(Updates for U.S. payrolls)
* Sterling plummets 10 percent, then recoups some losses
* U.S. jobs data underwhelm, cloud case for Fed hike
* S&P 500 futures little changed, European stocks fall
By Vikram Subhedar
LONDON, Oct 7 A sterling plunge and
underwhelming U.S. jobs data on Friday muddied the outlook for
world financial markets, with investors left questioning central
bank policy as a messier-than-expected Brexit fallout and U.S.
presidential election loom.
Sterling recouped some losses after plunging almost 10
percent as growing fears of a "hard" exit by Britain from the
European Union sent a shiver through world markets.
S&P 500 futures pointed to a flat open on Wall
Street, with its advance from recent lows having stalled this
U.S. employment growth unexpectedly slowed for the third
straight month in September, which could make the Federal
Reserve more cautious about raising interest rates.
Markets have been dominated by a policy shift from the Bank
of Japan last month, the resurgence in talk of the European
Central Bank possibly tapering its bond buying programme, and
the cloudy outlook for a Fed rate hike.
The sustainability of unconventional easing programmes
conducted by the world's major central banks, and whether they
may be counterproductive, are at the front of investors' minds,
Goldman Sachs analysts said in a note.
British Prime Minister Theresa May has this week set a March
deadline for beginning the formal departure process from the EU,
and stressed the bad side-effects of low rates and quantitative
A growing market belief that Britain is heading for a 'hard
Brexit' outside the European Union's single market, which could
hurt manufacturers and the vital financial services industry,
has pummelled the pound this week.
Sterling slumped as much as 10 percent in Asia as it crashed
through key support levels, triggering a wave of selling. It
recovered in European trading but was still down 2.7 percent at
"This move has shaken things in sterling and a huge amount
of any outstanding positioning will have been washed out, and we
may be starting from a new, even more nervous footing," said
Citi FX trader Sam Underwood.
While the FTSE 100, dominated by global,
dividend-paying bluechips rose, the more domestically focused UK
midcaps index erased earlier gains and fell 0.5 percent
in a sign of risk aversion among investors towards UK assets.
The STOXX 600 has fallen by around 7 percent since the start
of 2016, with investors pulling funds from European equities for
35 straight weeks, the longest streak on record, according to
Bank of America Merrill Lynch.
British gilt yields also rose sharply.
The 10-year gilt yield was up 21 basis points
this week at 0.96 percent and on track for the biggest one-week
rise since August 2015.
"The pound used to be a relatively simple currency that used
to trade on cyclical events and data, but now it has become a
political and structural currency. This is a recipe for weakness
given its twin (budget and current account) deficits," said
David Bloom, global head of FX research at HSBC.
U.S. ELECTION NEARS
Friday's U.S. employment report was the last before the
Fed's Nov. 1-2 policy meeting. Investors see almost no chance of
a rate increase at that meeting given how close it is to the
Nov. 8 presidential election.
Non-farm payrolls rose 156,000, down from a revised gain of
167,000 jobs in August, the Labor Department said. Economists
polled by Reuters had expected employers to add 175,000 jobs
A disorderly reaction to possible U.S. interest rate hikes
could disrupt capital flows and heighten asset price volatility
in Asia, the International Monetary Fund said on Thursday
Elsewhere in currency markets, the dollar edged down 0.8
percent against the yen to 103.1 after hitting its
highest level in a month on Thursday.
The euro rose 0.2 percent to $1.1177, but was still
poised to shed about 1 percent for the week.
Gold recovered from earlier losses and was up 0.63
percent. It last stood at $1,262.76.
Silver rose 1.6 percent, bouncing from a four-month
low of $17.1525 per ounce.
Oil prices steadied after U.S. crude broke through $50 a
barrel overnight, spurred by an informal meeting among the
world's biggest producers on output cuts and falling U.S. crude
U.S. crude futures gave up earlier gains and were
down 0.4 percent at $50.47, just below Thursday's four-month
high of $50.63. Brent fell 0.6 percent but is close to
its highest levels this year.
(Reporting by Vikram Subhedar and Marc Jones; Editing by Mark