US & World Daily Markets Financial Briefing 04-02-2011

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Mixed Jobs Data Leads To Choppy Trading On Wall Street

After moving modestly higher at the open, stocks have turned lower over the course of early trading on Friday. The major averages have pulled back into negative territory, although selling pressure remains relatively subdued.

The downturn by the markets comes as trader digest the Labor Department's mixed employment report for January, which showed much weaker than expected job growth for the month as well as an unexpected drop by the unemployment rate.

The Labor Department said non-farm payroll employment rose by 36,000 jobs in January following an upwardly revised increase of 121,000 jobs in December. Economists had expected an increase of about 150,000 jobs compared to the addition of 103,000 jobs originally reported for the previous month.

At the same time, the unemployment rate fell to 9.0 percent in January from 9.4 percent in December, with the drop reflecting a decrease in the size of the labor force. The decrease came as a surprise to economists, who had expected the unemployment rate to edge up to 9.5 percent.

Citing distortions caused by annual benchmark revisions and the weather, Rob Carnell, chief international economist at ING, said, "This report is probably best filed under 'ignore'."

"It may be another few months before payrolls starts to mirror what other labor data is telling us, namely, that the labor market is continuing to improve," Carnell added.

Moderate weakness is visible among real estate, banking, and software stocks, but the downside appears limited. On the other hand, early strength is visible in the health insurance sector.

Aetna (AET) is leading the insurance sector higher after reporting adjusted fourth-quarter earnings of $0.63 per share, above expectations for $0.62 per share. Revenues slipped by 2 percent to $8.54 billion but still beat forecasts for $8.40 billion. Aetna's full-year 2011 earnings guidance was above estimates.

The major averages have edged up off their lows for the young session but currently remain in the red. The Dow is down 15.37 points or 0.1 percent at 12,046.89, the Nasdaq is down 3.53 points or 0.1 percent at 2,750.35 and the S&P 500 is down 3.04 points or 0.2 percent at 1,304.06.

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TSX May Struggle For Direction Amid Mixed Jobs Data

Bay Street stocks may struggle for direction at open Friday amid mixed jobs data from both sides of the border. While Canada reported that employment increased more than four times what economists predicted, data from the U.S. revealed only a modest increase in payrolls.

Moreover, the main index already gathered over 400 points or nearly 3 percent so far this week, and profit taking at higher levels may put pressure on stocks.

Today's data from Statistics Canada revealed that the economy created a surprisingly strong 69,200 jobs in January 2011, putting pressure on the Bank of Canada to raise its interest rates.

The Canadian dollar advanced to a 3-week high versus the U.S. dollar following upbeat jobs data.

U.S. stock futures were pointing to a marginally higher open.

On Thursday, the S&P/TSX Composite Index advanced to a fresh 2-year peak, adding 161.06 points or 1.18 percent to 13,841.35.

The price of crude oil was moving up near $92, with the ongoing unrest in Egypt underpinning prices. Crude for March was up $0.60 to $91.14 a barrel.

The price of gold was steady near its 2-week high, holding on to its precious session's smart gain. Gold for April edged down $2.10 to $1,350.90 an ounce.

In corporate news from Canada, aircraft parts maker Heroux-Devtek reported improved third quarter net income of $5.1 million or $0.17 per share, compared to $3.5 million or $0.12 per share a year earlier.

Wood products company Domtar Corp reported a stronger fourth quarter profits of $325 million or $7.59 per share up from $124 million or $2.86 per share a year ago.

Electricity transmission company Brookfield Infrastructure Partners said it swung to profits in fourth quarter, reporting net income of $416 million or $3.48 per unit, compared with a loss of $45 million, or $0.58 per unit, in the year ago period.

In economic news, Statistics Canada said the nation's economy created a surprisingly strong 69,200 jobs in January 2011, yet the unemployment rate increased by 0.2 percentage points to 7.8 percent. Economists were expecting 15,000 more people were employed in this country last month after adding 22,000 jobs in December. The unemployment rate was expected to remain steady at 7.6 percent.

From south of the border, the U.S. Labor Department said non-farm payroll employment rose by 36,000 jobs in January following an upwardly revised increase of 121,000 jobs in December. Economists were expecting an increase of about 150,000 jobs compared to the addition of 103,000 jobs originally reported for the previous month. Meanwhile, the unemployment rate fell to 9.0 percent in January from 9.4 percent in December. Economists had expected the unemployment rate to edge up to 9.5 percent.

