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US stocks plunge after shocker of a jobs report

Published: 15:25 03 Jun 2016 BST

Non-farm payrolls

The jobs report for May came as a shock to the market, prompting a triple-digit fall on the Dow Jones.

Against expectations of a rise in payrolls of 160,000, the same as in April, a mere 38,000 jobs were added, which was the lowest increase in around five years.

“The Fed may latch on to the official unemployment rate, which fell to 4.7% in May from 5.0% in April, but this is still a lagging indicator and therefore a poor one upon which to base monetary policy,” suggested Russ Mould, investment director at finance house AJ Bell.

James Smith, an economist at German bank Berenberg, noted: “Even despite the known Verizon strike, which took 35k workers out of the employment data this month, the jobs shortfall appeared to relatively broad-based.”

“In our opinion, this may well put the final nail in the coffin for a June hike, with confirmation of this potentially coming from Chair Yellen's speech on Monday,” Smith said.

Despite the prospects of a June interest rate hike heading rapidly down to zero, the market reacted with alarm to the figures, with the Dow Jones average off 137 points at 17,702 and the broader-based S&P 500 down 18 points (0.9%) at 2,087.

The US dollar took a kicking, which at least had the effect of making gold, which is priced in dollars, relatively cheaper, and the price of the yellow stuff rose 2.5% to $1,242.10 an ounce.

Mid-caps were equally hard hit, with the S&P 400 down 14 points, or 0.9%, at 1,493. Small caps, as measured by the Russell 2,000 index, failed to dodge the deluge, with the index off 10 points (0.8%) at 1,161.

There was some mergers & acquisitions activity around to cheer up investors.

The First Marblehead Corporation (NYSE:FMD) shot up 25% to $4.85 as it agreed to a takeover by FP Resources USA Inc. FP is offering US$5.05 a share in cash, valuing the finance company at around US$65mln.

The American Depositary Receipts (ADRs) of Avianca Holdings SA (NYSE:AVH) advanced 16% to $6.01 as the Wall Street Journal reported the airline is in the sights of United Continental Holdings Inc (NYSE:UAL) and Delta Air Lines Inc (NYSE:DAL).

Talen Energy Corp (NYSE:TLN) also rose 16%, to $13.91, as it agreed to be taken private by buy-out specialist Riverstone in a $14 a share deal that values the independent power producer at around $1.8bn.

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