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Fears of soft US jobs data hit shares, dollar firm

LONDON, April 5 — European shares hit a one-month low today as investors fretted about US jobs data later in the day and sold airline stocks on fears of a bird flu outbreak in Asia, while euro zone bonds gained on talk of Japanese demand.

Traders have become increasingly nervous about the prospect of a weaker than expected US non-farm payrolls report for March, due out at 1230 GMT, after disappointing data this week on manufacturing activity and private-sector hiring.

The FTSEurofirst 300 index of Europe’s top companies was down 1.5 per cent at 1,163.40, a one-month low, after falling 1.1 per cent in the previous session. It is still up about 2.5 per cent so far this year, however.

“Recent weakness in global economic data has certainly spooked investors and prompted them to stay very cautious,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets. “If US jobs data turns out to be weaker than anticipated, it would certainly add to already jittery sentiment.”

London’s FTSE 100, Frankfurt’s DAX and Paris’s CAC-40 were up to 1.7 per cent lower.

A drop of around 0.6 per cent in US stock futures suggests a lower start on Wall Street, although much depends on the jobs data, which comes out before the market opens.

An improving US economic growth trend has encouraged investors to take on more risk this year, although any signs of weakness would also encourage hopes that the Federal Reserve will sticks to its massive bond-buying programme.

The payrolls report is expected to show employers added 200,000 jobs last month, below the 236,000 created in February, leaving the unemployment rate steady at 7.7 per cent, according to a Reuters poll of economists.

Reports of a new strain of bird flu in China and escalating tension on the Korean peninsula also weighed on equities, and earlier sent MSCI’s broad index of Asia-Pacific shares outside Japan down 1.1 per cent to a three-month low.

In Europe, the STOXX 600 Travel and Leisure index fell 3.1 per cent and was the worst-performing European sector. Airline stocks were particularly hard hit by fears about the effect on demand for flights to Asia.

BOJ shocks

Effects were still being felt from yesterday’s radical overhaul of Japanese monetary policy by new central bank governor Haruhiko Kuroda, which will see US$1.4 trillion (RM4.3 trillion) injected into the economy to end decades of deflation.

Yields on Dutch, Belgian and Austrian bonds all fell to record lows, with market participants pointing to expectations of strong demand from Asia. In Tokyo, yields on the 10-year Japanese government bond (JGB) fell as much as 12 basis points to a record low of 0.315 per cent.

“There’ve been stories of life (assurance) companies switching out of JGBs overnight in search of yield, potentially into European bonds,” said Philip Tyson, a strategist at ICAP.

The Dutch 10-year yield sank 4 basis points to 1.44 per cent as investors opted for euro zone assets that carry higher yields than German Bunds but boast strong credit ratings. French 10-year bond yields sank 7 basis points to 1.81 per cent, the lowest on record.

The preference for euro zone bonds offering a pick-up over Germany comes as German borrowing costs fell to eight-month lows yesterday after the European Central Bank said it was ready to act to boost the region’s economy.

US 10-year Treasury debt yields hit their lowest level in three months on the speculation of a rise in Japanese investor demand for foreign debt. The 10-year T-note yield touched a low of 1.744 per cent.

The yen staged a small recovery against the dollar after falling a hefty 3.6 per cent yesterday, as investors and speculators began to book profits when it touched a 3⅟₂-year low of ¥97.20 to the US$.

The Japanese currency settled around ¥96.20, up around 0.15 per cent on the day and leaving the dollar with gains of about 11 per cent against the yen this year.

Against the euro, the yen was about 0.25 per cent firmer at ¥124.30 following losses of 4.3 per cent yesterday, its biggest one-day fall against the common currency since November 2008.

Earlier the Nikkei share average jumped as much as 4.7 per cent, extending yesterday’s 2.2 per cent rise and breaking through 13,000 points for the first time since August 2008.

Demand fears

In the oil market, Brent crude was close to a five-month low around US$106 per barrel today as the bleaker US data this week and signs of a surge in inventories dimmed the outlook for fuel demand. Brent was down 3.4 per cent, its biggest weekly fall since December, and US crude down 4.3 per cent, its sharpest drop since September.

Copper was also weak and not far from eight-month lows on the London Metal Exchange, where it traded around US$7,425 a tonne .

“Commodity markets are telling us the real story, and that is there is simply no demand out there,” said Jonathan Barratt, chief executive of commodity research firm Barratt’s Bulletin. — Reuters

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