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French Market Moderately Higher

The French market is moderately higher in afternoon trading Friday, ahead of the January employment report from the U.S. Banks and construction stocks are mostly seeing upside.

In economic news, Germany's construction sector bounced back strongly in January following December's sharp decline in activity caused by exceptionally bad weather conditions, data from Markit Economics showed. The seasonally adjusted construction purchasing managers' index rose sharply to 55.5 in January from 36 in December.

Meanwhile, the Confederation of British Industry warned that British banks must not split up under government reforms as this would endanger the UK's status as a top international financial hub. The CBI also warned the UK government against acting alone on banking reforms and stressed the importance of global coordination in any financial sector shake-up.

Halifax said average house prices in the UK rose a seasonally adjusted 0.8 percent month-on-month in January to 164,173 pounds, in contrast to analyst expectations for a 0.2 percent fall. During the three months to January, prices fell 0.7 percent compared to the preceding three months.

The CAC 40 opened at 4,049, up from the prior close of 4,037, and has been seeing volatile trading. The index is currently adding 0.41 percent.

Building materials maker Saint-Gobain is leading the gainers by adding 3.1 percent. Steelmaker ArcelorMittal is up 1 percent. Builders Bouygues and Vinci are seeing upside.

Lenders Credit Agricole, Societe Generale, BNP Paribas and Natixis are advancing between 1.9 percent and 0.45 percent. Insurer Axa is advancing 1.9 percent.

Renault is modestly up, while Peugeot is trading moderately lower.

Those making notable gains include hotel group Accor, cosmetics giant Loreal and machinery & equipment firm Alstom.

Luxury goods group is falling 2.65 percent after reporting full-year results. Department stores operator PPR is losing 1.7 percent.

Grocery retailer Carrefour and Airbus maker EADS are moderately lower.

Elsewhere in Europe, the UK's FTSE 100 is adding 0.39 percent and the German DAX is gaining 0.33 percent.

Across Asia/Pacific, Australia's All Ordinaries added 0.80 percent and Japan's Nikkei 225 gained 1.1 percent. India's BSE Sensex declined 2.4 percent. The Chinese market is closed.

In the U.S., futures point to a higher open on Wall Street. In the previous session, the Dow gained 0.2 percent, the Nasdaq advanced 0.2 percent and the S&P 500 rose 0.2 percent.

In commodities, crude for March delivery is adding $0.45 to $90.99 per barrel and gold is sliding $4.1 to $1348.9 a troy ounce.

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Indian Market Ends Deep In The Red

After yesterday's pullback rally, the Indian market fell sharply on Friday as the undertone remained jittery in view of the unprecedented anti-government protests in Egypt, inflation worries on the domestic front and selling by foreign funds. Rising oil prices amid the political turmoil and chaos in Egypt, a major supplier of crude oil to India, also sparked risk aversion among investors. U.S. crude futures were a tad higher near $91 a barrel in Asian trading.

High inflation is posing a serious threat to the growth momentum and affecting the poor and the vulnerable disproportionately harder, Prime Minister Manmohan Singh said today.

Despite firm global cues, the 30-share BSE Sensex ended near the day's low at 18,008, down 441 points or 2.39 percent, dragged down by heavy profit taking in realty, FMCG, telecom, IT, banking, capital goods and auto stocks.

The 50-share Nifty fell by 131 points or 2.37 percent to 5,396, while the BSE mid-cap and small-cap indexes ended down about 1.5 percent each. In the broader market, declining shares outpaced gainers in the ratio of 2.3:1 on the BSE.

In the Sensex pack, Mahindra & Mahindra (down 5.31 percent) led the decliners, followed by ITC (down 4.23 percent), Reliance Infrastructure (down 3.76 percent), Tata Power (down 3.63 percent) and Hindalco Industries (down 3.58 percent).

Heavyweight Reliance Industries fell 2.54 percent on concerns that it might challenge oil giant Chevron's bid for Atlas Energy. Reliance Communication declined 2.80 percent after the Telecom Disputes Settlement and Appellate Tribunal reserved order on a plea by the company against a demand note issued by state-run BSNL.

Car maker Maruti Suzuki lost nearly 3 percent on fears that high interest rates and fuel prices could impact its sales in the short-term. Sterlite Industries shed 1.83 percent on profit taking after Copper prices hit a record high of $10000/tonne on the LME overnight.

