form a coalition government on two main pillars: the country remaining within the euro and the change of the economic policies of the bailout,” Samaras said in remarks on NET TV.

The head of Syriza said voters had given him a mandate to renege on bailout agreements.

Greeks want “to cancel the memorandum of barbarity,” Alexis Tsipras said in statements televised in Athens on NET TV. He said he would begin talks with parties of the Greek left tomorrow to achieve that goal. Aleka Papariga, the head of the communist party said she won’t team up with Syriza.

“Uncertainty could well persist further into next week about the new makeup of the Government in Athens, which would raise the possibility of more losses for markets,” Chris Beauchamp, a market analyst at IG Index in London told CNN Money.

“Elections in Europe will not bring support to the markets in our view as their outcomes will probably carry more uncertainty,” Jean-Paul Jeckelmann chief investment officer at Banque Bonhote in Switzerland told CNN Money. “The news flow in Europe has been poor in the last few weeks. That gives market participants the opportunity to take some chips from the table and stay on the sidelines until we get a clearer view on what’s really going on.”

European investors also watched the weak US job figures with caution.

“The closely watched non-farm payrolls report came in significantly below expectations,” said Chris Beauchamp, a market analyst at IG Index in London. “The outlook does not look particularly promising.”

The US labour report will further erode investor confidence,” Markus Allenspach, head of bond research at Julius Baer Group in Zurich told CNN Money. “The financial market can digest one or two negative surprises, but if the negative surprises become the rule and not the exemption, as it is the case now, investors are fast in reducing their positions.”