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US: Stocks fall as strong jobs data cloud hopes for rate cut
[NEW YORK] Stock markets slid Friday as better-than-expected US job data clouded investors' hopes for steep cuts in interest rates in the world's biggest economy.
Wall Street stocks pulled back from records set Wednesday, ahead of the Independence Day holiday, while on the other side of the Atlantic, Europe's leading blue-chip indices, Frankfurt's DAX, Paris's CAC 40 and London's FTSE, all ended the day over half a per cent lower.
Normally, financial markets should take heart from a stronger US economy, demonstrated by the latest jobs data -- with 224,000 new positions created last month, well in excess of forecasts.
But the strong figures challenged the market's certainty about relief from the US central bank later this month, with some analysts now expecting a smaller cut in interest rates, or no cut at all, when the Fed meets July 30-31.
All three major US indices rallied to records Wednesday following a trove of mediocre economic data that bolstered anxiety about a slowing economy and seemingly lifted the odds of a Fed move to bolster growth.
Gorilla Trades strategist Ken Berman said Friday's US jobs data had weakened that argument, especially compared with poor German economic data.
"Since German factory orders were nothing short of disastrous, the divergence between the domestic economy and the rest of the world is well and alive," Berman said in a note.
"That means that the Fed will have a hard time justifying an outright rate cut this month, so volatility could increase in the coming weeks. Stay tuned."
Others said the Fed could go ahead with a smaller cut.
"The probability of a 50-basis point cut was slashed, while that of a 25-basis point cut simultaneously rose," Forex.com analyst Fawad Razaqzada said.
"Consequently, traders are still fully expecting a rate cut at the end of the month, but they are now almost certain it won't be a 0.5-per cent trim. That helps explain the markets' reaction," he said.
ING economist James Knightley said he was still penciling in a quarter-point reduction by the Fed in July and September.
However, "the market is looking for more," he said.
US banks outperformed the broader market, with Goldman Sachs, JPMorgan Chase and Bank of America all finishing with gains on the shifting expectations over Fed action.
The dollar also enjoyed a lift compared with other currencies following the US jobs figures.
KEY FIGURES AROUND 2030 GMT
New York - Dow: DOWN 0.2 per cent at 26,922.12 (close)
New York - S&P 500: DOWN 0.3 per cent at 2,990.41 (close)
New York - Nasdaq: DOWN 0.1 per cent at 8,161.79 (close)
London - FTSE 100: DOWN 0.7 per cent at 7,553.14 (close)
Paris - CAC 40: DOWN 0.5 per cent at 5,593.72 (close)
Frankfurt - DAX 30: DOWN 0.5 per cent at 12,568.53 (close)
EURO STOXX 50: DOWN 0.5 per cent at 3,527.98 (close)
Tokyo - Nikkei 225: UP 0.2 per cent at 21,746.38 (close)
Hong Kong - Hang Seng: DOWN 0.1 per cent at 28,774.83 (close)
Shanghai - Composite: UP 0.2 per cent at 3,011.06 (close)
Euro/dollar: DOWN at $1.1227 from $1.1285 at 2100 GMT Thursday
Dollar/yen: UP at 108.50 yen from 107.82
Pound/dollar: DOWN at $1.2525 from $1.2579
Brent North Sea crude: UP 93 cents at $64.23 per barrel
West Texas Intermediate: UP 16 cents at $57.51 per barrel