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Market Blog: shares sink as US jobs data adds to woes

Market Blog: shares sink as US jobs data adds to woes

by Chris Marshall Jun 01, 2012 at 15:53

15.53: Ireland’s voters have officially voted yes for Europe’s fiscal pact in a referendum, with 955,091 yes votes and 629,088 no votes, according to the Irish press.

Irish prime minister Enda Kenny was set to hold a press conference at 4pm on Friday.

That removes one source of uncertainty for markets, but plenty more remain.

Added to the terrible US jobs numbers earlier (see below) is more data on manufacturing, with the ISM manufacturing index declining by 1.3 points to 53.5 in May. A number above 50 signifies expansion. Economists said this figure was good at least in comparison with other slumping economies around the world

Investors are increasingly calling for action from governments and central banks. Here's our Week Ahead round up of the events to come.

13.35: Big bad news for markets and the global economy: US nonfarm payrolls increase by just 69,000 in May. The consensus expectation among economists was for 150,000. The figure adds to downbeat economic news from China and the eurozone where weak manufacturing surveys have been published.

This is the weakest figure in a year, adding to concerns about the momentum of the US economic recovery and leading to renewed calls for more quantitative easing in the US.

In addition, US Unemployment rate was unchanged at 8.2%, and payrolls for April were revised down from 115,000 to 77,000.

As a result...

  • FTSE 100 down 1.4% AT 5244
  • Eurofirst 300 2% lower
  • German Dax 2.6% lower
  • Crude oil price continues to fall, hitting $99.05
  • 10 year US government bond yields drop sharply to a record low of 1.469% as investors seek safety

The chart is from the U.S. Bureau of Labor Statistics, which publishes the closely-watched numbers.

12.05: The price of Brent crude oil has fallen below $100 (see chart below), as the economic crisis deepens after today's string of weak data for the eurozone, China and UK. The falling price is at least a help for squeezed consumers and businesses. And in other good news, Ireland has voted yes for the European fiscal compact, news sources are saying.

Please visit our full site to view this interactive chart

11.49: The terrible state of UK manufacturing in May has prompted expectations that the Bank of England will vote to extend its quantitative easing programme when the monetary policy committee meets next week. Lloyds analysts reckon another £50 billion is likely.

Full story here: Chart of the Day: prepare for more QE next week

10.45: Martin Lewis, who owns the Moneysavingexpert website is cashing in with a £87million MoneySupermarket.com (MONY.L) deal. Shares in the acquirer are up 0.6% to 116p.

Victoria Bischoff has the full story here: Martin Lewis’ MoneySavingExpert sold to Moneysupermarket

10.32: Investors are getting pummeled by bad news today, and as a result are again seeking the comfort of low or no yielding safe haven goverrnment bonds.

The weak factory output in China (see post below at 08.01) and in Europe (see post below at 09.20) has been followed by an increase in the eurozone jobless rate to 11% after the number of jobless rose by 110,000 in April, the twelfth straight monthly increase.

From Eurostat:

'Among the Member States, the lowest unemployment rates were recorded in Austria (3.9%), Luxembourg and the Netherlands (both 5.2%) and Germany (5.4%), and the highest in Spain (24.3%), Greece (21.7% in February 2012), Latvia (15.2% in the first quarter of 2012) and Portugal (15.2%).'

Brent crude oil has fallen to $100.88 on the string of poor economic news.

The FTSE 100 has sunk further to 5293.

UK 10 year government bonds, or gilts, have fallen below 1.5% as the weak PMI data raised hopes of more quantitative easing when the Bank of England monetary policy committee meets next week. 'Further easing is likely, and we believe the next installment of QE could come next week,' commented Michael Saunders of Citi.

Please visit our full site to view this interactive chart

09.20, updated 09.40: More nasty news from Europe, and the UK, where manufacturing data shows the economic downturn is weakening further.

Here are the highlights from data provider Markit:

  • Eurozone manufacturing PMI fell to near a three-year low in May, at 45.1
  • PMIs for Germany, France and Spain all fell to their lowest levels since mid-2009.
  • Ireland was the only nation to signal an expansion of even modest note in May.
  • Greece moved off the bottom of the euro PMI league table for the first time since January 2010, replaced by Spain.
  • UK manufacturing production contracted for the first time in six months in May, to a three year low.

