US & World Daily Markets Financial Briefing 03-12-2010

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Stocks Seeing Modest Weakness On Disappointing Jobs Data

Stocks are seeing modest weakness in early trading on Friday, giving back some ground after posting strong gains in each of the two previous sessions. The major averages have all slipped into negative territory, although selling pressure remains relatively subdued.

The early weakness in the markets comes following the release of a report from the Labor Department showing weaker than expected job growth in the month of November as well as an unexpected uptick in the unemployment rate.

The report showed that non-farm payroll employment increased by 39,000 jobs in November following an upwardly revised increase of 172,000 jobs in October. Economists had expected the addition of about 130,000 jobs compared to the increase of 151,000 jobs originally reported for the previous month.

Despite the increase in employment, the report also showed that the unemployment rate ticked up to 9.8 percent in November from 9.6 percent in October. The increase came as a surprise to economists, who had expected the unemployment rate to remain unchanged at 9.6 percent.

While the report has generated some negative sentiment, economists have pointed out that the disappointing numbers are in stark contrast to most of the other recent data.

"The report really contradicts the other labor data we have been seeing," said ING economist James Knightley. "As a result, today's poor outcome may just be 'noise' in what is a very volatile data series."

At 10:00 a.m. ET, the Commerce Department will release its report on factory orders for October. Economists estimate factory orders to decline by 1.3 percent for the month following an unexpected 2.1 percent increase in September.

At the same time, the Institute of Supply Management is scheduled to issue the results of its service sector survey for November. The non-manufacturing index is forecast to inch up to 54.5 from the reading of 54.3 posted in October.

After helping to lead the markets higher on Thursday, banking stocks are seeing notable weakness in early trading, with the KBW Bank Index down by 1 percent. Housing and brokerage stocks are also seeing early weakness, while considerable strength has emerged among gold stocks.

The major averages have moved well off their lows for the young session in the past few minutes but currently remain in the red. The Dow is down 13.92 points or 0.1 percent at 11,348.49, the Nasdaq is down 3.42 points or 0.1 percent at 2,575.93 and the S&P 500 is up 2.69 points or 0.2 percent at 1,218.84.

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TSX Poised For Mixed Open

Bay Street stocks  may struggle for direction Friday morning amid mixed jobs data from both sides of the border. While Canada said its unemployment rate fell in November, data from the U.S. Labor Department revealed unexpected surge in the unemployment rate.

Meanwhile, today's earnings reports from big lenders were mixed. While Royal Bank of Canada said its fourth quarter net income fell due to loss on the announced sale of Liberty Life Insurance Company, Scotiabank reported a 21% jump in its fourth quarter net income.

Elsewhere in the commodities market, gold moved up as the U.S. dollar fell sharply after the jobs report, while crude oil reversed early morning gains.

U.S. stock futures were pointing to a lower open after discouraging jobs data.

On Thursday, the S&P/TSX Composite Index edged up 15.18 points or 0.12% to 13,163.53, advancing to a fresh 2-year peak.

The price of crude oil was leveling off from its 2-year peak, with crude for January shedding $0.77 to $87.23 a barrel.

The price of gold was holding on to its recent gains amid a weak U.S. dollar, with gold for February adding $8.80 to $1,398.10 an ounce.

In corporate news from Canada, lender RBC reported fourth-quarter net income available to common shareholders of C$1.06 billion or C$0.74 per share, compared to C$1.15 billion or C$0.82 per share last year. Net income, excluding items, was C$1.24 billion or C$0.82 per share, flat with the year-ago quarter. The bank announced a quarterly dividend of C$0.50 per common share. Analysts were expecting the company to report earnings of C$1.01 per share this quarter. Canada's third biggest lender Scotiabank reported a 21% jump in its fourth-quarter net income at C$1.09 billion or C$1.00 per share, matching consensus estimates and compared to C$902 million or C$0.83 per share in the year ago quarter. The bank declared a quarterly dividend of C$0.49 per common share and said it anticipates earnings per share growth of 7% to 12% for 2011.

High precision measuring instruments maker Roctest Ltd. said its shareholders approved the acquisition by Nova Metrix LLC at C$4.01 per share in cash.

Goldcorp announced that the requisite majority of Andean Resources shareholders have voted in favor the proposed acquisition of the latter.

Coal miner Western Coal Corp. said it would be acquired by Walter Energy or C$11.50 per share in cash or 0.114 of a Walter Energy share, or for a combination thereof. The transaction represents a total enterprise value of C$3.3 billion, net of cash on the balance sheet for Western Coal.

