The U.S. dollar initially tumbled against most of its major trading partners after the U.S. Bureau of Labor Statistics reported that U.S. businesses created a meager 18,000 jobs in June. This was the smallest increase in nine months and it raises concerns that the U.S. economy might require another round of quantitative easing (QE), despite Federal Reserve Chairman Ben Bernanke’s position that QE would only happen again with a rise in deflation. Economists were expecting an increase between 65,000 and 160,000. This marks the second tepid release in a row and erases the positive trend of 200,000 plus monthly job growth that occurred in March and April. The U.S. labor picture had no fireworks and the headlines in all the weekend newspapers will focus on the increase in the unemployment rate to 9.2 % and total number of unemployed persons printing at 14.1 million persons.
Aspirations of a strong jobs report came from yesterday’s impressive ADP employment report of 157,000 jobs created in the private sector. Today’s report showed that private jobs only increased by 57,000, while government jobs declined by 39,000 and financial services lost 15,000 workers.
Market reaction saw a flight to safety and the gold futures for August delivery jumped 20 points to $1,546. After the previous two weeks of declines, gold has rallied strongly and is $35 away from a new all-time high. The Dow Jones futures contract for September snapped a nine-day rally by falling 136 points to 12,583.
The U.S. dollar initially fell by over 100 points to 1.4350 against the euro before trading lower on the day near the 1.4230 area. Euro weakness may persist as contagion worries increase. Earlier in the week, Moody’s immense four level downgrade of Portugal’s credit rating to Ba2 heightened worries for all European officials that they will have to address the other southern countries sooner rather than later. Yesterday, the European Central Bank raised the overnight lending rate 25 basis points to 1.50%, but more importantly they suspended the application of the “minimum credit rating threshold” of Portuguese debt until further notice. The ECB is committed to accepting Portuguese debt even if it is re-discounted. This action could have detrimental results in the long run as other countries debt worries intensify.