Recession fears amid weak US job numbers

UNEXPECTEDLY weak US job numbers for August yesterday reinforced fears of recession, driving investors out of stocks and into the safety of bonds, gold and the Swiss franc. World stocks fell nearly 2 percent after the US Labour Department said employers added no new jobs in August and July’s figure was revised lower.

The biggest reaction came in the US Treasuries market, where the yield on the 30-year bond hit two-and-a-half-year lows on growing bets the dismal data will compel the Federal Reserve to take additional steps to boost the economy.

After a treacherous August of out-sized market volatility, the jobs report feeds worries that September could bring more of the same, especially if economic data rekindles fears of another recession.

“There are a lot of confidence issues in the marketplace; the jobs number only made things worse,” said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.

There is now a growing expectation the Federal Open Market Committee will extend the maturity of its $1.65 trillion Treasuries holdings at its September 20-21 policy meeting. The intended effect would be to push rates lower throughout the economy in an attempt to ignite consumer demand.

In a note, Goldman Sachs economists said they expect the Fed will announce plans to lengthen the average maturity of its portfolio, “with sales of relatively short-dated Treasuries and purchases of relatively long-dated Treasuries.”

Gold futures surged 2.8% to nearly $1,880 an ounce.

The 30-year bond soared three points in price, briefly bringing its yield to its lowest level since February 2009.

After two hours of trading. Wall Street’s Dow Jones industrial average was down 178.99 points, or 1.56%, at 11,314.58. The Standard & Poor’s 500 Index was down 20.81 points, or 1.73%, at 1,183.61. The Nasdaq Composite Index was down 39.62 points, or 1.56%, at 2,506.42.

“This (jobs) report will certainly strengthen the case for the doves on the committee going into the next meeting later this month,’ said Millan Mulraine, senior US macro strategist with TD Securities, New York.

Benchmark 10-year Treasury notes were up 21/32 in prices, with a yield at 2.05%, down 8 basis points on the day.

The 10-year yield is within striking distance of 1.976%, an intraday low set in mid-August, according to Tradeweb, and a level not seen in at least 60 years.

In Treasury Inflation Protected Securities trading, the yield on 10-year TIPS touched minus 0.02%, down 7 basis points from late Thursday.

This signalled that traders have slashed their expectations for long-term US economic growth and inflation.

The Swiss franc was up 1.7% at 0.7821 to the dollar, after hitting session highs at 0.7959.

World stocks also slumped while core government bonds rallied with US Treasuries.

The MSCI world equity index lost 2.6%, while European stocks were down 2.9%. Emerging stocks fell 1.4%. Bund futures rose 1%, hitting a record high on safe-haven demand.

Crude oil futures in New York fell 3.5% to below $86 a barrel as worries that a weaker economy in the United States — the No 1 energy consumer — would hit demand for fuel.

The euro was at $1.4195, having hit a three-week low of $1.4184 earlier on confirmation that Greece will miss its 2011 deficit target of 7.6% and uncertainty over Italy’s commitment to austerity measures.