Here's a useful summary from Markit:

 

‘The rate of decline is nowhere near as severe as that seen at the height of the 2008-09 crisis, but the situation is nevertheless deteriorating at an alarming rate,’ commented the company’s chief economist Chris Williamson.

The FTSE 100 has subsequently given up its gains, to 5,317. European markets are lower, with the Eurofirst 300 down 0.45%

08.20: BP has found investor favour after announcing it will pursue a sale of its shareholding in TNK-BP, the Russian oil company that it half owns with Alfa Access Renova (AAR).

In a statement BP (BP.L) said:

‘BP announced today that it has received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP.

‘In light of these unsolicited approaches and consistent with its commitment to maximising shareholder value, and its obligations under the Shareholder Agreement, BP has notified Alfa Access Renova of its intention to pursue a potential sale.’

Shares in BP were up 16p or 4.2% to 411p, the biggest riser on the FTSE in early trading as investors welcomed the news.

Analysts at Canaccord Genuity, who last week upgraded BP shares to a ‘buy’, commented this morning: ‘in terms of dividends received it has been an excellent financial investment but ‘TNK-BP is now widely viewed in the market as one of BP's principal risk factors’ amid tensions between BP and AAR.

‘There is no clarity at this stage on the potential buyer or on price, but if BP could exit TNK-BP at a reasonable price, we think the market would take the move as a major positive,’ they said.

Andrew Whittock of Liberum also welcomed the news: 'The market should welcome the disposal of the problematic JV which will free up management resources and have little impact on BP's growth opportunities.'

The Canaccord team value BP's 50% share of TNK-BP at $29 billion.

08.01: Economists are again leaning on China’s authorities to take action after a sharp drop in manufacturing activity raised concerns about the risks to the world’s second largest economy.  

May’s official headline manufacturing PMI – a closely watched indicator of the state of the economy – came in at 50.4, 2.9pts below the previous reading of 53.3. A reading below 50 indicates contraction; above represents expansion.

The news is another blow to jittery investors: after weak US economic data and the growing eurozone worries, hopes are that China can continue to grow strongly. Signs of a downturn in China though are always a double-edged sword for markets as they generally boost expectations of market-aiding monetary measures.

The FTSE 100 opened up 0.25% to 5337 despite the bad news from Asia.

‘Beijing has to send stronger easing signal to restore market confidence,’ said Yao Wei of Societe Generale.

Economists at ANZ Research said: ‘we believe that further monetary policy easing, plus faster implementation of the government’s fiscal commitments, will help arrest the decline in Chinese economic activity and the economy will start to rebound strongly from June onwards.’

Some economists did however caution that the PMI ‘isn’t the most reliable forward-looking indicator’. Alistair Thornton of HIS Global Insight said: ‘Certainly, it still deserves to be watched, but it is important to understand what it’s actually telling us – it measures sentiment, not output.’

The chart shows two measures of China's PMI - the official one reported today and the HSBC measure.

Asian markets were lower, following losses in the US. The Dow Jones industrial average dropped 26 points, or 0.21%, to 12,393. The S&P 500 Index fell three points, or 0.23%, to 1,310. The broad S&P 500 index declined 6.3% in May, its largest percentage drop since September. The Nasdaq Composite lost 10 points, or 0.35%, to 2,827.

The main focus today though will be US non farm payroll numbers later on.

In other news Spain's economy minister has dismissed talk of it seeking a bailout from the International Monetary Fund (IMF) as ‘senseless’.

Meanwhile, a new Greek opinion poll has shown that the leftist SYRIZA party has a six-point lead over their conservative pro-bailout rivals.

See our coverage of overnight markets here.

Read our review of the day’s papers here.

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Comments  (1)

  • Christopher: 

    I got out of BP when they went into TNK - I've always thought they were crazy to try a 50/50 deal with Russian oligarchs - they play by different rules and BP never got the hang of them

    06:55 on 02 June 2012

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