US & World Daily Markets Financial Briefing 02-07-2010

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Mixed Jobs Data May Help Stall Recent Selling Spree

The major U.S. index futures are pointing to a higher opening on Friday, with sentiment pointing to a modest rebound from the sharp declines in recent sessions that have pushed the major averages into oversold territory. The non-farm payroll employment report released earlier in the day was mixed, with the economy showing worse than expected job declines in June, while the jobless rate edged down 0.2 points to 9.5%. Even if traders bid up stocks, focusing on the positive aspects of the report, the gains are likely to be muted, given the insipid economic data of recent weeks, weak technicals and the uncertainty surrounding the economic outlook.

U.S. stocks spent much of Thursday's session below the unchanged line, as traders digested the lackluster economic data released during the day. The major U.S. averages opened slightly lower following the release of a report showing an unexpected increase in jobless claims. Although the bulls propped up the markets in early trading, taking advantage of the oversold levels, another disappointing housing report and a soft manufacturing reading sent stocks lower once again. Consequently, the major averages languished below the unchanged line for the better part of the session to close moderately lower, although off their lows.

The Dow Industrials ended lower for the sixth straight session, dropping 41.49 points or 0.42% to 9,733 and settling at its lowest level since October 7th, 2009. Meanwhile, the Nasdaq Composite Index ended down 7.88 points or 0.37% at 2,101, a 8-month closing low, and the S&P 500 closed 3.34 points or 0.32% lower at a 9-month low of 1,027.

Twenty-three of the thirty Dow components closed the session lower, with Merck & Co., JP Morgan Chase, Intel, General Electric and Bank of America  recording steep losses. On the other hand, McDonald's rose 1.28%.

Among the sector indexes, the NYSE Arca Biotechnology Index fell 2.18%, while the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index declined about 1% each. The NYSE Arca Gold Bugs Index slipped 4.57%. However, the S&P Retail Index ended up 1.08%.

On the economic front, the Labor Department said initial jobless claims rose to 472,000 in the week ended June 26th from an upwardly revised 459,000 in the previous week. The increase was partly blamed on the loss of jobs by bus drivers, cafeteria employees and others related to the end of the school year. While continuing claims saw a sharp increase of 43,000 in the week ended June 19th, extended benefits fell by a net of 376,000.

The Institute for Supply Management's manufacturing purchasing managers' index declined to 56.2 in June from 59.7 in May, trailing the consensus estimate of 59. The headline index is now at its lowest level of the year, although it is still above its 10-year average of 51. The new orders index fell 7 points to 58.5 and the order backlogs index slipped 2.5 points to 57. Meanwhile, the employment index, despite declining 2 points, still remains elevated at 57.8. The prices paid index declined a steep 20 points to settle at its lowest level since November 2009.

Adding to the negativity, the National Association of Realtors reported that pending home sales slumped 30% month-over-month in May and were down 15.9% compared to the previous year. The consensus estimates had called for a mere 10.5% drop. According to ING, the data has given rise to fears that the fiscal incentive of the homebuyer credit had served merely to cannibalize sales in the coming months and did not succeed in jump-starting a lasting recovery of the housing market.

A report released by the Commerce Department showed that construction spending fell 0.2% month-over-month in May following strong advances in March and April. Private construction spending declined 0.5%, offsetting a 0.4% increase in spending on public construction projects. In the private category, private non-residential construction spending slipped 0.6% and multi-family housing construction spending declined 6.3%. Although spending on single-family housing construction edged up 0.8%, it marked the weakest gain in about a year.

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Bay Street stocks were lingering just below the unchanged line in mid-morning deals Friday amid mixed performances among sectors. Economic data from south of the border were not encouraging, with U.S jobs data and factory orders signaling slower economic growth.

Meanwhile, mining stocks were under the buyers' radar after the Australian government turned softer on the earlier proposed super profits tax on miners.

Traders overlooked encouraging economic data from the Asia in the form of China revising up its 2009 GDP numbers.

The S&P/TSX Composite Index was down 10.43 points or 0.09% to 11,283.99.

Toronto Stock Exchange remained closed for Canada Day Thursday. On Wednesday, the main index edged up 30.59 points or 0.27% to 11,294.42, a day after recording its biggest loss in a single session this year.

The price of crude oil reversed early trading-gains immediately after the U.S. jobs data. Crude for August shed $0.35 to $72.60 a barrel.

Among energy stocks, Encana Corp gained 2.11%. Niko Resources edged up 1% and Suncor Energy added 0.51%.

Oil and gas explorer Angel Energy edged up 0.84% after it said it has acquired certain oil and gas properties in the Edson core area for $115 million.

In the base metals space, Ivanhoe Mines rose 3.48% and Teck Resources added close to 2%.

Among financial stocks, Bank of Montreal was up 1.13% and Fairfax Financial Holdings gained 1.06%.

Bombardier Inc. gained 3.72%. The company said it bagged $317 million firm order for eight CRJ900 NextGen regional jets from Deutsche Lufthansa AG of Germany.

Engine and fuel injection systems maker Westport Innovations added 1.13% after it said it has acquired 100% of the outstanding shares of OMVL SpA and OMVL's 51% share of Juniper Engines Inc. for approximately $23.4 million.

The price of gold was almost flat after recording its biggest one day fall in five months in the previous session. Gold for August edged up $0.6 to $1,207.3 an ounce.

Barrick Gold and Eldorado Gold lost over 3% each.

Gold miner Kinross Gold gave in 3.30%. The company said it has completed the acquisition of Underworld Resources Inc. Each Underworld share will be exchanged for 0.141 of a Kinross common share plus C$0.01 in cash.