Software stocks such as Wipro, Infosys and TCS fell between 1 percent and 3 percent ahead of the crucial U.S. non-farm payrolls data scheduled to be released later today. In the banking sector, ICICI Bank led the decliners with a 3.27 percent loss, HDFC Bank eased 2 percent and state-run SBI ended down marginally. Mortgage lender HDFC closed 3.26 percent lower. Power producer NTPC lost 3 percent on becoming ex-dividend.

DB Realty slumped 10 percent on a CBI probe report related to an alleged Rs.200-crore fund transfer from the realty firm's account to Kalaignar TV in FY2009-10. Unitech, which is facing charges of selling equity in its telecom venture to make windfall gains, plunged over 7 percent, DLF ended down 2.78 percent.

Cement manufactures such as ACC and Ambuja Cements, which are experiencing continued pressure on selling prices, closed down between 1 percent and 3 percent. Balrampur Chini Mills slumped 4 percent on disappointing earnings. Allied Digital Services hit the 20 percent lower circuit limit on reports of a search by income tax authorities on its premises.

Reliance Power saw aggressive buying early in the session before ending 0.77 percent lower. The utility said its Sasan ultra mega power project would earn up to 22.5 million tradable carbon credits over the next 10 years for helping limit emissions.

Meanwhile, Divi's Laboratories climbed 3.76 percent on reporting healthy quarterly earnings. JK Lakshmi Cement gained 1.06 percent on the price hike buzz. Andhra Bank rose 1.48 percent after it increased its benchmark prime lending rate and base rate by 50 basis points each. A few fertilizer stocks such as FACT (up 3.78 percent), Nagarjuna Fertilizers (up 1.75 percent) and Zuari Industries (up 1.20 percent) gained ahead of a meeting of the Committee of Secretaries on urea pricing issue on Monday.

Elsewhere, Japanese shares rose over a percent on Friday, as news about the merger of top Japanese steelmakers Nippon Steel and Sumitomo Metal Industries and encouraging earnings reports from the likes of Sony and Hitachi bolstered sentiment.

Australia's S&P/ASX 200 rose 0.87 percent, shrugging off Egyptian fears, and New Zealand's benchmark NZX-50 closed 0.54 percent higher, as signs of quicker global growth and an optimistic earnings outlook underpinned sentiment. Markets in China, Hong Kong, South Korea, Taiwan, Malaysia, and Vietnam remained shut for the Lunar New Year holidays.

European stocks were up modestly in early trading and the Dow futures pointed to a higher open on Wall Street later in the day ahead of tonight's all important monthly jobs data from the United States.

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Dollar On Hold Ahead Of Crucial Jobs Report

The dollar sustained most of its gains versus the euro Friday morning ahead of the latest monthly jobs report from the U.S. government.

Unemployment remains unacceptably high even after dropping to 9.4 percent in December according to officials at the Federal Reserve.

If jobs creation remains stagnant in the early months of 2011, the Fed will be expected to keep interest rates at a record low near zero through the year.

Yesterday, Federal Reserve Chairman Ben Bernanke said that U.S. economic recovery still needs help from the Fed.

"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," he said.

The Labor Department will release its monthly non-farm payroll report at 8:30 a.m. ET. Economists expect non-farm payrolls for January to increase by 150,000, but they expect the unemployment rate to tick up to 9.5 percent.

In the meantime, the dollar was steady near $1.3630 against the euro, having rallied away from a 3-month low of $1.3860 in the previous session.

Yesterday's comments from European Central Bank President Jean-Claude Trichet eased expectations of an ECB rate hike in the next few months.

Trichet said inflation rates could temporarily increase further and are likely to stay slightly above 2% for most of 2011, before moderating again around the turn of the year.

The buck saw little movement against the sterling at $1.6120, and was flat near Y81.60 against the Japanese yen.

The dollar remained under par versus its Canadian counterpart.

In economic news from around the globe, Germany's construction sector bounced back strongly in January following December's sharp decline in activity caused by exceptionally bad weather conditions, data from Markit Economics showed Friday.

The seasonally adjusted construction purchasing managers' index rose sharply to 55.5 in January from 36 in December. A reading above 50 suggests expansion of the sector, while a reading below 50 indicates contraction.

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