In economic news, Statistics Canada said the economy added 15,200 jobs in November as part time gains were partly offset by decreases in full time. Meanwhile, the unemployment rate dropped to its lowest level in almost two years amid a significant decline in the number of young people participating in the labor market. November's jobless rate is the lowest since January of 2009, and bettered expectations for another reading of 7.9% unemployment.

From across the border, the U.S. Labor Department said that non-farm payroll employment increased by 39,000 jobs in November following an upwardly revised increase of 172,000 jobs in October. Economists had expected the addition of about 130,000 jobs compared to the increase of 151,000 jobs originally reported for the previous month. Meanwhile, the unemployment rate ticked up to 9.8% in November from 9.6% in October. The increase came as a surprise to economists, who were expecting the rate to remain unchanged at 9.6%.

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Stocks Rise In France

Bucking the trend shown by other major markets in the region, the French market has been moderately higher in afternoon trading Friday. Construction stocks  and banks are witnessing upside.

In economic news, French service sector expansion quickened in November with the seasonally adjusted business activity index rising to 55 from 54.8 in the previous month, Markit Economics said. The seasonally adjusted Services Business Activity Index in Germany rose to 59.2 in November from 56 in October, the sharpest rise since August 2007.

Meanwhile, the final Market Eurozone Composite Output Index rose to 55.5 in November from 53.8 in October, as recovery gained momentum despite the sovereign debt crisis, led by Germany and France. Yet another report, released by Eurostat, showed that Eurozone retail sales for October recovered more strongly than expected on robust food product sales. Retail sales grew 0.5% month-on-month in October, reversing the previous month's revised 0.1% drop.

British service sector expanded at a slower pace in November, survey data from Market Economics showed. The Chartered Institute of Purchasing & Supply business activity index for the services sector decreased to 53 in November from 53.2 in October. Economists had forecast the reading to remain at 53.2.

The CAC 40 opened slightly lower at 3,744, but managed to break into positive territory shortly and has been witnessing brisk buying. The index is currently advancing 0.71%.

Chipmaker STMicroelectronics is adding 4.6% and telecom equipment maker Alcatel Lucent is rising 3.4%.

Builder Vinci is adding 1.8% and Bouygues is gaining 0.40%. Building materials maker Saint-Gobain is rising 1.7%. Steel producer ArcelorMittal and cement giant Lafarge are gaining 1.6% and 1.3%, respectively.

Among lenders, BNP Paribas is gaining 1.6%. Societe Generale and Credit Agricole are each up 0.6%. However, Natixis is losing 0.6%.

Beverages company Pernod-Ricard is down 1.1% and diary giant Danone is losing 0.7%. Department stores operator PPR and retailer Carrefour are each slipping 1%.

Elsewhere in Europe, the UK's FTSE 100 is adding 0.14% and the German DAX is advancing 0.22%.

Across Asia/Pacific, markets had a mixed outing. China's Shanghai Composite Index slipped 0.04%, Hong Kong's Hang Seng index retreated 0.55% and India's BSE Sensex lost 0.13%. However, Australia's All Ordinaries added 0.4% and Japan's Nikkei 225 gained 0.1%.

In the U.S., futures point to a higher open on Wall Street. In the previous session, the Dow jumped 1%, the Nasdaq advanced 1.2% and the S&P 500 rose 1.3%.

 Crude for January delivery is trading higher by $0.10 at $88.10 per barrel and gold is lower by $0.7 at $1388.6 an ounce.

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Asian Markets End Mixed Amid Cautious Trading

Mixed trading was witnessed among the major Asian markets open for trading on Friday, the last day of the trading week, as traders resorted to profit taking in late trading session amid cautious trading awaiting key jobs report from the US. While the markets in Australia, Japan, South Korea and Taiwan ended in positive territory with narrow gains, the markets in Hong Kong, India, Indonesia and Singapore ended in negative territory with modest losses.

In Australia, the benchmark S&P/ASX200 Index advanced 18.00 points, or 0.38%, and closed at 4,694 points, while the All-Ordinaries Index ended at 4,780, representing a gain of 18.30 points, or 0.38%.

On the economic front, a report released by the Australian Industry Group in association with the Commonwealth Bank of Australia revealed that activity in the country's service sector fell into contraction during November. As per the report, the Performance of Services Index declined 4.5 points during November to a reading a 46.2, from a reading of 50.7 for the previous month. Readings below 50.0 indicate a contraction of activity in the measured sector.

