A trader monitors data on computer screens beneath a display of the Dax index curve at the Frankfurt Stock Exchange (file). The Dax 30 lost 2.36% to end yesterday’s trading at 7,806 points.
AFP/London
European equities slumped yesterday, spooked by US jobs data and a day after surging on clear signs that the European Central Bank and the Bank of England would keep interest rates low for some time.
European markets, which began the day quietly, turned sharply lower after the release of better-than expected jobs data in the US that dealers expect will encourage the US Federal Reserve to go ahead with scaling back its huge stimulus policy.
At close yesterday, London’s benchmark FTSE 100 index of leading companies was down 0.72% to 6,375.52 points, while Frankfurt’s Dax 30 lost 2.36% to end trading at 7,806 points and in Paris the Cac 40 shed 1.17% to close at 3,753.85 points.
“The better than expected (US) payroll numbers has seen equity markets caught in two minds between the prospect of the imminent prospect of tapering, and the benefits of an economic recovery,” Michael Hewson, senior market analyst at CMC Markets UK, said.
The US Labor Department reported that 195,000 jobs were added in June, above the 166,000 analyst estimate. The unemployment rate held steady at 7.6%.
US stocks gained following the report. In midday trading, the Dow Jones Industrial Average rose 0.57%, the broad-based S&P 500 rose 0.61%, while the tech-rich Nasdaq Composite Index advanced 0.55%.
On the currency markets, the euro and British pound hit multi-month troughs yesterday as the prospect of low interest rates made them less attractive for investors to hold.
The euro sank to $1.2806 — which was the lowest level since late May. It recovered slightly to $1.2833 compared with $1.2914 late in New York on Thursday.
Sterling also slumped to $1.4909, tumbling underneath the key $1.5 barrier for the first time since mid-March.
Major European indices had soared on Thursday after the ECB and BoE issued unprecedented advance notice of policy, so-called forward guidance, indicating that easy-money policies to stimulate growth would continue for some time.
The news lifted share prices because low borrowing costs help boost lending to companies, dealers said.
“Low rates for sustained periods have one key role; spur lending between banks and companies,” ETX Capital trader Ishaq Siddiqi told AFP.
In addition, low rates persuade many investors to park their cash in stock markets in the hope of generating higher returns.
Gold slumped to $1,212.75 an ounce from $1,251.75 late Thursday on the London Bullion Market.