European stocks slumped yesterday on the first day of the second quarter as falling oil prices, new economic concerns in Japan and a solid US jobs data hurt sentiment.
London’s FTSE 100 closed down 0.5% at 6,146.05 points, Frankfurt’s DAX 30 closed down 1.7% at 9,794.64 points, Paris’ CAC 40 was 1.4% down at 4,322.24 points and EURO STOXX 50 ended down 0.7% at 2,984.36 points yesterday.
Tokyo spearheaded losses across most of Asia as a key survey showed confidence at Japan’s manufacturers slumped to a three-year low, and set a downbeat tone for the start of trading.
Meanwhile, energy stocks suffered as oil prices took a beating following comments by Saudi Arabia’s deputy crown prince to Bloomberg News that dashed hopes for an agreement later this month to limit production.
Then data was released showing that the US economy added 215,000 jobs in March, slightly more than the 200,000 projected by analysts.
While the data was a reassuring snapshot of the strength of the recovery in the world’s biggest economy, it renewed questions among investors about the path of US Federal Reserve interest rates hikes.
“A better than expected jobs report lifted hopes of an acceleration in the US economy but also made June back into a ‘live’ meeting for the Federal Reserve and a possible rate hike,” said CMC Markets analyst Jasper Lawler.
Stocks had soared on Wednesday after Fed chief Janet Yellen indicated that the US central bank was unlikely to raise interest rates in the first half of this year, citing ongoing concerns about the slow global economic growth.
Analyst Alexandre Baradez at IG France said the markets’ “first reaction was defensive”, fearing the good jobs results would encourage the Fed to move faster with rate hikes after all.
Interest rate hikes are generally negative for stocks.
However, once investors spent more time looking at the jobs data and decided that it will unlikely shift Yellen from her dovish stance, stocks began to recover from their intraday lows.
Frankfurt and Paris stock markets still ended down over 1%, while London slid 0.5%.
While initially falling, US stocks had turned positive by midday with the Dow Jones Industrial Average climbing 0.3%.
The dollar also picked up ground against the euro.
Meanwhile a disappointing business survey hit markets.
The Bank of Japan’s quarterly Tankan report of 10,000 firms showed sentiment plunged in January-March to plus six from 12. The survey marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavourable. Forecasts had been for a reading of plus eight.