The major U.S. index futures are pointing to a notably higher opening on Friday. More convincing proof for the likelihood of returning to trend-like-growth came in the form of the non-farm payroll report for May, which showed a notable slowdown in the pace of job losses. The market is likely to ride on the back of this positive piece of economic evidence that has cemented expectations for growth. The growth theme is also likely to drive up commodity prices, while the dollar is likely to come under further pressure as it loses its appeal as a safe haven investment amid the increase in risk preference of traders.
Technically, the S&P 500 Index and the Dow Industrials have broken above their 200-day moving averages recently, supporting the possibility of further upside from current levels.
U.S. stocks showed some indecision in early trading on Thursday before solid recovery signs, including a drop in continuing claims, an increase in non-farm productivity and a deal announcement by Intel (INTC), helped the markets move higher for the remainder of the session.
The Dow Industrials advanced 74.96 points or 0.86% to 8,750, the S&P 500 Index gained 10.70 points or 1.15% to close at 943 and the Nasdaq Composite ended up 10.70 points or 1.15% at 1,850.
Nineteen of the twenty-nine Dow components ended the session higher. Alcoa (AA) rebounded, advancing 6.16% in the session. Bank of America (BAC) (up 5.89%), Citigroup (C) (up5.31%), Boeing (BA) (up 4.55%), JP Morgan Chase (JPM) (up 4.03%) Caterpillar (CAT) (up 3.71%) and American Express (AXP) (up 3.15%) were among the other notable gainers. Chevron (CVX) and Exxon Mobil (XOM) also rose strongly. On the other hand, Merck (MRK), McDonald's (MCD) and Pfizer (PFE) receded sharply.
Among the sector indexes, the KBW Bank Index and the Amex Securities Broker/Dealer Index rallied 4.81% and 4.6%, respectively. The Amex Oil Index gained 2.3% compared to a 3.3% gain by the Philadelphia Oil Service Index, while the Amex Gold Bugs Index moved up 3.51%. Technology stocks also showed some strength, with the Philadelphia Semiconductor Index rising 2.15%.
On the economic front, the U.S. non-farm productivity report showed that non-farm productivity rose at a 1.6% rate in the first quarter, an upward revision from the 0.8% growth estimated initially. Annually, non-farm productivity was up 1.9%. Compensation per hour in the non-farm sector rose 4.6% quarter-over-quarter compared to a 7.1% increase in real compensation. Meanwhile, unit labor costs rose 3% in the first quarter compared to the previous quarter and climbed 2.2% compared to last year.
The revised increase in productivity largely reflects a revision in output growth. Businesses seem to be producing more with less people, which is important for stimulating economic growth.
Currency, Commodity Futures
Crude oil futures are rising $0.44 to $69.25a barrel after advancing $2.69 to $68.81 a barrel in Thursday's session. According to Commerzbank, the recent run up in oil prices is driven more by non-oil related factors such as a decline in risk aversion than inventory levels. An increase in risk appetite reflects expectations that the global economy is set to recover and also the willingness to invest in asset classes, including commodities, at the expense of the dollar.
Gold futures, which rose $16.70 to $982.30 an ounce yesterday, are currently down $2.80 at $979.50 an ounce.
Among the currencies, the U.S. dollar is trading at 97.57 yen compared to the 96.58 yen it fetched at the close of New York trading on Thursday. Meanwhile, the greenback is weakening against the euro to $1.4226 a euro from Thursday's 1.4183 a euro.
Asia
The Asian markets ended in positive territory on Friday, benefiting from higher commodity prices and a positive close on Wall Street overnight. An announcement concerning Rio Tinto scrapping its deal with Chinalco and entering into an agreement with rival BHP Billiton for an iron-ore project in Western Australia helped metal stocks. However, trading was cautious as traders preferred to stay on sidelines ahead of the key jobs report in the U.S.
Japan's Nikkei 225 Average opened sharply higher at 9,753 compared to its previous close of 9,669, reflecting the gains on Wall Street and higher oil prices. The market held onto the gains and traded in a narrow range ahead of the U.S non-farm payrolls report before ending with a gain of 99.05 points or 1.02% at 9,768. The broader Topix Index of all first section issues also edged higher to 917, a gain of 5.57 points or 0.6%.
Financial stocks ended in positive territory, taking cues from their peers in the U.S, which advanced following RBC Capital's upgrade of the banking sector to "Sector Perform" from "Overweight". Oil stocks took heart from higher crude oil prices. Inpex Corp surged up 4.80%, Nippon Oil gained 3.46% and Showa Shell added 1.82%.
