US & World Daily Markets Financial Briefing 04-06-2010

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Stocks Sharply Lower In Mid-Morning Trading

Stocks are showing considerable weakness in mid-morning trading on Friday, as disappointing jobs data and continued concerns about European financial solidity have weighed on the markets. The major averages are all firmly lower, extending their recent streak of volatility.

The weakness in the markets comes as the jump in May employment reported by the Labor Department was largely attributed to the hiring of temporary census workers, raising questions about the sustainability of the recovery in the labor market.

Non-farm payroll employment increased by 431,000 jobs in May following an unrevised increase of 290,000 jobs in April. The job growth fell short of economist estimates for an increase of about 500,000 jobs.

While the increase in jobs in May marked the fastest pace of job growth since March of 2000, the increase was primarily due to the addition of 411,000 temporary employees to work on the census. At the same time, the Labor Department said that the private sector added only 41,000 jobs in May.

Paul Ashworth, senior U.S. economist at Capital Economics, said, "This is a timely reminder that, although the economic outlook is improving, the recovery is still pretty tepid."

Meanwhile, the Labor Department said that the unemployment rate slipped to 9.7 percent in May from 9.9 percent in April. Economists had expected the unemployment rate to edge down to 9.8 percent.

Also dragging down sentiment today have been continuing European debt concerns after comments from the vice chairman of the ruling Fidesz party in Hungary, Lajos Kosa, who indicated that the nation is facing a debt-crisis much akin to that of Greece.

The euro sunk to a fresh four year low of $1.2034 against the dollar after the news as traders looked to exit from riskier currencies.

On the corporate front, BP Plc (PB) remains in focus today after the company was able to cap the well spilling oil into the Gulf of Mexico. Nonetheless, the success of the latest measure remains uncertain.

The major averages have all seen choppy movement in recent dealing, lingering firmly in negative territory. The Dow is down 174.27 points or 1.7 percent at 10,081.01, the Nasdaq is down 29.46 points or 1.3 percent at 2,273.57 and the S&P 500 is down 15.45 points or 1.4 percent at 1,087.38.

Sector News

Transportation stocks are some of the morning's weakest performers, with the Dow Jones Transportation Average down by 2.6 percent. Despite the drop, the index remains rangebound. Railroad stocks are posting particularly steep losses in the sector.

Housing stocks are also seeing significant selling pressure, dragging the Philadelphia Housing Sector Index down by 2.2 percent. With the decline, the index is headed for a four-month closing low.

Commercial real estate, defense, steel and networking stocks are also posting steep losses, while some upside has emerged among health insurance stocks. The Morgan Stanley Healthcare Payor Index is up by 1.2 percent, setting a fresh one-month intraday high.

Stocks Driven By Analyst Comments

Despite the slide by most stocks, Cabot Oil & Gas (COG) is notably higher after an upgrade at Stifel Nicolaus from Hold to Buy. The stock has gained 2.9 percent, reaching its best intraday level in just over a month's time.

On the other hand, Hypercom (HYC) is under pressure after a downgrade by Wedbush from Outperform to Neutral. Shares are currently down by 7.4 percent, pulling back off of the nearly two and a half year high set in the previous session.

3Par (PAR) is also moving lower after being downgraded at Wedbush from Outperform to Neutral. The broker also lowered its target on the stock from $12.50 to $11.50. The stock has slipped by 2.6 percent, falling from yesterday's three-month closing high.

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TSX May Open Lower Amid Mixed Jobs Data

Bay Street stocks may open lower Friday amid falling commodities prices and mixed flow of jobs data from both sides of the border. Also, renewed worries over the euro zone debt situation may weigh on the sentiment.

While Canada added more jobs than expected in May, report from south of the border was not encouraging.

On Thursday, the S&P/TSX Composite Index added 31.21 points or 0.26% to 11,811.87. The price of crude oil edged down $0.39 to $74.22 a barrel, after rising in the past two sessions.

The price of gold moved down for a third session, amid a recovering dollar. Gold for August was down $4.7 to $1,205.30 an ounce.

In corporate news, airlines services provider Air Canada said its system traffic increased 9.7% to 4.2 billion revenue passenger miles in May from a year-ago period. Capacity increased 6.4% to 5.2 billion available seat miles system wide.

Precious metals explorer GlobeStar Mining announced record monthly gold production at the Cerro de Maimon Mine in the Dominican Republic, with April and May production hitting as high as about 3.9 million pounds of copper, 3,700 ounces of gold and 110,000 ounces of silver.

Entrée Gold said it's shareholders have voted in favor of acquiring all of the issued shares and options of PacMag according to Australian Schemes of arrangement. As per the deal, each PacMag shareholder will receive about 0.102 Entree shares and C$0.041 or A$0.043 cash for each PacMag share.

