US & World Daily Markets Financial Briefing 02-10-2009

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Traders May Scorn Weak Job Market Conditions

The major index futures are pointing to a lower opening on Friday, with the Labor Department’s jobs report casting further doubts on the pace of recovery. Bond prices are moving up, sending yields lower in reaction to the report. Additionally, the prices of commodities are also declining on the prospects of the recession stretching far out into next year. There is unlikely to be much of a reaction to the factory goods orders report to be released shortly after the markets open.

U.S. stocks saw notable weakness on Thursday, as a few not-so-optimistic economic data heightened fears over the unlikelihood of the economy quickly returning to a trajectory of sustainable growth. The major averages opened the session lower, stung by concerns over the jobs market after a report revealed that first time claims for unemployment benefits rose. Thereafter, the selling pressure intensified after the ISM’s survey showed that the manufacturing sector expanded at a slower rate than had been anticipated.

Although markets moved sideways in the afternoon, they made a further leg down in late trading before closing with substantial losses. The Dow Industrials ended down 203 points or 2.09% at 9,509, settling at a nearly 3-week low, and the S&P 500 Index receded 27.23 points or 2.58% to 1,030, while the Nasdaq Composite ended at 2,058, representing a drop of 64.94 points or 3.06%.

All thirty of the Dow components closed the session lower, with American Express (down 4.25%), Bank of America (BAC) (down 4.20%), DuPont (DD) (down 4.79%) and JP Morgan Chase (JPM) (down 5.59%) leading the slide.

Among the sector indexes, the NYSE Arca Airline Index slumped 8.30%, the Dow Jones U.S. Basic Materials Index fell 4.13%, the Philadelphia Oil Service Index dropped 3.56% and the NYSE Arca Gold Bugs Index slipped 5.04%. The Philadelphia Housing Sector Index declined 4.14% compared to a 4.98% drop by the KBW Bank Index.

In the technology space, the Philadelphia Semiconductor Index slumped 4.84%, the NYSE Arca Disk Drive Index fell 4.17% and the NYSE Arca Networking Index receded 4.16%, while the NYSE Arca Computer Hardware Index and the NYSE Arca Software Index fell over 2% each.

On the economic front, first time claims for unemployment benefits rose by more than what economists had expected, rising 16,000 to 551,000 in the week ended September 26th. The previous week’s reading was revised up by 4,000 to 534,000. At the same time, continuing claims declined by 70,000. However, individuals receiving emergency employment compensation rose by 100,000 and those getting extended benefits climbed by about 5,000.

Meanwhile, benefiting from the cash for clunkers program, personal spending rose a better-than-expected 1.3% month-over-month in August, according to a report released by the Bureau of Economic Analysis. Spending on durable goods, which includes spending on autos, spurted by 5.3% following a 1.3% advance in July. Personal income edged up 0.2% compared to expectations of 0.1% growth, although real income edged down 0.1%. The core PCEI rose 0.1% on a monthly basis and 1.3% annually.

Extending the lean patch of the day’s data, the ISM revealed that its manufacturing index based on the national survey fell to 52.6 in August from 52.9 in July. The new orders index fell 4 points to 60.8 after rising sharply in the previous two months. At the same time, the backlog orders index fell 1 point. However, in line with expectations that inventory depletion is slowing, the inventories index rose about 8 points to 11.

The tidings from the housing market were cheery. The National Association of Realtors reported that the pending home sales index rose 6.4%, significantly higher than the expected 1% growth. The gains were broad based, with all the four regions showing growth. The optimism reflects the positive impact of the first time buyers tax credit of $8,000.

A separate report showed that construction spending rose 0.8% month-over-month in August, with private construction spending rising 1.8%. On the other hand, public construction spending fell by 1.1%. In private construction, single-family construction surged up 4.5%, while multi-family housing construction declined by 4.5%

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Bay Street On Edge Following Dismal US Jobs Report

Bay Street stocks could see further weakness on Friday amid the release of a disappointing employment report from the U.S. Commodities are also notably lower, which will likely weigh on resource stocks.

The U.S. Labor Department revealed that non-farm payrolls dropped 263,000 in September. Economists had expected a decline of 170,000 jobs, though some disappointing employment news over the last few days had encouraged doubt about whether the result could meet expectations.

Crude oil prices are down $1.68 to $69.14 per barrel. Gold is down $8.70 to $992.00 and copper has lost 7.25 cents to $2.6645.

In corporate news, Priszm Income Fund said it appointed Deborah Papernick as chief financial officer, effective immediately.
 
Bombardier could be a stock - watch as rival Mitsubishi Heavy Industries.

Encana unveiled an oil sands project to produce between 80,000 and 120,000 barrels a day, according to The Globe and Mail.

On Thursday, the S&P/TSX Composite Index plunged 323.20 points to settle at 11,071.76. The drop took the market to its lowest closing level in three weeks.

Currency, Commodity Futures

Crude oil futures are trading down $1.01 at $69.81 a barrel after rising $0.21 to $70.82 a barrel in Thursday’s session. After declining $8.60 to $1,000.70 an ounce in the previous session, gold futures are edging down $3.30 to $997.40 an ounce.

