Stocks fall as strong US jobs data cloud hopes for rate cut

The US jobs engine smashed forecasts to add 224,000 net new positions last month (AFP Photo/JOE RAEDLE)

Stock markets slid Friday as better-than-expected non-farm payrolls data in the United States clouded investors' hopes for steep cuts in interest rates in the world's biggest economy.

Among Europe's leading blue-chip indices, Frankfurt's DAX, Paris's CAC 40 and London's FTSE all ended the day over half a percent lower.

On the other side of the Atlantic, Wall Street similarly lost around 0.5 percent in midday trading.

Normally, financial markets should take heart from a stronger US economy, to which the latest jobs data testify -- with 224,000 new positions being created last month, well in excess of forecasts.

And the dollar benefitted, rising against all other major currencies.

However, with the US unemployment rate moving slightly higher and average earnings growth falling short of expectations, "the jobs data is certainly a mixed bag," said FXTM trader Ariana Demian.

The data were "likely to complicate the Federal Reserve's decision to cut interest rates this month, especially if economic conditions in the US continue to stabilise leading up to the Fed policy meeting" at the end of this month, she said.

Investors are currently focussed on the size of the rate cut the Fed may deem necessary to avert a downturn further down the road.

Some suggest the strength of the jobs data could throw doubt on the magnitude of the anticipated easing or possibly whether there will be any more cuts at all.

- Looking for more -

"The probability of a 50-basis point cut was slashed, while that of a 25-basis point cut simultaneously rose," said analyst Fawad Razaqzada.

"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-percent trim. That helps explain the markets' reaction," he said.

ING economist James Knightley said he was still pencilling in a quarter-point reduction by the Fed in both July and September.

However, "the market is looking for more," he said.

OANDA analyst Edward Moya was also certain that a modest cut was still on the cards.

"For the Fed to consider a 50-basis-point cut, we will need to see the July 26th second quarter advance GDP reading deliver a sub-2.0 percent reading," he said.

- Trade uncertainty -

Uncertainty over the China-US trade row, which had weighed on market sentiment at the start of the week, has been put aside for now, traders said, but could come back to the fore later as it weighs on the global economic outlook.

Another factor behind the weakness in stock prices on Wall Street on Friday could also be that investors were playing catch-up after it was closed for the Independence Day celebrations on Thursday, traders said.

Oil prices fell as investors continue to fret over the impact of weak global growth on demand, which has overshadowed this week's agreement by OPEC and Russia to extend their output caps.

Even the US-Iran crisis has been unable to perk up the commodity, with news that Britain had intercepted an Iranian oil tanker near Gibraltar -- suspected of carrying crude to Syria -- providing no support.

- Key figures around 1540 GMT -

New York - Dow: DOWN 0.5 percent at 26,841.37 points

London - FTSE 100: DOWN 0.7 percent at 7,553.14 (close)

Paris - CAC 40: DOWN 0.5 percent at 5,593.72 (close)

Frankfurt - DAX 30: DOWN 0.5 percent at 12,568.53 (close)

EURO STOXX 50: DOWN 0.5 percent at 3,527.98

Tokyo - Nikkei 225: UP 0.2 percent at 21,746.38 (close)

Hong Kong - Hang Seng: DOWN 0.1 percent at 28,774.83 (close)

Shanghai - Composite: UP 0.2 percent at 3,011.06 (close)

Euro/dollar: DOWN at $1.1214 from $1.1285 at 2100 GMT Thursday

Dollar/yen: UP at 108.56 yen from 107.82

Pound/dollar: DOWN at $1.2508 from $1.2579

Brent North Sea crude: UP 80 cents at $64.10 per barrel

West Texas Intermediate: DOWN 11 cents at $57.31 per barrel