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Disappointing Jobs Report May Trigger Selling

The major U.S. index futures are pointing to a notably lower opening on Friday, with the non-farm payrolls likely to serve as the last straw for the markets, which are already worried about recent spate of data suggesting a setback to global growth. The report set in motion an exodus into safe havens such as the dollar, the yen and gold. Equities well be may be on their way to a steep decline, although some damage could be repaired if the service sector survey of the Institute for Supply Management come in better than expected.

After lingering below the unchanged line for the bulk of the session on Thursday amid the release of a report showing a small decline in jobless claims, U.S. stocks closed on a mixed note. Anxiety was writ large on the face of the markets, as recent data has pointed to a setback to the global economic recovery.

The Dow Industrials ended down 41.59 points or 0.34 percent at 12,249 and the S&P 500 Index declined 1.61 points or 0.12 percent before closing at 1,313, while the Nasdaq Composite moved back and forth across the unchanged line before closing at 2,773, up 4.12 points or 0.15 percent.

Twenty-two of the thirty Dow components closed lower, with Chevron (CVX), Coca-Cola (KO) and Wal-Mart Stores (WMT) seeing notable declines. Johnson & Johnson (JNJ) ended unchanged, while seven stocks advanced.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average fell 2.02 percent and the Philadelphia Housing Sector Index lost about 1 percent. Meanwhile, the NYSE Arca Biotechnology Index gained 1.24 percent and the NYSE Arca Internet Index added 1.06 percent.

On the economic front, the Labor Department said jobless claims fell to 422,000 in the week ended May 28th from the previous week's upwardly revised figure of 428,000. The four-week average slid to 426,000 from 440,000 in the previous week.

The factory goods orders report released by the Commerce Department showed that orders declined 1.2 percent month-over-month in April. The previous month's increase was upwardly revised to 3.8 percent. Excluding transportation orders, the decline was a more modest 0.2 percent.

Currency, Commodity Markets

Crude oil futures are receding $1.41 to $98.99 a barrel after rising $0.11 to $100.40 a barrel on Thursday. The modest increase in the previous session came amid the release of a report showing that crude oil stockpiles rose by 2.9 million barrels to 373.8 million barrels in the week ended May 27th. Inventories are above the upper limit of the average range for this time of the year.

Gasoline stockpiles rose by 2.6 million barrels, with inventories remaining in the middle limit of the average range. Meanwhile, distillate stockpiles declined by 1.2 million barrels yet were in the upper limit of the average range. Refinery capacity utilization averaged 84.3 percent over the four weeks ended May 27th compared to the 83.5 percent over the previous four weeks.

Gold futures, which fell $10.50 to $1,532.70 an ounce in the previous session, are currently receding $3.20 to $1,529.50 an ounce.

On the currency front, the U.S. dollar is trading at 80.1668 yen compared to the 80.895 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.4481 compared to yesterday's $1.4491.

Asia

Most Asian markets saw a lackluster mood, as traders made cautious moves ahead of the release of the U.S. non-payrolls report.

After opening on a positive note despite the somber lead from overseas, caution pushed traders to the sidelines. Some of the markets pared their gains, ending lower, while others advanced modestly.

Japan's Nikkei was weighed down by the yen's strength and caution about the economic outlook domestically and overseas, especially against the backdrop of the recent political development. The index ended down 0.66 percent, while

Australia's All Ordinaries lost 0.35 percent and the Hang Seng Index of Hong Kong a steeper 1.31 percent. Meanwhile, the Chinese Shanghai Composite Index advanced 0.85 percent.

A report released by Australia Industry Group/Commonwealth Bank showed that the service sector activity in the country contracted in May, with the performance of services index declining 1.6 points to 49.9. At the same time, the results of a private sector survey showed that service sector activity in China accelerated to a 4-month high. The seasonally adjusted business activity index climbed to a seven-month high of 54.3 from 51.6 In April

Europe

The European markets are seeing mixed sentiment. The results of Markit Economics' service sector surveys showed a slowdown in activity in the euro area as well as the U.K.

U.S. Economic Reports

Employment in the U.S. saw a modest increase in the month of May, according to figures released by the Labor Department, although the rate of job growth came in well below economist estimates.

The U.S. economy showed a net gain of 54,000 jobs in May, far lower than the 170,000 predicted by most economists and well short of the addition of 232,000 jobs in April.

The job gains came entirely in the private sector, with the addition of 83,000 private sector jobs offsetting the loss of 29,000 government jobs.

The report also showed that the unemployment rate ticked up slightly, edging up to 9.1 percent in May from 9 percent in April.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is expected to show a reading of 54 for May.

In April, the non-manufacturing sector expanded at a slower pace, although it continued its streak of expansion for the seventeenth consecutive month. The non-manufacturing index slid 4.5 points to 52.8 in April, with 17 industries reporting growth. The business activity index fell 6 points to 53.7 and the new orders index slumped 11.4 points to 52.7. The order backlogs index was down a more modest 0.5 points to 55.5, while the employment index slipped 1.5 points to 53.

Boston Federal Reserve Bank President Eric Rosengren is due to speak to the Stanford Finance Forum in Stanford, California, at 3:30 pm ET.

Stocks in Focus

Earnings

Verifone (PAY) reported second quarter non-GAAP earnings of 46 cents per share compared to 29 cents per share in the year-ago period. Net sales climbed to $292 million from $241 million in the year-ago period. The results were ahead of estimates. For the third quarter, the company expects non-GAAP earnings of 45-46 cents per share. The company raised its 2011 earnings and revenue guidance and now expects non-GAAP earnings of $1.80-$1.83 per share on revenues of $1.17 billion to $1.18 billion.

Diamond Foods (DMND) reported third quarter non-GAAP earnings of 52 cents per share on revenues of $223 million, up 61 percent year-over-year. The company expects fourth quarter non-GAAP earnings of 40-44 cents per share on nets sales of $210 million to $220 million. The company's full year guidance calls for non-GAAP earnings of $2.45-$2.51 per share on revenues of $943 million to $953 million. While the results were ahead of expectations, expectations mostly trailed estimates.

Other Corporate News

Wal-Mart (WMT) is likely to react to the news that the retailer will test new smaller format stores to sell meals and other fresh food through Wal-Mart Express stores at select locations.

AvalonBay Communities (AVB) may see some activity after it raised its earnings per share and funds from operations outlook for the second quarter based in part on actual economic conditions. The company said it expects funds from operations of $1.09-$1.12 per share for its second quarter, up from its earlier guidance of $1.06-$1.10 per share. The company also lifted its full year funds from operations guidance to $4.70-$4.85 per share. Analysts estimate earnings of $1.12 per share for the quarter and $4.74 per share for the full year.

Convergys (CVG) is likely to move in reaction to its announcement that it will sell its holdings in the cellular partnerships in the Cincinnati area to AT&T (T) for about $320 million in cash.

Watson Pharma (WPI) may also be in focus after it confirmed that Pfizer (PFE) has filed a lawsuit in a district court to prevent Watson Pharma's subsidiary from marketing a generic version of Pfizer's erectile dysfunction treatment Viagra. Based on the lawsuit, FDA approval for Watson's ANDA has been stayed till November 6, 2013 or the final resolution of the matter before the court.

Altera Corp. (ALTR) could see some activity after it said it expects second quarter sales to be in line with its previous guidance for flat to up to five percent sequential growth.

by RTT Staff Writer

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