Gold mining company Richmont Mines shed 3%. The company said it has completed the acquisition of Louvem Mines Inc. Shareholders of Louvem will receive one common share of Richmont for each 5.4 shares owned. Louvem's common shares are expected to be de-listed from the TSX Venture Exchange on or about July 12, 2010.

Earlier today, China said its economy expanded more than initially thought in 2009. The revised figures from the National Bureau of Statistics showed that gross domestic product, or GDP, rose 9.1% last year, faster than 8.7% rise reported initially.

In economic news from the U.S., the Labor Department said non-farm payroll employment fell by 125,000 jobs in June following an upwardly revised increase of 433,000 jobs in May. Economists had expected employment to drop by 100,000 jobs compared to the addition of 431,000 jobs originally reported for the previous month. Nonetheless, the unemployment rate actually fell to 9.5% in June from 9.7% in May, as people left the labor force. Economists were expecting the unemployment rate to edge up to 9.8%.

In another report, the U.S. Commerce Department said factory orders fell by 1.4% in May following a downwardly revised 1.0% increase in April. Economists were expecting a more modest decrease in orders of about 0.6% compared to the 1.2% growth originally reported for the previous month.

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The major Asian markets closed Friday's session on a mixed note, with the major averages in the region trading in a lackluster fashion ahead of the release of the U.S. non-farm payrolls report for June.

Japan's Nikkei 225 average opened higher and moved back and forth across the unchanged line before closing up 12.11 points or 0.13% at 9,204, snapping a 5-session losing streak.

Electric machinery makers, retailers, construction, resource and auto stocks advanced in the session. All Nippon Airways, Maruha Nichiro, Mitsubishi Rayon, Mitsubishi Corp., Sumitomo Osaka, Toshiba and Taiheiyo Cement were among the notable gainers. On the other hand, Advantest, Fujikura, GS Yuasa, Mitsubishi, Mizuho Trust & Banking, Seven & I Holding, Shinsei Bank and Taisei Corp. receded sharply.

In economic news, the Bank of Japan said today that Japan's monetary base rose 3.6% year-over-year in June following 0.7% annual growth in the previous month. However, on a seasonally adjusted basis, the monetary base fell 1.6%.

Australia's All Ordinaries opened moderately higher, but it gave back most of its gains in the afternoon and was confined mostly below the unchanged line. However, the index recovered in late trading to close up 2.20 points or 0.05% at 4,265.

The market received some support from the government's announcement today about a modification in the mining tax proposed by the previous prime minister Kevin Rudd. The new incumbent Julia Gillard announced a plan to cut the tax to 30% from the initially proposed 40% and made it applicable only to a select few commodities. Shares of big miners advanced, helping the markets to make a slight recovery. Consumer staple, healthcare and industrial stocks also witnessed some buying interest.

Hong Kong's Hang Seng Index, which opened after yesterday's public holiday, opened unchanged, but it declined steadily throughout the morning before moving sideways in the afternoon. The index closed down 223.67 points or 1.11% at 19,905. Most index components, barring some property stocks, declined.

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The major European averages are moving higher on Friday, with the French CAC 40 Index and the German DAX Index are rising 0.27% and 0.61%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.02%.

On the economic front, Markit Economics said that its CIPS construction purchasing managers' index for the U.K. stood at 58.4 in June, down from 58.5 in the previous month. The data shows that construction activity continued to rise at a strong pace, although the sector’s recovery faces an uncertain outlook. All three of the construction sub-sectors showed a rise in activity during June. Residential construction was the strongest performing of the three categories, growing at the fastest rate since December 2003. Civil engineering and commercial-based construction also recorded solid growth.

Eurostat reported that the euro area’s producer prices rose 3.1% year-over-year in May, larger than the 2.8% increase in April. The increase was in line with expectations. On a monthly basis, producer prices rose 0.3%, slower than the 1% growth in the previous month.

A separate report released by the agency showed that the euro area’s jobless rate remained unchanged at 10% in May, while the previous month’s reading was downwardly revised to 10% from the 10% rate reported initially. Economists had expected a jobless rate of 10.1%.



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Disney could be in focus after it announced that it has acquired Tapulous, a developer of music games for the iPad, iPhone and iPod Touch. Tapulous will now become a wholly owned subsidiary of Disney and will report to Disney Interactive Media Group.

Micrus Endovascular Corp. may see some buying interest after Standard & Poor’s announced that the company will replace CKE Restaurants (CKR) in the S&P SmallCap 600 Index after the close of trading on Wednesday, July 7th. CKE Restaurants is being acquired by affiliates of Apollo Management.

Continental Airlines is expected to see some activity after it said its June consolidated load factor rose 2.1 points year-over-year to 86.9%. Traffic on a consolidated basis rose 4.7% and capacity increased 2.2%.

Tech Data rose in Thursday’s after hours session after it announced that its board has authorized a new share repurchase program for up to $100 million common stock. The new authorization follows the recent completion of a $100 million share repurchase program authorized in December 2009.

Dell could also be in focus after it revealed an agreement to buy privately held data center infrastructure management software provider Scalent. The company expects the deal to close in the second quarter.

Health Management Associates is likely to react to its announcement that it has acquired a 60% controlling interest in three Shands Healthcare hospitals in Florida. The company noted that Shands Healthcare would retain a 40% stake in each hospital. The transaction is effective as of July 1, 2010.

In another deal, Google said it has signed a definitive agreement to buy flight information software company ITA for $700 million. The company said the deal would facilitate the creation of new flight search tools that will help users to find better flight information more easily on the Internet.

Boeing showed modest strength after it said it has finalized an order with Air China for 20 next-generation 737-800 jetliners.