Engineering and manufacturing company Reko International Group slipped into the red, reporting third-quarter net loss of $0.36 per share, compared with a net income of $0.05 per share in the same quarter last year.

In economic news, Statistics Canada said the country added 25,000 jobs in May, recording fifth consecutive monthly increase. Economists were expecting 20,000 jobs creations in May. Meanwhile, the unemployment rate was unchanged at 8.1% in May, as against economists' expectations for 8%.

Meanwhile, building permits increased 5.4% to C$6.7 billion in April, mainly on gains in the non-residential sector, Statistics Canada said Friday morning. This follows a 12.3% advance in March. Consensus were pointing to a decline of 2% in April. On year-over-year basis, value of building permits jumped 48.2%.

From the U.S., the Labor Department said non-farm payroll employment increased by 431,000 jobs in May following an unrevised increase of 290,000 jobs in April. However, the job growth fell short of economist estimates for an increase of about 500,000 jobs. Additionally, the Labor Department said that the unemployment rate slipped to 9.7% in May from 9.9% in April. Economists were expecting the unemployment rate to edge down to 9.8%.

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Asian Markets End Mixed In Cautious Trading

Most of the markets across Asia ended mixed on Friday following Wall Street where the major averages managed to end in positive territory for the second successive day. While the markets in Australia, Hong Kong, Taiwan and Japan ended in negative territory with marginal losses, the other markets in the region ended in positive territory, but well off the highs, as traders preferred to lock in gains and move to the sidelines ahead of jobs report.

In Japan, the benchmark Nikkei 225 Index dropped 13.00 points, or 0.13%, to 9,901, while the broader Topix index of all First Section issues was down 0.48 point, or 0.05%, to 890.

Iron & steel stocks ended in negative territory on profit taking. JFE Holdings declined 1.13%, Pacific Metals fell 1.89%, Sumitomo Metal Industries lost 1.79%, Kobe Steel declined 1.55% and Nippon Steel Corp. slipped 0.62%.

Real estate stocks also ended in negative territory. Mitsubishi Estate slipped 1.43%, Mitsui Fudosan lost 1.19%, Sumitomo Realty & Development edged down 0.48% and Heiwa Real Estate declined 1.49%.

Mixed trading was witnessed among trading stocks. Sumitomo Corp. gained 1.23%, Mitsui & Co., advanced 0.92%, Itochu Corp. rose 1.20% and Marubeni Corp. edged up 0.20%. However, Toyota Tsusho Corp. ended in negative territory with a loss of 0.92% and Mitsubishi Corp. slipped 0.61%.

Banks ended in negative territory on profit taking. Sumitomo Mitsui Financial edged down 0.18%, Resona Holdings slipped 0.82% and Mitsubishi UFJ Financial shed 0.22%. Mizuho Financial managed to remain unchanged from previous close.

In Australia, the benchmark S&P/ASX200 Index declined 36.60 points, or 0.82% and closed at 4,449, while the All-Ordinaries Index ended at 4,472, representing a loss of 33.80 points, or 0.75%.

Metals and mining stocks ended in negative territory as traders preferred to stay away from risky stocks amid concerns about the super profit tax and implications of the same on the resource sector. BHP Billiton declined 2.25%, Fortescue Metals shed 2.35%, Gindalbie Metals edged down 0.47%, Macarthur Coal slipped 0.75%, Mineral Resource was down 0.57%, Murchison Metals slumped 3.17%, Oz Minerals lost 2.79% and Rio Tinto decreased 2.11%.

Mixed trading was witnessed among gold stocks. While Lihir Gold managed to remain unchanged from previous close, Newcrest Mining ended in negative territory with a loss of 0.28%.

Mixed trading was also witnessed in oil related stocks. Woodside Petroleum slipped 0.48%, ROC Oil Co. plunged 2.73% and Oil Search Ltd fell 0.53%. However, Origin Energy ended in positive territory with a gain of 0.07% and Santos climbed 1.73%.

Banking stocks ended in negative territory. ANZ Bank slipped 0.48%, Commonwealth Bank of Australia lost 0.92%, National Australia Bank slumped 2.91% and Westpac Banking lost 1.39%. Investment banking company Macquarie Group however bucked the trend and ended in the green with a gain of 0.64%.

Defensive stocks found favor with investors as they preferred to exercise caution and stay in the sidelines ahead of key economic data in the US related to jobs. Coca Cola Amatil gained 1.81%, Foster's Group rose 1.07%, Telstra Corp. added 0.32% and Singapore Telecommunicatons climbed 1.32%.

In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a marginal loss of 6.64 points, or 0.03% to close at 19,780, as traders resorted to profit taking at late trading session and preferred to move to the sidelines awaiting key economic data related to jobs in the US, which might once again reiterate that the US economy will not be affected by the present crisis in Europe.