Light sweet crude oil futures for January delivery ended at $87.80 a barrel in electronic trading, down $0.20 per barrel from previous close at $88.00 a barrel in New York on Thursday.

James Hardie, engaged in the US housing industry, was the major gainer in the market, having surged up 6.16% on increasing optimism about sustaining economic recovery in the world's largest economy.

Resource related stocks ended in positive territory. BHP  Billiton added 0.59%. Rio Tinto, which announced the signing of a joint-venture agreement with Aluminum Corp. of China for exploring mineral deposits in China, climbed 1.66%. Among the other resource stocks, Fortescue Metals rose 1.40%, Iluka Resources advanced 1.07%, Mincor Resources was higher by 0.85%, and Murchison Metals climbed 2.93%. However, Gindalbie Metals slipped 0.45% and Oz Minerals shed 0.31% on profit taking.

Mixed trading was witnessed among the major banking stocks. Commonwealth Bank added 0.26% and National Australia Bank edged up 0.08%. However, ANZ Bank slipped 0.47% and Westpac Banking Corp. shed 0.14% on profit taking. Investment banking company Macquarie Group ended in positive territory with a gain of 0.93%.

Oil related stocks ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum added 0.38%, Santos Ltd advanced 0.48% and Origin Energy climbed 0.50%. ROC Oil Ltd and Oil Search Ltd remained unchanged from previous close.

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Gold mining company Newcrest Mining ended in positive territory with a gain of 0.84%, and Avoca Resources climbed 3.13%.

In Japan, the benchmark Nikkei 225 Index gained 9.80 points, or 0.1%, to 10,178.32,. while the broader Topix index of all First Section issues rose 2.01 points, or 0.2%, to 879.

Mixed trading was witnessed among real estate stocks. Sumitomo Realty & Development added 0.65%, Tokyu Land Corp. advanced 1.31% and Tokyo Tatemono Co. edged up 0.29%. Heiwa Real Estate remained unchanged from previous close. However, Mitsui Fudosan slipped 0.40% and Mitsubishi Estate shed 0.55% on profit taking.

Sea-transport related stocks ended in negative territory on profit taking. Kawasaki Kishen Kaisha declined 0.56%, Nippon Yusen slipped 0.53% and Mitsui OSK Lines was down 0.68%.

Mixed trading was witnessed among electric machinery stocks as traders resorted to profit taking in late trading session. Among the gainers, Fanuc Corp. gained 1.29%, Kyocera Corp., added 0.35%, TDK Corp. advanced 0.38% and Mitsumi Electric Co., rose 0.82%. However, Tokyo Electron ended in negative territory with a loss of 0.56% and Sony Corp. declined 0.66%.

Stocks of retailers ended in negative territory on profit taking. Fast Retailing declined 2.99%, Seven & I Holdings slipped 0.71%, Aeon Co. lost 1.16%, Takashimaya Co. was down 0.42% and J Front Retailing shed 0.42%.

India's benchmark indexes Sensex and the Nifty ended little changed with a negative bias on Friday, as investors took profits at higher levels following recent sharp gains. Small-cap and mid-cap stocks came under renewed selling pressure in the wake of market regulator SEBI's decision to ban four listed companies from trading on charges of manipulation of share prices. The 30-share Sensex moved choppily in a restricted range before falling as much as 0.6% in the afternoon. However, it recouped most of its loss and ended down 26 points or 0.13% at 19,967, with 17 of its components declining. Likewise, the broader Nifty fell 19 points or 0.31% to 5,993, while the BSE mid-cap and small-cap indexes ended down 2.3% and 3%, respectively. The market breadth on the BSE was extremely negative, with 2206 decliners versus 703 gainers.

Among the other markets in the region, China's Shanghai Composite Index ended in negative territory with a minor loss of 1.18 points, or 0.04% to close at 2,842, HongKong's Hang Seng Index declined 128.26 points, or 0.55% to close at 23,320 and Singapore's Strait Times Index slipped 25.52 points, or 0.80%, to close at 3,172. However, Jakarta Composite Index in Indonesia edged higher by 1.68 points, or 0.05%, to close at 3,696, Seoul Composite Index in South Korea ended in positive territory with a gain of 7.00 points, or 0.36%, to close at 1,957, and Taiwan Weighted Index advanced 38.24 points or 0.45% to close at 8,624.

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