Neither case has happened.
Jobs data dash recovery hopes
By Krishna Guha and Sarah O’Connor in Washington, Michael Mackenzie in New York and Ralph Atkins in Luxembourg
Published: July 2 2009 13:47 | Last updated: July 2 2009 21:49
Stock markets on both sides of the Atlantic tumbled on Thursday as investors took fright at a bigger-than-expected fall in US jobs last month that dashed hopes the recession was all but over in the world’s biggest economy.
The data showed that the number of people in employment fell 467,000 in June and the unemployment rate rose from 9.4 per cent to 9.5 per cent, its highest for 26 years.
Barack Obama, the president, called the jobs data “sobering”, but expressed confidence that the US would see recovery in the short term.
The official figures sent shares in the US and Europe and commodity prices sharply lower, with investors increasingly doubtful that so-called economic “green shoots” heralded a swift recovery from the worst recession in decades.
In New York, the S&P 500 index was trading 2.9 per cent lower at the close, while the FTSE Eurofirst 300 fell 2.6 per cent and FTSE 100 closed down 2.5 per cent. The yield on short-term US government debt fell, suggesting the market believed the prospect of an early rise in interest rates had diminished.
US Republicans seized on the data to challenge the Obama administration’s claim that its fiscal stimulus was working. Hilda Solis, labour secretary, told the FT the stimulus was saving jobs. But she added: “We are disappointed. The president and I remain deeply concerned about unemployment.”
Steven Ricchiuto, chief economist at Mizuho Securities, said the jobs report indicated that the US housing and car industry may have hit bottom. But he added that “the Obama stimulus plan has not been able to generate the kind of momentum that will end the recession as quickly as the growth optimists had hoped”.
Eurozone unemployment surged to a 10-year high, separate official data showed, with the jobless rate in the 16-country region rising to 9.5 per cent in May, up from 9.3 per cent in April.
The gloomy jobs figures came as the European Central Bank left its main interest rate unchanged at 1 per cent and made clear it was not planning further policy steps to combat the severest recession to hit continental Europe since the second world war.
US government bonds were boosted by the data, led by policy sensitive shorter-dated maturities. The yield on the two-year Treasury note traded at a low of 0.98 per cent. Since peaking at 1.4 per cent last month, the two-year note is back at levels seen before the release of the May jobs report, which subsequently boosted risk appetite and pushed US interest rates higher, as investors believed green shoots beckoned for the economy.
While the dollar rallied sharply, it was overshadowed by the yen, as both currencies benefited from risk aversion. Emerging market equities, currencies and bonds fell as softer commodity prices weighed on sentiment.
“If you were banking on the US driving a vigorous recovery, think again,” said Alan Ruskin, a strategist at RBS Greenwich Capital. “The employment report can largely be taken at face value. . .a labour market that is not improving nearly as rapidly as May data suggested.”
Copyright The Financial Times Limited 2009
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