On the currency front, the U.S. dollar is trading at 89.245 yen compared to the 89.605 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is worth $1.4502.

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Asian Markets Slide On Economic Worries

Asian stocks fell sharply on Friday after weak U.S. economic data overnight stoked concerns about the strength of an economic recovery. Traders showed reluctance to buy ahead of the release of key September U.S. jobs report from U.S. Labor Department due later in the day.

Selling was broad-based as investors feared that the seven-month rally may have outpaced economic fundamentals. The underlying mood remained cautious ahead of the release of U.S. third quarter earnings, beginning next week.

Banking stocks fell sharply following the overnight lead from their U.S. counterparts and mining companies lost ground after metal and gold prices fell on concerns about weak demand. Meanwhile, markets in China, India and South Korea were closed for holidays.

The September jobs report from the Labor Department is due about an hour before the start of trading on Wall Street Friday. Economists expect the report to show 175,000 job losses for the month of September, compared to the 216,000 reported in August. Meanwhile, the unemployment rate is expected to tick up to 9.8%.

The Japanese market ended at a new 10-week low, dragged down by exporters. The benchmark Nikkei 225 index fell 247 points or 2.47% to 9,732, its lower closing since July 22, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange closed at 875, down 21 points or 2.39%.
 
Exporters fell as the dollar weakened further to the lower 89-yen range. Advantest Corp fell 3%, Panasonic tumbled 3.55%, Sony plunged over 5% and Toyota Motor shed 3.70%. Nippon Mining Holdings declined 3.17% and Mitsui Mining fell 2.68% on the back of lower metal prices.

Aomori Bank plunged 18% after it proposed to raise 11.6 billion yen through new share sales. Mitsubishi UFJ Financial Group fell 2.41%, Sumitomo Mitsui Financial Group tumbled 3.42% and Mizuho Financial Group edged down 0.57%.

On the economic front, Japan's jobless rate edged down in August, after hitting a record high in July, data released by the ministry of internal affairs and communications showed Friday, raising hopes that sustained recovery in the world's second largest economy may be well on track. The jobless rate decreased to 5.5% in August from a record high of 5.7% in July.

In a separate report, the ministry indicated that the household consumer spending rose 2.6% year-over-year in August, reversing a 2.2% fall in the preceding month. The increase was in contrast to economists' expectations for a 0.2% drop.

Hong Kong's benchmark Hang Seng index fell 580 points or 2.77% to 20,375 after being closed yesterday for a national holiday. Glorious Property Friday, which recently raised US$1.28 billion via an initial public offering, plunged nearly 20% on its debut. On the other hand, toys-to-property firm RBI Holdings jumped 238% after it announced entering into an agreement to purchase Apollo Precision for HK$4.18 billion.

The Australian stock market suffered its biggest percentage fall in more than 3 months. The benchmark S&P/ASX 200 index closed at 4,601, down 99 points or 2.11% and the broader All Ordinaries index fell 96 points or 2.04% to 4,606.

Material stocks fell sharply due to weak commodity prices on the LME. BHP Billiton fell 2.69%, its rival Rio Tinto tumbled nearly 3%, Fortescue Metals declined 1.36% and Bluescope Steel slumped 4.32%.Gold miners followed after local spot price of gold declined by $US6.65 to $US1,000.30 per ounce.

Banking stocks also fell considerably. National Australian Bank fell 1.71%, ANZ declined 2.03%, Commonwealth Bank eased 1.77%, Westpac Banking tumbled 3.13% and investment bank Macquarie Group plunged over 5%.

In the energy sector, Woodside Petroleum fell 1.85%, Oil Search gave off 3.08% and Santos shed 3.64%.

On the flip side, retailer Harvey Norman Holdings jumped 4.78%, QBE Insurance rose 0.86%, AWB added 1.60%, Coca-cola Amatil gained 1.02% and Healthscope advanced 1.05%.
 
New Zealand's benchmark NZX-50 fell 35 points or 1.10% to 3,149, even as defensive stocks received some buying support. Turnover was unusually low in the absence of major corporate news.

Rural services firm PGG Wrightson tumbled 4.76%, whiteware maker Fisher & Paykel Appliances fell nearly 3% and baker Goodman Fielder fell 3.77% after raising $A500 million from a syndicated loan facility.

Among blue chip stocks, Telecom fell 2.59%, Fletcher Building eased 1.64% and Sky Network Television edged down 0.63%. Bucking the downward trend, Auckland International Airport advanced 1.60%, Contact Energy gained 1.03%, NZX added 0.49% and Steel and Tube rose 2%.

U.S. stocks posted steep losses on Thursday after a report from the labor market showed the number of Americans filing first-time claims for unemployment benefits climbed and another report from the Institute for Supply Management revealed manufacturing unexpectedly fell in September.

Although consumer and construction spending showed notable increases along with pending home sales, traders largely focused on the disappointing data amid speculation of a double dip in the economic recovery. While the Nasdaq tumbled 3.1%, the Dow fell 2.1% and the S&P 500 shed 2.6%, their worst one-day fall in three months.

