Zero job growth sparks US bonds, gold rally

Zero job growth sparks US bonds, gold rally

New York: Paralysis in the US jobs market reinforced fears of recession on Friday, driving investors out of stocks and into the safety of bonds, gold and the Swiss franc.

Stocks on Wall Street and other major exchanges closed down more than 2% after the US Labor Department said employers added no net new jobs last month and July’s total 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 US Federal Reserve to take additional steps to boost the economy.

After a treacherous August of out-sized market volatility, the jobs report fed worries that September could bring more of the same, especially if economic data rekindles fear 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. “My only question is ‘Why the market isn’t down more?´"

US equities suffered their biggest drop in two weeks.

The Dow Jones industrial average closed down 253.31 points, or 2.20%, at 11,240.26. The Standard & Poor’s 500 Index was down 30.45 points, or 2.53%, at 1,173.97. The Nasdaq Composite Index was down 66.71 points, or 2.58%, at 2,480.33.

The MSCI world equity index fell 2.3% while European stocks slid 2.5%. Emerging stocks dropped by 1.6%.

President Barack Obama, in a speech set for 8 September, will unveil a jobs program he hopes will provide “meaningful" tax relief and help the nation’s long-term unemployed, a top aide told Reuters Insider.

Some think stocks will suffer from anemic jobs growth, at least for a while.

“What the market is looking for this time, realizing that unemployment is a barrier, and until the federal government wakes up and realizes what the restraints are and designs a program attacking restraints, it’s not going to make much progress," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Benchmark 10-year Treasury notes were up 35/32 in price, with the yield at 1.9961%, down more than 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 signaled that traders have slashed their expectations for long-term US economic growth and inflation.

There is now a growing expectation the Federal Open Market Committee will extend the maturity of its $1.65 trillion Treasuries holdings at its 20-21 September policy meeting.

The intended effect would be to push rates lower throughout the economy in an attempt to ignite consumer demand.

“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 in New York.

In a research 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."

The 30-year Treasury bond soared more than three points in price. Yields dropped to 3.32%, the lowest since January 2009.

Bund futures rose 1.2%, hitting a record high on safe-haven demand.

In currency trading, the Swiss franc was up nearly 1% at 0.7898 to the dollar after hitting session highs at 0.7959.

The euro was near $1.419, having hit a three-week low of $1.418 earlier on confirmation that Greece will miss its 2011 deficit target of 7.6% and uncertainty over Italy’s commitment to austerity measures.

Benchmark US gold futures settled up 2.6%, just shy of $1,877 an ounce after peaking at $1,885 during the session.

Crude oil in New York finished down 2.8% at below $87 a barrel, after slipping to a session low $85.42, on worries a weaker US economy would hurt energy demand. The United States is the world’s No. 1 energy consumer.