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Weak Job Growth May Aggravate Risk Aversion

The major U.S. index futures are pointing to a sharply lower opening on Monday, with sentiment impacted by the non-farm payrolls report for March, which showed that job growth was markedly weaker than expected. Much of the recent gains were built on the premise that the recent uptick seen in the labor market is sustainable. With the premise now being questioned and in the absence of any major market moving catalysts, traders are likely to wait and watch or even consider cashing in on recent gains.

The U.S. non-farm payrolls report released last Friday showed that the economy added 120,000 jobs in March, the smallest job gains in five months. The increase was far below the 2000,000-plus forecast by economists. The private sector added 121,000 jobs, while the government trimmed 1,000 jobs. Nevertheless, the jobless rate based on the household survey ticked down 0.1 percentage points to 8.2 percent despite the number of employed people declining by 31,000.

U.S. stocks moved lower in the truncated week ended April 5th, as some insipid economic numbers made traders uncomfortable, given the fact that the markets are trading at overbought levels.

Last Monday, the major U.S. averages advanced moderately after some early apprehension, as the Institute for Supply Management's manufacturing data came in better than expected. The averages reversed course on Tuesday, retreating moderately, after the FOMC minutes quelled any hopes of any further quantitative easing.

Stocks retreated sharply on Wednesday amid the release of mixed catalysts. A smaller than expected expansion in the service sector suggested by the ISM's service sector survey and a lukewarm reception to a Spanish debt auction served to mitigate the positive sentiment generated by a report showing bigger than expected addition to private payrolls in March.

Apprehension ahead of Friday's monthly employment report kept sentiment subdued on Thursday, resulting in a mixed close.

For the week ended April 5th, the Dow Industrials fell 1.15 percent and the S&P 500 Index lost 0.74 percent, while the Nasdaq Composite Index retreated 0.36 percent.

Among the sector indexes, the NYSE Arca Gold Bugs Index slid 6.73 percent, while the Philadelphia Housing Sector Index declined about 4 percent and the Philadelphia Semiconductor Index lost 3.52 percent. The NYSE Arca Securities Broker/Dealer Index moved down 2.50 percent, while the NYSE Arca Oil Index, the Dow Jones U.S. Basic Material Average, the Philadelphia Oil Service Index and the KBW Bank Index all lost over 1.50 percent.

Currency, Commodity Markets

Crude oil futures are receding $1.60 to $101.71 a barrel after rising $0.29 or 0.28 percent to $103.31 a barrel in the week ended April 5th. Last Monday, oil jumped over $2-a-barrel on the back of the positive ISM manufacturing data. However, the commodity pulled back by over $1-a-barrel on Tuesday on fading stimulus hopes following the release of the FOMC minutes.

The commodity fell by over $2.50-a-barrel on Wednesday, dragged down by a bearish inventory report and the general risk aversion. Nevertheless, oil reversed course and rose over $1.80-a-barrel on Thursday, capitalizing on the jobless claims data, and in the process wiping away all of the week's losses.

Gold futures, which fell $41.80 or 2.5 percent to $1,630.10 an ounce in the previous week, are currently rising $15.60 to $1,645.70 an ounce.

The risk aversion that was in play for much of last week sent traders scurrying for cover under safe havens. Consequently, safe havens such as the U.S. dollar and the yen gained ground in the week ended April 5th, with the greenback rising 2.07 percent versus the euro to $1.3098. The yen gained 1.48 percent against the dollar last week before ending at 81.64.

The dollar is currently trading at 81.37 yen and is valued at $1.3069 against the euro.

Asia

The Asian markets that were open for trading closed lower, with the U.S. non-farm payrolls report serving as a drag. The Australian, New Zealand and Hong Kong markets remained closed for the day.

Japan's Nikkei 225 average retreated for the fifth straight session, declining 142.19 points or 1.47 percent to 9,546, marking the lowest level since February 21st. The strength of the yen due to its safe haven appeal weighed on export stocks. Most other stocks also retreated.

China's Shanghai Composite Index ended down 20.78 points or 0.90 percent at 2,286, while India's Sensex, Taiwan's Weighted Average Index and South Korea's Kospi all ended down over 1 percent.

Inflation data released by China showed that the annual rate of consumer price inflation quickened to 3.6 percent in March from 3.2 percent in February. Economists had expected a more modest increase to 3.4 percent.

Europe

The major European markets are closed for Easter holidays.

U.S. Economic Reports

The unfolding week's economic calendar is filled with a host of Fed speeches, including two public appearances by Federal Reserve Chairman Ben Bernanke. Traders may also focus on the Beige Book, the jobless claims report and Reuters and the University of Michigan's preliminary consumer sentiment reading.

The Commerce Department's trade balance report for February, the Labor Department's consumer and producer price inflation reports for March, the import and export price indexes for March, the Commerce Department's wholesale inventories report for February, the Treasury's monthly budget report and Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The trade balance is expected to show that that export growth quickened, while imports may have also increased due to higher oil prices. BMO Capital Markets is of the view that trade may have deducted from first quarter growth.

The headline consumer price inflation is expected to edge down in March, as the impact of higher gasoline prices may have neutralized the deflationary impact of lower home heating costs. The year-over-year rate is also expected to decline modestly, given the faster rate of growth in fuel prices in the year-ago period.

Bernanke will speak to an Atlanta Federal Reserve conference in Stone Mountain, Georgia, at 7:15 pm ET.

Stocks in Focus

United Microelectronics (UMC) reported a 14.6 percent drop in sales for March and a 15.5 percent decline in quarterly sales. Meanwhile, Advanced Semiconductor Engineering (ASE) reported a 7 percent drop in March sales and a 6.3 percent decline in first quarter sales.

Eli Lilly (LLY) and Avid Radiopharma announced that the FDA has approved Amyvid, a radioactive diagnostic agent indicated for brain imaging of beta-amyloid plaques in patients who are being evaluated for Alzheimer's disease.

Kraft Foods (KFT) announced that it is voluntarily recalling one code data of Planters Cocktail Peanuts sold in 12 ounce canisters due to possible exposure to water not intended for use in food during the production process.

Broadcom (BRCM) announced the completion of its acquisition of networking and fiber access Passive Optical Network processor maker BroadLight. Excluding any purchase accounting related adjustments, Broadcom expects the deal to be neutral to its earnings per share in 2012.

WD-40 Co. (WDFC) reported second quarter earnings of 65 cents per share compared to 53 cents per share last year. The company's net sales rose 9 percent to $86 million. For 2012, the company expects earnings of $2.33-$2.45 per share on net sales of $353 million to $370 million. While the results were better than expected, the guidance surrounded the consensus estimates.

The U.S. Navy awarded Lockheed Martin (LMT) a $1.05 billion 5-year contract to provide more than 200 digital cockpit and integrated mission systems and sensors for the Navy MH-60R "Romeo" and MH-60S "Sierra" helicopters.

AZZ Corp. (AZZ) reported fourth quarter earnings of 92 cents per share, higher than 73 cents per share last year, and revenues climbed to $123.6 million from the year-ago quarter's $100.7 million. The results were better than expected. For fiscal year 2013, the company expects earnings of $3.25-$3.55 per share on revenues of $475 million to $510 million.

AOL (AOL) said it has agreed to sell over 800 of its patent applications to Microsoft (MSFT) for $1.06 billion in cash.

by RTT Staff Writer

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