Exporters advanced on a weaker local currency. Canon Inc. soared 4.17%, Nikon gained 4.31% and Sony Corp. added 2.08%. Among automobile exporters, Mazda Motor Co. surged up more than 10% after Nikko Citigroup raised the automaker's target price by 36 percent to 350 yen, citing better earnings prospects in the second half of the business year. Honda Motor edged up 0.35% and Toyota Motor gained 1.31%.
On the other hand, shipping stocks ended weaker following a drop in the Baltic Dry Index, which is used as a benchmark measure for shipping costs for commodities. Kawasaki Kisen lost 2.27%, and Mitsui OSK Lines fell 1.18%.
Australia's All Ordinaries Index opened at 3,933, unchanged from its previous close, and advanced higher, led by mining stocks on higher commodity prices and the announcement concerning the Rio Tinto-BHP Billiton joint venture project. The market held onto the gains amid strength in the metals space and moved sideways for the rest of the trading session. The index ended up at 3,969, representing a gain of 36.50 points or 0.93%. The benchmark S&P/ASX 200 Index followed a similar trend and ended higher at 3,971, a gain of 36.60 points or 0.93%.
Rio Tinto surged up 8.36% and BHP Billiton advanced 8.74% after Rio Tinto announced that it has scrapped its deal with Aluminum Corp of China, or Chinalco. The company, in turn, entered into a joint venture with rival BHP Billiton to develop the Pilibara iron-ore project in Western Australia. BHP Billiton, in a separate statement, announced that it would invest $5.8 billion in the 50:50 joint venture project, and the two companies are likely to save more than $10 billion by combining their two iron-assets in the region.
Oil stocks were mixed, while banking stocks ended lower.
In Hong Kong, the Hang Seng Index opened higher at 18,674 compared to its previous close of 18,502. Rio Tinto's decision to scrap its deal with Chinalco drove the market below the unchanged line, but strength in banking and property stocks on renewed buying interest helped the index move above the unchanged line. The index finally ended with a gain of 176.76 points, or 0.96%, at 18,680.
Property stocks resumed their northward march after a brief pause on Thursday. Henderson Land gained 1.90%, Hang Lung Property added 1.17% and Sino Land advanced 1.95%. New World Development surged up 3.45% and Swire Pacific rose 3.29%
Among resource stocks, PetroChina gained 2.96% and CNOOC, the largest offshore oil company in China, soared 4.68%. Aluminum Corp. of China, or CHALCO, lost 2.07%. Most other China-related stocks ended in positive territory. China Mercantile Holdings added 0.94%, China Resources gained 1.85% and China Shenhua advanced 3.01%.
In South Korea, the benchmark KOSPI Index gained 1.2%, as financial institutions returned on market optimism about a global recovery. After opening higher at 1,393 compared to its previous close at 1,378, volatile trading prevailed with alternate bouts of buying and selling. The index eventually ended with a gain of 16.57 points, or 1.27% at 1,395.
Among financials, KB Financial Group, the holding company of Kookmin Bank, gained 2.36%, following the news that it might attempt to buy Korea Exchange Bank after raising about 2 trillion won through the issue of new shares. Woori Finance surged up 5.45% and Shinhan Financial edged up 1.17%. Technology stocks advanced on hopes of a global recovery. Hynix Semiconductor gained 4.07% and market heavyweight Samsung Electronics advanced 2.52%.
In India, the stock market ended in positive territory amid volatile trading on increasing optimism about the continuation of economic reforms at a faster pace. The BSE Sensex gained 94.87 points or 0.63% to close at 15,104.
Among the other major markets in the region, China's Shanghai Composite Index ended lower by 13.35 points or 0.48% at 2,754, and Taiwan's Weighted Index moved down 18.96 points or 0.28% to 6,767. However, the Strait Times Index in Singapore gained 33.61 points or 1.42% to close at 2,396 and Indonesia's Jakarta Composite Index gained 46.21 points or 2.27% to close at 2,079.
Europe
The major European markets are advancing on Friday, with the French CAC 40 Index and the German DAX Index rising 2.13% and 1.35%, respectively, while the U.K.'s FTSE 100 Index is moving up 2.13%. Commodity stocks are driving the markets up especially after the announcement by Rio Tinto of a joint venture unit with rival BHP Billiton.
