RIYADH, 11 October 2004 — US equity markets closed the week lower, while European and Japanese markets climbed higher as yet-another record-breaking climb in oil prices and a much poorer-than-expected US job report played havoc on markets on Friday. Oil prices rose around $3 per barrel last week in its unstoppable climb as it threatens to hit the $60 per barrel mark. Over the last 12 months, oil prices have climbed a whopping 79 percent! In the last five weeks, Brent crude has added over $9 per barrel to its price! The other economic indicator that unsettled global markets this week was the September nonfarm job data released on Friday.
In a setback to President George W. Bush’s re-election hopes, the Labor Department reported that 96,000 jobs were created in September, compared to market expectation of 150,000. The Labor Department also revised the previous two months’ numbers, with August down from 144,000 to 128,000 and July up from 73,000 to 85,000.
As the last payroll report before the Nov. 4 US presidential election, the dismal job creation data provided strong ammunition for the presidential challenger, Democratic candidate John Kerry, in the second of their three debates Friday night. President Bush tried to put a good face to the data by saying that 1.6 million jobs have been created since the recession ended, while Kerry put the spotlight on the fact that Bush is the first president in 72 years to preside over a net loss of jobs in his first term in office.
The poor job number and the oil price spike caused global equities to dive on Friday. Us equities could not survive the dive and ended the week lower. A raft of bad corporate news did not help.
European and Japanese markets, on the other hand, were cushioned in their impact by earlier gains to end the week higher. Japan’s Nikkei, for example had a four-day winning streak of over 370 points till Thursday before it was hit by the US news. The poor employment data has not only raised uncertainty in the US presidential election by improving the odds for Kerry, but it has also restarted the market analysts’ guessing games about the US Fed’s interest rate policy in the next few months.
Analysts are again toying with the possibility that the Fed may take a pause in its interest rate hiking policy in its next meeting in December. It is, however, still too early to tell because the November election may change everything and there are still two more job reports before the December meeting.
In the domestic scene, the Saudi stock market took a small breather this week, rising only 2 points in its record-breaking streak. Oil-based liquidity remains the driver, not only of share prices but also corporate earnings.
(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)
