Pound, weakened by so-called flash crash, rattles forex market and creeps into stock sentiment
The jobs report fell short of expectations but wasn't seen as alarming enough to dissuade the Federal Reserve from raising rates in the near term.
U.S. stocks fell Friday to close out the week lower following a report on U.S. employment that came in below expectations but was viewed as strong enough for the Federal Reserve to consider raising interest rates by the end of the year.
The U.S. economy added 156,000 jobs last month, while the unemployment rate ticked up to 5% as more workers entered the labor market. Hourly wages grew 0.2% as employers struggled to attract workers in what some economists view as a tightening labor market.
The S&P 500 index SPX, -0.33% shed 7.03 points, or 0.3%, to close at 2,153.74, with the materials and industrials sectors leading the losses, down more than 1%. For the week, the index declined 0.7%.
The Dow Jones Industrial Average DJIA, -0.15% lost 28.01 points, or 0.2%, to finish at 18,240.49 for a weekly loss of 0.4%. The Nasdaq Composite Index COMP, -0.27% declined 14.45 points, or 0.3%, to close at 5,292.40, falling 0.4% for the week.
The weekly drop for the market marks the first retreat after three straight weeks of gains.
“The September jobs report should leave the Fed on track to hike in December, but it wasn't robust enough to push for a November hike,” said Michelle Meyer, U.S. economist at Bank of America Merrill Lynch in a report.
Following the data release, Cleveland Federal Reserve President Loretta Mester told CNBC that the U.S. was at full employment and that gradual rate hikes were needed.
Federal Reserve Vice Chairman Stanley Fischer also said the September jobs report was pretty close to a “Goldilocks” scenario—not too cold, not too hot—which implies that he believes a rate increase is appropriate.
“The headline number was weaker than expected, but the details were strong. More important, job growth is good enough for the Federal Reserve to raise interest rates in December barring something bad happening,” said Chris Zaccarelli, chief investment officer at Cornerstone Wealth.
The relatively subdued reaction to this jobs report is because financial markets have largely priced in a December rate increase, he added.
Torsten Slok, chief international economist at Deutsche Bank Securities, blamed slower job growth on the weak energy industry and the higher dollar, but believes the situation will improve going forward.
Separately, wholesale inventories slipped 0.2% in August, another report showed. Tighter inventories may be a negative for the current gross domestic product growth, but a positive for growth.
Meanwhile, with earnings releases picking up the pace starting next week, investors are already turning their attention to corporate financial results and the upcoming presidential election, according to Kate Warne, investment strategist at Edward Jones.
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What caused sterling’s flash crash?(1:20)
The British pound fell 6.3% in a matter of minutes in early trading Friday. What caused sterling to sink so quickly?
Trading in U.S. equities also follows wild overnight moves in the British pound, which dropped precipitously before recovering in what has shaped up to be a brutal week for the U.K. currency.
Meanwhile, the British pound GBPUSD, -0.4423% remained soft after a sharp, sudden move lower in Asian trading, which took the pound to a fresh 31-year low of $1.1789. The pound last traded at $1.2433, well under where it was positioned before that rout, at $1.2600.
A dramatic pound plunge in Asia
Some attributed the precipitous drop in sterling to comments from French President François Hollande, who late Thursday urged tough negotiations over Britain’s exit from the European Union.
Fears of an abrupt U.K. departure from the European Union weighed on the pound after Prime Minister Theresa May over the weekend confirmed that Article 50 to initiate the exit will be invoked in March 2017.
Aggressive comments from both the U.K. government and EU authorities on testy negotiations aren’t helping the pound,said Jameel Ahmad, vice president of market research at FXTM.
Read: Sterling remains weak after flash crash; dollar waits for jobs data
Market participants also theorized that a so-called fat-finger trade, where a trade is errantly entered, contributed to the severity in the pound’s tumble, exacerbated by a period in the global session when trading volumes tend to be thin and amplify moves.
Asian stocks ADOW, +0.05% finished lower on Friday, unsettled by the pound’s sudden jolt.
Stocks to watch: Shares of Honeywell International Inc. HON, -7.50% tumbled 7.5% after the company cut sales projections, citing a business slowdown.
Helen of Troy Ltd. HELE, -7.11% shares slumped 7.1% after the company cut its sales forecast for the year late Thursday.
Gap Inc. GPS, +15.23% on Thursday said same-store sales fell 2%, impacted by a distribution-center fire. However, the company also said September margins “actualized significantly higher than previously forecast.” Shares surged 15%, its best daily move in nearly 8 years.
CIT Group Inc. CIT, +1.46% added 1.5% after the lender said it is selling its commercial aircraft leasing business for $10 billion.
Other markets: Gold prices GCZ6, +1.11% settled lower after collapsing below a key technical level on Thursday. Meanwhile, Goldman Sachs said in a note that if gold drops below $1,250 an ounce, they would recommend buying.
Oil prices CLX6, -0.64% slipped more than 1% after topping $50-a-barrel—the highest settlement since early June, on Thursday. And the dollar, as gauged by the ICE U.S. Dollar DXY, +0.15% slipped 0.3%.
--Barbara Kollmeyer contributed to this article.