Speculation that a U.S jobs report due later in the day will bolster optimism about economic recovery helped the Indian market end a volatile session modestly higher on Friday. Earlier in the day, trading remained subdued mirroring weak Asian cues amid concerns of slowing Chinese growth and the uncertainty over Europe's government finances. However, as the day progressed, buying activity emerged on the back of strong European and U.S. cues. The Dow futures were up 23 points in screen trade. After consolidating in the first half of the session, the benchmark 30-share Sensex gained nearly 100 points or 0.56% to end at 17,118 and the 50-share Nifty closed up 25 points or 0.49% at 5,135.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 0.94 points, or 0.04% at 2,554, Indonesia's Jakarta Composite Index added 12.27 points, or 0.44% to close at 2,823 and Singapore's Strait Times Index advanced 13.04 points, or 0.47% to close at 2,806. However, Taiwan's Weighted Index ended in negative territory with a loss of 15.69 points or 0.21% at 7,345.

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The major European averages opened higher and hovered in positive territory in the morning before retreating by the mid-session. The major averages in the region had advanced in the previous session, aided by the release of some upbeat economic data from the U.S. The French CAC 40 Index is trading down 2.41%, the German DAX Index is moving down 1.60% and the U.K.’s FTSE 100 Index is receding 1.49%.

On the economic front, a survey by Lloyds Banking Group Plc's Halifax division showed that U.K. house prices dipped for the second month in a row in May, underlining the fragility of the past year's house price recovery.

House prices declined 0.4% month-on-month in May following a 0.1% fall in April. Economists were expecting an increase of 0.3%. The average house price totaled 167,570 pounds in April, which was 16% below the August 2007 peak.

The revised GDP report from the euro zone region showed that the euro area’s quarter-over-quarter GDP growth was confirmed at 0.2% following 0.1% sequential growth in the previous quarter. However, the year-over-year growth was upwardly revised to 0.6% from the 0.5% growth estimates initially. Government spending and net exports primarily contributed to growth.

U.S. Economic Reports

The Labor Department’s monthly non-farm payroll report showed that non-farm payroll employment grew by 431,000 in May, with the bulk of the hirings related to census 2010. The Labor Department noted that 411,000 temporary employees were hired related to the census. Economists had expected an addition of 500,000 jobs during the month.

Total private employment rose by 41,000, with the goods producing sector adding 4,000 jobs and the service producing sector adding 37,000 jobs. On the other hand, the construction sector lost 35,000 jobs, while manufacturing employment increased by 29,000 jobs. However, the unemployment based on the household survey slipped to 9.7% from 9.9% in April.

Atlanta Federal Reserve Bank President Dennis Lockhart will speak on the economic outlook and banking to the Alabama Bankers Association annual convention in Braselton, Georgia, at 9:30 AM ET.

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Rockwell Automation (ROK) is likely to be in focus after it reported that its board has approved a 21% increase in its quarterly dividend to 35 cents per share. The company said the increase reflects its solid financial position and its confidence in its sustainable cash generation throughout business cycles.

Cliffs Natural Resources (CLF) could see some activity after it announced that it has acquired 7.792 million shares of Spider Resources by way of public market purchases for a weighted average price of 0.1343 Canadian dollars. Following the purchases, Cliff Natural now holds about 4.2% of the outstanding shares of Spider.

Comtech Telecommunications (CMTL) may also be in focus after it reported that its third quarter sales rose to $216.3 million from the year-ago’s $128.5 million. The company’s net income rose to 67 cents per share from 27 cents per share in the year-ago period. Analysts estimated earnings of 48 cents per share on revenues of $190.01 million.

Cooper Companies (COO) is likely to move in reaction to its announcement that its second quarter revenues rose 11% to $289.3 million. On a non-GAAP basis, the company reported earnings of 61 cents per share. Analysts estimated earnings of 61 cents per share on revenues of $275.41 million. The company raised its non-GAAP 2010 earnings guidance to $2.50-$2.60 per share from $2.45-$2.55 per share, while it maintained its revenue guidance at $1.11 billion-$1.17 billion. The consensus estimates call for earnings of $2.55 per share on revenues of $1.14 billion.

Bank of New York Mellon (BK) is likely to come under selling pressure after it announced that it would offer $700 million worth of its common stock.

Quiksilver (ZQK) could also see activity after it announced that its second quarter pro forma net revenues fell to $468 million from $494 million last year. The company reported pro forma income from continuing operations of 11 cents per share compared to 5 cents per share last year. Analysts estimated earnings of 3 cents per share on revenues of $455.50 million. The company also said it expects third quarter revenues to be down in the low teens on a percentage basis compared to the year-ago period, while analysts expect a 3.7% decline in revenues.

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