After rising modestly yesterday, crude oil prices fell over 1% to below $70 a barrel in late Asian trading on Friday, as disappointing U.S economic data combined with the advancing dollar bolstered skepticism about the strength of an economic recovery in the world's largest energy-consuming nation.

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The major European markets are moving down for the fourth straight session, with German DAX Index, the French CAC 40 Index and the U.K.’s FTSE 100 Index receding 1.28%, 0.78% and 0.79%, respectively.

On the economic front, the Nationwide’s survey showed that the U.K. house prices climbed a seasonally adjusted 0.9% month-on-month in September after a 1.4% rise in the preceding month. Economists expected growth of 0.7%. For the first time since March 2008, the year-on-year rate of change was not negative.

Eurostat reported that the producer price index in the euro zone region fell to 7.5% year-over-year in August compared to the 8.4% drop in the previous month. On a monthly basis, the index rose 0.4% following a 0.7% decrease in July.

U.S. Economic News

The Labor Department reported that non-farm payroll employment fell by 263,000 in September following a downwardly revised decline of 201,000 in July. Economists had expected a decrease of about 175,000 jobs.

The continued decrease in jobs reflected declines in employment in both the good-producing and service-providing sectors. While goods-producing sectors lost 116,000 jobs, service-providing sectors lost 147,000 jobs, a faster pace of decline than the 69,000 rate in the previous month.

At the same time, the Labor Department said that the unemployment rate edged up to 9.8% from 9.7% in September. The rate came in lower than the 9.9% rate expected by economists.

The Commerce Department is due to release its report on factory goods orders for August at 10 AM ET. Orders for manufactured goods are likely to have remained unchanged in the month.

The durable goods orders, making up the bulk of factory goods orders, fell 2.4% month-over-month in August following a downwardly revised 4.8% growth in July. Excluding transportation orders, new orders were down slightly. Transportation orders declined 9.3%, dragged by notable weakness in orders for non-defense aircrafts and parts. Shipments of durable goods fell 1.4% and unfilled orders edged down 0.4%, while inventories at the end of the month were down 1.3%.

Shipments of non-defense capital goods, excluding aircrafts inched up 0.3%, while orders for this category of goods fell 1.9% following 0.3% growth in the previous month.

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Immucor may see some strength after it said its first quarter earnings rose to 30 cents per share from 28 cents per share in the year-ago period. Revenues rose 14% to $73.2 million. Analysts estimated earnings of 25 cents per share on revenues of $79.5 million. The company reiterated its full year earnings per share estimate of $1.10-$1.17 per share, which includes a 4 cents per share costs related to quality improvements, on revenues of $322 million to $332 million. The consensus estimates call for earnings of $1.11 per share on revenues of $327.4 million.

Global Payments receded in Thursday’s after hour session after reporting first quarter earnings that remained flat at 71 cents per share. Revenues rose 8.8% to $441.3 million. The Street had estimated earnings of 65 cents per share on revenues of $424.93 million. The company reaffirmed its 2010 earnings per share guidance of $2.43-$2.54 compared to the consensus estimate of $2.50 per share.

Resource Connection may also be in focus after it reported that its first quarter revenues fell 10.4% to $118.3 million, below the $119.79 million consensus estimate. On a GAAP basis, the company’s loss was 16 cents per share compared to a profit of 27 cents per share in the year-ago period. Analysts estimated a loss of 4 cents per share for the quarter.

Accenture may move to the downside after it reported a decline in its fourth quarter earnings to 39 cents per share from 67 cents in the year-ago period. On an adjusted basis, the company reported earnings of 63 cents per share, while revenues fell 14% to $5.15 billion. The consensus estimates had called for earnings of 63 cents per share on revenues of $5.44 billion. For 2010, the company predicted earnings of $2.64 per share to $2.72 per share, while analysts estimate earnings of $2.68 per share.

EMCORE Corp. may gain ground after it said it has entered into a committed equity facility under which it has the option to sell up to $25 million of its registered common shares to Commerce Court Small Cap Value Fund over a 24-month period.

Northrop Grumman is also expected to see buying interest after it said it has received a contract from the U.S. Air Force valued at $3.8 billion to provide logistics services for aerial refueling tankers KC-10. The contract is for a 9-year period. The clinching of the contract assumes significance because the service was earlier rendered by Boeing.

Continental Airlines is expected to be in focus after it said its consolidated load factor rose 5 points year-over-year to 81.5%. Capacity rose 0.5% and traffic climbed 7%.

Smith International may react to its announcement that its CEO Margaret Dorman would retire from the company. The company clarified that Dorman will remain with the company through October 16th to assist with the transition.

Murphy may see some activity after it announced that through a subsidiary it has bought a corn-based ethanol plant in North Dakota for $92 million, with the company required to spend an additional $15 million for working capital. The plant has an annual production capacity of 110 million gallons. The company also revealed that the purchase price will be financed through non-recourse debt offered through the sellers.

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