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European stocks extend downturn after US jobs data

Oct 05 2018 19:58
AFP

European equities fell further Friday after US jobs data, while missing forecasts, seemed to strengthen the case for rapidly rising US interest rates, analysts said.

Wall Street was also lower despite a confirmation by the jobs market that the US economy was firing on all cylinders, they added.

The US non-farm payroll for September came in at 134 000 new jobs, far fewer than analysts had expected, but as August figures were revised up, they were "far from a terrible employment number", said Craig Erlam, an analyst at Oanda.

"This is actually another very good report that other countries will be extremely envious of," he said.

'Gradual normalisation' 

The data, added Harm Bandholz at UniCredit, "allow the Federal Reserve (Fed) to continue its policy of gradual normalisation".

But as expectations of higher Fed rates increased, so did US Treasury bond yields, in turn weighing on stock markets because of expectations of higher borrowing costs.

With Treasuries the key gauge for Fed policymakers when deciding interest rate hikes, markets are growing more concerned that the cost of borrowing will rise more than anticipated, and hit the economy.

"Equities are under pressure as investors fear the Fed will need to tighten policy faster than expected to keep the US economy from overheating," noted City Index analyst Fiona Cincotta.

Denmark's Danske in dumps 

"The overriding concern is that higher US interest rates will dampen growth, and this is what is causing the selloff in equities," she explained.

This week also saw Fed chief Jerome Powell deliver an assessment of interest rates that added fuel to the fire for many who forecast a quick pace of hikes.

In Europe meanwhile, shares in Danske Bank stumbled in Copenhagen, a day after the lender revealed it was being investigated by the US Department of Justice over possible money laundering related to more than 200bn euros (about R3.4 trn) that had moved through the Danish lender's Estonian branch.

Denmark's largest bank is at the centre of a reputational maelstrom and several probes after it said "a large part" of the transactions between 2007 and 2015 were "suspicious".

In a fresh twist on Friday, the Financial Times reported that Danske executed up to 8.5bn (about R145 trn) of controversial "mirror trades" for Russian customers in a single year, according to an internal memo obtained by the newspaper.

Bad week 'understatement' 

Since the start of the year, shares in Danske Bank have lost almost 40% of their value.

"The weekend cannot come quick enough for Danske. To say it's been a bad week for the bank would be an understatement," City's Cincotta said.

"It would take a brave trader to buy into this right now."

In London, Unilever shares dipped after the Anglo-Dutch consumer giant axed post-Brexit plans to switch its London headquarters to Rotterdam owing to a shareholder revolt.

Shares in the Italian football club Juventus lost 9.92% to 1.19 euros after a former model alleged that the club's striker Cristiano Ronaldo raped her in 2009.

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