04/09/10 - 01:30
UK Research Team, IG Group
Wall Street opened firmly higher this afternoon after the private sector added more jobs than forecast in August, however the gains were limited following a dip in the ISM Non-Manufacturing Index.
The US labour force lost 54,000 jobs in August, which was less than the 105,000 job losses economists were expecting. A major contributor to the decline was the winding down of 114,000 temporary workers hired for the US census. Of more importance was that the private sector added 67,000 new workers, which was ahead of the 40,000 expected by economists. Interestingly, the previous month's employment figures were substantially revised upward. In July there were actually 54,000 jobs lost, not the 131,000 originally reported, while the private sector added 107,000 jobs in July instead of the 71,000 reported.
The payroll data today was encouraging as it points to a pick-up in private sector hiring which will hopefully continue to build in the future. However the fact remains that the US economy still has a long way to go if it is going to tackle its high unemployment rate, which increased to 9.6% today. Nonetheless, the payroll data should ease concerns that the US economy will slip back into recession, and take some pressure off the Fed to implement further monetary easing.
Taking some of the shine off today's employment data was a drop in the ISM non-manufacturing index. Business conditions outside of manufacturing fell to 51.5 in August, which was below the consensus estimate of 53.2. The slowdown in growth served as a reminder that conditions in the US remain challenging for businesses which dragged Wall Street off its daily high.
By 4pm (London time) the Dow Jones Industrial Average had gained 48.59 points (+0.47%) to 10368.69, the S&P 500 was 5.62 points higher (+0.51%) at 1095.72, and the Nasdaq 100 outperformed again – rising 12.52 points (+0.68%) to 1853.10.
Growth-based assets pushed higher off the back of the employment data. Industrial heavyweights Caterpillar and General Electric were among the best performers on the Dow Jones, rising 2.8% and 1.98% respectively. The banks were also firmer, with Bank of America adding 2.41%, JP Morgan Chase advancing 2.02% and Goldman Sachs climbed 2.86%.
Copper continued its steady upward trend, rising 1.06% to $3.5250 an ounce, while natural gas jumped 1.33% to $3.801 per million British thermal units.
The traditional safe-haven assets retreated, with gold tumbling 0.95% to $1,240.70 and the US dollar advanced 0.7% against the yen to trade at 84.90. Yields on ten-year US Treasuries rose by ten basis points to 2.73%, while the two-year note rose three basis points to 0.53%. The yield on Treasury bonds have been driven to record lows this year as investors pulled out of equities and piled into bonds to safeguard their cash. The rising yields suggest that investors may be selling out of their bond positions to take up riskier assets. When the yield on a bond rises the price of the bond declines. While it may be too early to suggest that this is the beginning of a bond sell-off, if the economic indicators going forward point to a sustainable recovery then it may provide an excellent opportunity to start shorting (selling) bonds.
In foreign exchange, the improved risk appetite saw a broad decline in the US dollar (except for yen as previously mentioned). GBP/USD advanced 0.26% to $1.5430 while the EUR/USD was 0.34% higher at $1.2870. The Aussie dollar has been making stellar gains against the US dollar, rising 0.56% to $0.9165 as improved prospects for the global economy bode well for the resource-rich island continent.
Investors should note that the US market will be closed on Monday for Labor Day.
Regular Feeds
Chris Weston, Market Analyst, is the face of our video market updates and presents live from our trading floor daily. His expert commentary can also be seen regularly on Sky News Business Channel, plus Bloomberg, ABC2 and the Australia.
Plan your day
More in-depth market news is available within our PureDeal platform, as well as a range of free charting and research tools.
Disclaimer: The above material does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations. The information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information provided is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision based on the material above. You can either make this assessment yourself or seek the assistance of an independent financial advisor. IG Markets Limited accepts no responsibility for any use that may be made of these comments and for any consequences that result.
SHARE: