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US job data joy overshadowed by EU defiance ? Latest Market Analysis

Investors will welcome a much needed break this weekend, during which they are likely to reflect on the chaos that progressively engulfed financial markets as the week drew to a close. With the US debt problems effectively in the rear view mirror post Tuesday’s medium term resolution, US growth fears and contagion of the European debt crisis to Italy and Spain caused aggressive equity selloffs on a scale not seen since 2009.

The respective leaders of France, Germany and Spain, noted for being on holiday, were expected to hold a conference call later in the day although at the time of writing nothing had materialised. The end of the week saw BNY Mellon charging depositors to hold money with the bank, and a similar phenomenon was also occurring in the short dated Treasury Bill market. The fact that investors were accepting negative returns on their assets, a scenario that has not been seen since the darkest days of the financial crisis, aptly epitomises the fear that caused equity markets to continue their declines this morning, with the FTSE opening 2.5% lower.

The stage was set for US non-farm payrolls and unemployment data which, given its indication as to the health of the US economy, were going to have a significant impact. Economists had predicted that non-farm payrolls would gain 85,000 in July and as such, the 117,000 number that fed through in the early afternoon was greatly received. The FTSE initially jumped 90 points, roughly two percentage points, whilst US treasuries fell as additional data indicated the unemployment rate edged lower by 0.1% to 9.1%. Within half an hour UK and European markets had recovered to neutral territory.

The relief was short lived however, as a CNBC interview with the EU’s Commissioner of Economic & Monetary Affairs Olli Rehn quickly exacerbated Eurozone worries. Instead of hinting at the action and intervention markets were seeking, Mr Rehn astounded them by refusing to accept the situation needed addressing. The FTSE instantly lost 120 points to more than offset the gains in response to positive US jobs data. In a five minute interview, Rehn’s failure to acknowledge the impact and magnitude of recent events, had managed to wipe £30bn off the value of the FTSE 100 alone, which eventually closed 146 points lower at 5247.

At a stock level, RBS saw its shares plunge more than 20% in early trading following disappointing earnings. Despite recovering somewhat, the state owned bank finished as the worst decliner at 7%. Bank shares in general were highly volatile, heading the fallers when the market was down but topping the risers during the mid day recovery.

This was posted in Bdaily's Members' News section by John Dance .