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Positive Payrolls May Stifle Any Pullback

11/2/2012 9:25 AM ET

The major U.S. index futures are pointing to a higher opening on Friday, with the bigger than expected addition to payrolls expected to provide an early boost to the markets. The unemployment rate edged up in line with expectations. Although the relief over the jobs data could engender some buying interest, the markets could still be concerned about economic and political uncertainty, especially as the presidential polls loom. When the markets attempt to push higher from overbought territory, the Dow Industrials may face stiff resistance around the 13,279 and the 13,346 levels. On the downside, support lies around 13,206 and 13,112 levels.

U.S. stocks bloomed in response to upbeat economic data on Thursday, posting notable advances for the session. Buoyed by separate reports showing bigger than expected private sector payroll gains and an unexpected decline in jobless claims, the major averages started the session higher. The averages saw further upside after the Institute for Supply Management's national manufacturing survey showed the second straight month of expansion by the sector. After rising till late morning trading, the averages consolidated for the rest of the session.

The Dow Industrials ended up 136.16 points or 1.04 percent at 13,233 and the S&P 500 Index closed 15.43 points or 1.09 percent higher at 1,428, while the Nasdaq Composite closed at 3,020, up 42.83 points or 1.44 percent.

Twenty-six of the thirty Dow components closed higher and one stock was unchanged, while the remaining three stocks retreated. Bank of America (BAC), Caterpillar (CAT), Microsoft (MSFT), JP Morgan Chase (JPM), Intel (INTC), Cisco Systems (CSCO) and Alcoa (AA) were among the biggest advancers of the session, while Pfizer (PFE), Travelers Companies (TRV) and Wal-Mart (WMT) declined.

Semiconductor, transportation, basic material, energy, retail, housing and financial stocks were among the best performers of the session, while utility stocks gave back some ground.

On the economic front, the Labor Department reported that jobless claims fell to 363,000 in the week ended October 27th compared to a revised reading of 372,000 for the previous week. The four-week average fell to 367,000 from 369,000, while continuing claims for the week ended October 20th rose 4,000 to 3.263 million.

The ADP survey showed that the private sector added 158,000 jobs in October, stronger than the 114,000 jobs added in September. September's jobs gains were originally reported at 162,000 and were revised down sharply due to a change to an enhanced survey and methodology.

Preliminary data showed that U.S. non-farm productivity rose 1.9 percent sequentially in the third quarter. Meanwhile, unit labor costs edged down 0.1 percent, as compensation per hour rose less than productivity

The ISM's manufacturing survey showed that its manufacturing purchasing managers' index rose to 51.7 in October from 51.5 in September. The new orders index rose about 2 points to 54.2 and the production index climbed 2.9 points to 52.4, while the order backlogs index fell by 2.5 points to 41.5. The employment index also declined, dropping 2.6 points to 52.1. Out of the eighteen industries surveyed, only 8 reported growth in October compared to 11 in September.

Meanwhile, the Conference Board's consumer confidence index rose to 72.2 in October from 68.4 in September. The present situation index rose 7.5 points to 56.2 and the expectations index improved 1.4 points to 82.9.

A Commerce Department report showed that construction spending rose 0.6 percent month-over-month in September. The previous month's spending was upwardly revised to show a 0.1 percent drop compared to the 0.6 percent decline estimated initially. Private construction spending was up 1.3 percent, with spending on residential construction increasing 2.8 percent, while public construction spending declined 0.8 percent.

Currency, Commodity Markets

Crude oil futures are slipping $0.35 to $86.74 a barrel after climbing $0.85 to $87.09 a barrel on Thursday.

The previous session's gains came amid the increase in risk appetite and the release of the inventory report, which showed that crude oil inventories fell by 2 million barrels to 373.1 million barrels in the week ended October 26th. Despite the decline, inventories remained above the upper limit of the average range for this time of the year.

Distillate inventories dipped by 0.1 million barrels and were below the lower limit of the average range. Meanwhile, gasoline stockpiles rose by 0.9 million barrels yet remained in the lower half of the average range. Refinery capacity utilization averaged 87.3 percent over the four weeks ended October 26th compared to 87.4 percent over the four weeks ended October 19th.

