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| LastUpdated 9/2/2010 9:14:56 AM
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Friday’s Jobs Report May Keep Mood Subdued
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The major U.S. index futures are pointing to a slightly higher opening on Thursday, with sentiment reflecting tentativeness among traders despite the release of a report showing a modest decline in first time claims for unemployment benefits. In the face of economic evidence showing further softening of the job market, traders may exercise caution ahead of Friday’s national employment report. The pending home sales data may also have an impact on the market direction in today’s session.
U.S. stocks skyrocketed to record strong gains on Wednesday, as encouraging economic readings both from abroad and domestically alleviated some economic-recovery related concerns. The major averages opened higher after strong Australian GDP data and robust Chinese manufacturing data set Asian and European stocks on fire. Thereafter, a strong domestic manufacturing reading released in early trading helped the major averages leg up further.
Subsequently, the major averages consolidated their gains to close notably higher. The Dow Industrials ended up 254.75 points or 2.54% at 10,270 and the Nasdaq Composite Index closed 62.81 points or 2.97% higher at 2,177, while the S&P 500 Index ended at 1,080, up 30.96 points or 2.95%.
All thirty of the Dow components ended the session higher, with Bank of America (BAC) (up 6.08%) and Caterpillar (CAT) (up 4.60%) leading the gains. Exxon Mobil (XOM), United Technologies (UTX), 3M Co. (MMM), JP Morgan Chase (JPM), Home Depot (HD), General Electric (GE), DuPont (DD), Chevron (CVX) and American Express (AXP) all advanced over 3% each.
Among the sector indexes, the NYSE Arca Oil Index rose 4.06%, the Philadelphia Oil Service Index jumped 4.82%, the Philadelphia Housing Sector Index rallied 4.13%, the NYSE Arca Disk Drive Index moved up 4.46%, the NYSE Arca Internet Index gained 4.22% and the KBW Bank Index climbed 4.14%. On the other hand, the NYSE Arca Gold Bugs Index slipped 1.32%.
On the economic front, ADP’s private sector employment report showed a 10,000-job drop in private payrolls, marking the first decline since the beginning of the year.
The Institute for Supply Management’s manufacturing purchasing managers’ index unexpectedly rose to 56.3 in August from 55.5 in July. The production index rose 2.9 points to 59.9, while the new orders index edged down 0.4 points to 53.1 and the order backlogs index fell 3 points to 51.5. On a surprising note, the employment index climbed 1.8 points to 60.4, a 27-year high. The inventories index also increased, rising 1.2 points to 51.4.
Meanwhile, the Commerce Department said construction spending fell 1% month-over-month in July, steeper than the 0.7% decline expected by economists. Private as well as public construction spending declined from month-ago levels, dropping by 0.8% and 1.2%, respectively. In the private category, single-family and multi-family construction spending were down 2.5% each, while private non-residential construction rose 0.8%.
Among the automakers, Ford (F) reported an 11% year-over-year sales decline in August compared to a steeper 25% drop for General Motors. Toyota’s (TM) sales were down 31%. The weakness reflected the cash for clunkers program that boosted sales last year. U.S. auto sales came in at a seasonally adjusted annual rate of 11.47 million units
Currency, Commodity Markets
Crude oil futures are moving down $0.17 to $73.74 a barrel after rising $1.99 to $73.91 a barrel on Wednesday. The previous session’s rally came amid the increase in risk appetite, fueled by some robust economic data, and the release of the EIA’s inventory report, which showed that crude oil inventories rose by 3.4 million barrels to 361.7 million barrels in the week ended August 30th. Inventories of crude oil remained above the upper limit of the average range.
Meanwhile, gasoline inventories edged down by 0.2 million barrels but remained above the upper limit of the average range. Distillate stockpiles fell by 0.7 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 87% over the four weeks ended August 27th compared to 87.7% in the previous week.
Gold futures are rising $2.30 to $1,250.40 an ounce. In the previous session, the precious metal slipped $2.50 to $1,248.10 an ounce.
Among currencies, the U.S. dollar is trading at 84.254 yen compared to the 84.4432 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2833 compared to yesterday’s $1.2809.
Asia
The major Asian markets closed Thursday’s session mostly higher, with Indonesia’s Jakarta Composite Index alone bucking the uptrend. The Japanese Nikkei 225 average led the region’s advances with a 1.52% rally.
Europe
After trading below the unchanged line amid some volatility for much of Thursday’s morning session, the major European averages are now showing divergence. The French CAC 40 Index and the U.K.’s FTSE 100 Index are rising 0.19% and 0.07%, respectively, while the German DAX Index is showing a modest lost.
In a key central bank decision, the European Central Bank left its key interest rate unchanged at a record low of 1% for the 16th month.The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008. The central bank also retained its interest rate on the marginal lending facility at 1.75% and that on the deposit facility at 0.25%.
A below-target inflation gives room for the central bank to hold the key rate. Consumer price inflation in the 16-nation bloc had eased to 1.6% in August from a 20-month high, reflecting lack of underlying inflationary pressure.
U.S. Economic Reports
First-time claims for unemployment benefits showed a modest decrease in the week ended August 28th, according to a report released by the Labor Department, with the decrease offsetting an upward revision to the previous week's data.
The Labor Department said that initial jobless claims edged down to 472,000 from the previous week's revised figure of 478,000. Economists had expected jobless claims to inch up to 475,000 from the 473,000 originally reported for the previous week
A separate report released by the Labor Department showed that labor productivity in the second quarter fell by much more than had originally been estimated.
The report showed that labor productivity in the second quarter fell by a revised 1.8% compared to the previously reported 0.9% drop. The drop in productivity during the quarter had been expected to be revised to 1.7%.
Additionally, the Labor Department said that the increase in unit labor costs was upwardly revised to show 1.1% growth compared to the more modest 0.2% increase that had been reported previously. The upward revision to the pace of labor cost growth was in line with economist estimates.
The Commerce Department is due to release its report on factory goods orders for July at 10 AM ET. Orders for manufactured goods are likely to have increased 0.3% in the month. In June, factory goods orders fell 1.2% following a 1.8% decline in the previous month.
Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to remain unchanged in July.
In June, pending home sales fell by 2.6% month-over-month following a steeper 29.9% drop in May. Economists had expected the index to decrease by 5%.
Stocks in Focus
Hovnanian Enterprises (HOV) could be in focus after it reported third quarter revenues of $380.6 million, lower than $387 million in the year-ago period. The company reported a loss of 92 cents per share, narrower than the loss of $2.16 per share in the year-ago period. Analysts had estimated a loss of 52 cents per share on revenues of $385.96 million.
Cigna (CI) could see some activity after it announced the resignation of its Annmarie Hagan from the post of CFO, effective September 1, 2010. The company also announced the appointment of its VP and treasurer Thomas McCarthy to the post of CFO on an interim basis.
Collective Brands (PSS) is likely to move in reaction to its announcement that its second quarter earnings per share rose to 32 cents per share from 29 cents per share last year. Net sales rose 0.6% to $841.3 million. Analysts estimated earnings of 46 cents per share on revenues of $863.27 billion.
Among retailers, Hot Topic (HOTT) reported a 3.7% decline in its same store sales for August. Fred’s (FRED) said its same store sales rose 3.6%, reversing the 1.4% decline in the year-ago period. Costco’s (COST) same store sales for August rose 7%. Excluding the effect of gasoline and the strengthening of foreign currencies, same store sales rose 5%.
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