Europe marts slump on weak EU and US data

Most European stock markets fell sharply yesterday and the euro lost ground, but French borrowing rates eased as traders braced for weekend elections in two eurozone nations. Weak US jobs data undermined investor sentiment on both sides of the Atlantic. London’s FTSE 100 index lost 1.93% to close at 5,655.06 points, the Paris CAC 40 shed 1.9% to 3,161.97 points and in Frankfurt the Dax 30 slid 1.99% to 6,561.47. But Madrid’s Ibex 35 index gained 0.35% to 6,876 points on better Spanish employment data. In foreign exchange deals, the euro dropped to $1.3084 from $1.3149 in New York late on Thursday, as investors also reacted to weak eurozone business data. In New York, disappointing US job creation numbers sent Wall Street stocks falling. The data confirmed that the US economy has hit a weak patch in the past month. The net number of jobs created in April in the US economy, the biggest in the world, at 115,000 was well below the already modest expectations of forecasters, and was underpinned by a fall in the labour market participation rate — signalling that households are still under pressure. The Dow Jones Industrial Average dropped 1.2% to 13,048 points in midday trading. The S&P 500 fell 1.45% to 1,371.45, while the tech-rich Nasdaq lost 1.96% to 2,965.04. “The negatives clearly outweigh the positives in today’s report,” said Jeffrey Greenberg, an economist with Nomura Securities, pointing to the fall in the labour market participation rate that came with the report. Back in Europe, David Jones, chief market strategist at IG Index trading group, said: “With elections in France and Greece this weekend, there remains plenty to be worried about when we consider the eurozone.” But the rate France must pay to borrow funds for 10 years fell to the lowest level for two months yesterday as the country prepared for the final round of a presidential election tomorrow. The rate, or yield, on existing 10-year French bonds dropped to 2.786% from 2.901% late on Thursday, a level last seen in March. A forecast victory by Socialist candidate Francois Hollande, who has led in opinion polls for several months, did not cause the yield to rise, and the latest fall on the secondary market came after France raised more than €7bn ($9.2bn) on Thursday. Investors also remained cautious as Hollande has said he wants to review a recent eurozone fiscal pact. Ahead of the vote, data released yesterday showed that eurozone private sector activity fell sharply in April, with powerhouse Germany grinding to a halt and the bloc’s weaker southern members struggling badly. The Purchasing Managers Index (PMI) compiled by the London-based research firm Markit fell to 46.7 points in April, well down from an initial 47.4 estimate. After logging 49.1 points in March, data for April marked one of the steepest slides since the depths of the global financial crisis in 2008-09 and the sharpest decline in six months. Investors were also looking ahead tomorrow’s elections in Greece that analysts warn could result in political gridlock and renewed economic turmoil in the troubled eurozone state. Surveys suggest that voters are likely to turn away from the two main parties that have alternated in power since 1974 to fringe ones, with fears that the result would mean gridlock and more economic hardship.The dollar slipped against the yen in volatile trading yesterday after the US jobs data.The euro edged lower, while the Australian and New Zealand dollars tumbled as the data prompted investors to shed riskier, growth-linked currencies for safer investments.The dollar fell 0.4% to ¥79.86 after having hit a session low of 79.80, not far from a 10-week low of ¥79.62 set on Tuesday. Trading was volatile, with the pair bouncing between session highs and lows immediately after the release of the data.Some analysts said the jobs report will fuel expectations of a third round of quantitative easing by the Federal Reserve.“The headline disappointment increases the likelihood that (Fed Chairman Ben) Bernanke will move forward with QE3 later this summer in an attempt to further bolster employment growth,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.But other analysts, such as Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida, said the latest rhetoric from Bernanke and other Fed officials suggests the central bank is “solidly on hold for the time being.“The US data have been a little bit soft over the last week or so, but we’re still expanding,” he said. “I don’t think there’s any reason to panic, maybe later, but not yet.”The common currency came under pressure after a survey showed the eurozone services sector contracted much more than initially thought in April, with particularly weak figures out of Italy and Spain.