On the economic front, the U.K. Office for National Statistics said output prices for all manufactured goods in the U.K. dropped 0.3% year-on-year in May, reversing a 1.3% rise in April. This was the first annual decrease since July 2002. Excluding volatile items, output prices were up 1.2% in the year to May, compared with a 2.5% increase in April. The annual growth in May was the weakest since December 2005.
Further, the ONS said input prices moved up 0.4% in May compared to the previous month, much slower than the 4.4% increase seen in the same period of the previous year. Annually, input prices dipped 9.4% compared to a 5.8% decline in April.
U.S. Economic Reports
The Labor Department's non-farm payroll employment fell by 345,000 jobs in May following a revised decrease of 504,000 jobs in April. Economists had expected a decrease of about 520,000 jobs compared to the decrease of 539,000 originally reported for the previous month.
The continued decrease in jobs reflected declines in employment in both the good-producing and service-providing sectors. While goods-producing sectors lost 225,000 jobs, service-providing sectors lost 120,000 jobs, with the rate of job declines slowing down due to addition of jobs in the education and health services segment.
At the same time, the Labor Department said that the unemployment rate rose to 9.4 percent in May. The increase came was bigger than the 9.2% rate expected by economists.
The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for April is likely to show a decline of $6 billion.
Consumer credit fell by $11.1 billion in March, much bigger than the expected decline of $4 billion. Consumer credit has shown a decline in six of the past eight months.
Stocks in Focus
AIG (AIG) is likely to be in focus after it announced that an underwritten public offering of 26 million shares of Transatlantic Holdings (TRH) owned by it and its subsidiaries at $38 per share.
Grainger (GWW) could move in reaction to its announcement that it has signed a definitive agreement to acquire full ownership of its joint venture in India, Asia Pacific Brands India Pvt. Ltd. The company expects to spend $1.2 million to gain full ownership.
Quanta (PWR) could gain ground after Standard & Poor's announced that the company would replace Ingersoll-Rand (IR) in the S&P 500 Index. The proposed removal of Ingersoll Rand from the S&P 500 Index follows the company's decision to move its headquarter to Dublin, making the company's share ineligible for the index. Meanwhile, Valmont Industries (VMT) is expected to take Quanta's place in the S&P MidCap 400 Index, while TeleTech Holdings (TTEC) will take Valmont's place in the S&P SmallCap 600 index.
ABM Industries (ABM) is likely to move in reaction to its announcement that its second quarter revenues fell to $855.7 million from $906.3 million last year. The company's earnings per share climbed to 25 cents per share from 22 cents per share last year. On an adjusted basis, the company's income from continuing operations rose to 32 cents per share from 27 cents per share last year.
Boston Properties (BXP) is likely to see some weakness after it announced a public offering of 10.5 million shares. The company expects to grant the underwriters an overallotment option to purchase an additional 1.58 million shares.
Navisite (NAVI) is also likely to be in focus after it announced that its third quarter revenues declined 5% year-over-year to $37.3 million. The company reported a net loss attributable to common shareholders of 9 cents per share compared to a loss of 7 per share in the year-ago period. Analysts expected a loss of 11 cents per share on revenues of $36.46 million.
Harris (HRS) could see some activity after it announced that it would buy the Air Traffic Control business unit of privately held Canada-based SolaCom Technologies. The company expects the transaction to be completed by June.
Cooper Companies (COO) is expected to react to its announcement that its second quarter earnings rose to 54 cents per share from 25 cents per share last year. Revenues rose slightly to $260.6 million. Analysts expected a profit of 49 cents per share on revenues of $266.9 million. The company confirmed its 2009 earnings per share estimate of $2.16-$2.36 compared to the consensus estimate of $2.31 per share.
Wind River Systems (WIND), which announced a deal to be acquired by Intel, may once again be in focus after it said its revenues fell to $82.5 million from $87.9 million last year. On a non-GAAP basis, the company expects income of 9 cents per share, flat with last year, while non-GAAP net income edged down to $7.3 billion from the year-ago's $7.8 million. Analysts expected earnings of 5 cents per share on revenues of $82.08 million.
Guess (GES) could move to the upside after it reported first quarter earnings of 35 cents per share, ahead of the consensus estimate of 29 cents per share but below the year-ago's 35 cents per share. Revenues declined to $441.2 million. The company said it expects second quarter earnings of 42-45 cents per share on revenues of $465 million to $485 million. Analysts estimate earnings of 37 cents per share on revenues of $468.35 million.
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