An ounce of gold is currently fetching $1,696.30, down $19.20from the previous session's close of $1,715.50 an ounce. On Thursday, gold fell $3.60.

Among currencies, the U.S. dollar is trading at 80.62 yen compared to the 80.13 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2869 compared to yesterday's $1.2943.

Asia

The major Asian markets closed mostly higher, with the exception of the Indonesian, Malaysian and New Zealand markets. Positive U.S. economic data that set in motion a wave of buying interest on Wall Street overnight supported sentiment in Asia too.

Japan's Nikkei 225 average opened notably higher, capitalizing on the weaker yen, which retreated in reaction to the increase in risk appetite. The index moved broadly sideways for the rest of the session, ending up 104.35 points or 1.17 percent at 9,051, representing a 1-week high.

NSK, Sumitomo Heavy Industries, Amada, Hitachi Zosen, Oji Holdings and Mitsui Engineering & Shipbuilding were among the biggest gainers of the session.

On the other hand, Nikon fell 6.09 percent, while Teijin, Furukawa Electric, Showa Denko and Sharp also declined sharply. Nikon and Sharp were reacting to their earnings reports, with the former posting a 17 percent decline in its second quarter profit, while the latter reported a loss and also lowered its guidance for the full year.

Australia's All Ordinaries, which opened notably higher, gave back much of its gains by the mid-session and traded with marginal gains for the rest of the session. At the close of trading, the index was up merely 3.40 points or 0.08 percent at 4,483. Gains by material stocks helped to offset weakness in the consumer, financial and utility spaces.

Hong Kong's Hang Seng Index closed at a 15-month high of 22,111, up 289.46 points or 1.33 percent.

Producer prices in Australia rose 0.6 percent sequentially in the third quarter, according to a report released by the Australian Bureau of Statistics. Economists expected a steeper 1 percent increase.

Europe

After trading on a lackluster note ahead of the U.S. non-farm payrolls report, the European averages have turned higher following the release of the data.

The markets in the region rallied yesterday amid the renewed optimism generated by the positive U.S. economic data. Domestic corporate earnings continued to be lukewarm.

Alcatel-Lucent (ALU) reported a net loss of 146 million euros compared to a net profit of 194 million euros in the year-ago period, as revenues declined 2.8 percent to 3.6 billion euros.

Royal Bank of Scotland reported a loss of 1.4 billion pounds for its third quarter, weighed down by charges amounting to 400 million pounds related to payment protection insurance sold to customers.

Final estimates released by Markit Economics showed that the eurozone's manufacturing sector continued to contract for the fifteenth consecutive month. The purchasing managers' index declined to 45.5 in October from 46.1 in September, although seeing a small upward revision from the preliminary reading of 45.3.

U.S. Economic Reports

Employment in the U.S. increased by more than economists had anticipated in the month of October, according to a report released by the Labor Department, although the report also showed an uptick by the unemployment rate.

The report said non-farm payroll employment increased by 171,000 jobs in October following an upwardly revised increase of 148,000 jobs in September. Economists had expected employment to increase by about 125,000 jobs compared to the increase of 114,000 jobs originally reported for the previous month.

Despite the continued job growth, the unemployment rate edged up to 7.9 percent in October from 7.8 percent in September due to an increase by the size of the workforce. The modest increase by the unemployment rate matched economist estimates.

The Commerce Department is due to release its report on factory goods orders for September at 10 am ET. Economists estimate a 4.9 percent increase in orders for factory goods.

In August, factory goods orders fell 5.2 percent, dragged down by a 34.9 percent plunge in transportation equipment orders. Excluding transportation, factory orders managed to carve out a modest 0.7 percent increase.

Durable goods orders, which make up bulk of the factory goods, jumped 9.9 percent month-over-over in September. Excluding transportation orders, the order growth was a more modest 2 percent. On a sour note, non-defense capital goods orders, excluding aircrafts, remained flat and the August increase was downwardly revised to 0.2 percent. Shipments and inventories were up 0.8 percent and 0.3 percent, respectively.

San Francisco Federal Reserve Bank President John Williams will speak to a Fed Community Leaders Luncheon in Salt Lake City at 2:25 pm ET.

Stocks in Focus

Starbucks (SBUX) said its fourth quarter earnings rose to 46 cents per share from adjusted earnings of 37 cents per share last year. . Revenues rose 11 percent to $3.4 billion. The earnings beat estimates, while the revenues were slightly shy of estimates. The company raised its 2012 earnings guidance to $2.06 to $2.15 per share.

DreamWorks (DWA) reported better than expected third quarter results, riding on the success of 'Madagascar 3: Europe's Most Wanted.'

ValueClick's (VCLK) third quarter adjusted earnings exceeded estimates, while its revenues were below estimates. The company's fourth quarter earnings guidance was strong, while it sees below-consensus revenues for the quarter.

Wipro (WIT) reported second quarter non-GAAP adjusted net income of $302 million, up 22 percent, while its revenues rose 17 percent to $2.01 billion. For the third quarter, the company expects IT services business revenues of $1.56 billion to $1.59 billion.

Rock Tenn (RKT) reported fourth quarter adjusted earnings of $1.39 per share compared to $1.70 per share last year. Net sales fell to $2.35 billion. The earnings were ahead of estimates, while the revenues missed expectations.

Guess? (GES) announced the resignation of its COO Michael Prince and CFO Dennis Secor, who are leaving to pursue other interests.

Republic Services (RSG) reported third quarter net income of 42 cents per share, lower than 52 cents per share in the year-ago period. Revenues fell to $2.05 billion from the year-ago quarter's $2.12 billion. The results trailed estimates. The company also lowered its 2012 adjusted earnings per share guidance.

Newmont (NEM) reported third quarter adjusted net income from continuing operations of 86 cents per share compared to $1.29 per share last year. Revenues fell 10 percent to $2.5 billion. The results were below estimates.

Vornado (VNO) reported third quarter adjusted funds from operation of $1.14 per share, higher than $1.13 per share in the year-ago period. Revenues improved 3.36 percent to $710.98 million and exceeded estimates.

DDR (DDR) reported operating funds from operations of 27 cents per share, higher than 24 cents per share last year. The earnings exceeded estimates.

AES (AES) said it would restructure its corporate support and subsidiary business operations in line with its strategy in a bid to save $45 million in costs. The company also announced a non-cash impairment charge of $1.7 billion to $2 billion related to goodwill in connection with its acquisition of DPL. The company lowered its 2012 adjusted earnings per share guidance to the low end of its earlier guidance range.

Las Vegas Sands (LVS) reported third quarter adjusted earnings of 55 cents per share on net revenues of $2.71 billion, up 12.5 percent year-over-year. The results trailed estimates.

AIG (AIG) reported third quarter after-tax operating income of $1 per share, reversing from an after-tax operating loss of $1.58 per share last year. The earnings were above estimates.

Insurer Hartford (HIG) reported worse than expected third quarter results, while peer Lincoln Financial (LNC) reported third quarter operating income and revenues that beat estimates.

Digital River (DRIV) reported better than expected third quarter results but issued below-consensus guidance for its fourth quarter. The company also announced the resignation of its CEO Joel Ronning.

Snap-on (SNA) announced an 11.8 percent increase in its dividend to 38 cents per share. Fidelity National Financial (FNF) said its board approved a 14 percent increase in its dividend to 16 cents per share.

Skyworks Solutions (SWKS) reported above-consensus earnings and revenues for its fourth quarter, while its first quarter adjusted earnings guidance trailed estimates.

Avis Budget (CAR) reported third quarter adjusted earnings of $1.46 per share on revenues of $2.2 billion. The earnings missed expectations, while the revenues were in line. For 2012, the company estimates adjusted earnings of $2.35-$2.45 per share on revenues of about $7.3 billion. The guidance was soft.

by RTT Staff Writer

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