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Traders May Shy Away as Labor Market Conditions Worsen - RTTNews Daily Market Analysis

The major U.S. index futures are pointing to a lower on Friday, with the futures dipping sharply after the release of the Labor Department's non-farm payroll employment report that showed a spike in the jobless rate to a level that matched the rate of September 2003. The frailty of the labor market is likely to work in the minds of traders, who are worried over the sad state of affairs at many of the sectors of the economy.

U.S. stocks opened lower on Thursday, weighed down by concerns over insipid retail sales data and bleak news on the employment front. The major averages declined steadily throughout the trading day to close near the lows of the session. The Dow Industrials ended down 344.65 points or 2.99% at 11,188 and the S&P 500 Index fell 38.15 points or 2.99% to 1,237, while the Nasdaq Composite Index receded 74.69 points or 3.20% to 2,259.

Twenty-nine of the Dow components ended the session lower, with only Coca-Cola (KO) posting a modest gain. AIG (AIG), American Express (AXP), Alcoa (AA), Boeing (BA), Bank of America (BAC), Citigroup (C), Caterpillar (CAT), General Motors (GM), JP Morgan Chase (JPM) and Verizon (VZ) were among the significant decliners.

Since mid-July, the Dow Industrials has been locked in a trading range between 11,127 and 11,732. The revival the index had been seeing in fits and starts has come to naught, with the index largely confined to a lackluster phase, showing no real signs of a sustainable recovery. Although the index has recovered from its July 15th lows of 10,963, it is still down 15.66% since the beginning of the year.

The index is also trading below its 50-day and 200-day moving averages, both of which are trending lower. With the Fed policy decision almost sealed in favor of a 'hold' decision and little hopes for a credit -market recovery, there is unlikely to be a real recovery beyond this range-bound phase, although the government and the central bank are unlikely to allow a further deterioration in the financial markets.

Among the sectors, the Amex Securities Broker Dealer Index plummeted 5.12% compared to a 4.77% loss by the KBW Bank Index. The Dow Jones Transportation Average and the Amex Airline Index fell 2.69% and 3.85%, respectively. The Dow Jones Utility Average was down 1.34% for the day. The S&P Retail Index and the Philadelphia Housing Sector Index declined 3.10% and 4.70%, respectively. Biotechnology, oil, gold and technology stocks also receded sharply.

On the economic front, the ADP survey showed that private payroll employment fell by 33,000 jobs in August. The goods producing sector shed 78,000 jobs, offsetting the 45,000 job gains in the service-providing sector. Meanwhile, the Labor Department reported a 15,000 jump in initial claims for unemployment benefits in the week ended August 30th. The unexpected jump casts further doubts on the health of the labor market. Lehman Brother believes that the spike may be due to Tropical Storm Fay, which struck parts of Florida in late August.

Meanwhile, non-farm productivity growth was revised up to show a 4.3% quarterly growth rate from the 2.2% growth estimates initially. Unit labor costs were revised down to show a 0.5% quarter-over-quarter decline from the earlier estimate of a 1.3% increase. The data fortifies the belief that inflation is likely to moderate as cost pressures from commodity prices dissipate. The ISM's non-manufacturing survey showed that the non-manufacturing index rose to 50.6 in August from 49.5 in July. The new orders and supplier deliveries indexes rose in the month, while the employment index fell to 45.4 from 47.4 in the previous month.

Currency, Commodity Markets

Crude oil futures are trading down $0.94 at $106.95 after the commodity fell $1.46 to 107.89 a barrel in the previous session. Thursday's decline came about despite the release of the weekly oil inventory report for the week ended August 29th, which showed a 1.9 million barrel drop in crude oil stockpiles to 303.9 million barrels.

Crude oil inventories are now in the middle of the average range for this time of the year. Gasoline stockpiles fell by 1 million barrels to 194.4 million barrels, while distillate inventories declined by 0.4 billion barrels to 131.7 million barrels. Refinery capacity utilization averaged 86.9% in the four-weeks ended August 29th compared to 86.5% in the previous week.

Gold futures, which fell $10 to $803.20 an ounce on Thursday, are receding $1.10 at $802.10 an ounce.

Among the currencies, the U.S. dollar is trading at 106.25 yen compared to 107.08 yen it fetched at the close of New York trading on Thursday. The dollar is trading at $1.4321 against the euro.

Asia

Stock markets across the Asia-Pacific region closed sharply lower on Friday after the U.S. market tumbled overnight, although they ended the day off their lows. Asian investors were cautious ahead of the U.S. non-farm payroll report for August scheduled for release later in the day. Exporters were weak after the dollar lost ground against the major Asian currencies and commodity-related stocks fell as oil continued to fall Friday on concerns about slowing demand.

Japan's Nikkei 225 index opened lower and declined further in early trading. Thereafter, the index moved mostly sideways to close down more than 3% at 12,163.

On the economic front, the Ministry of Finance said that Japan's capital investment spending was down an annual 6.5% in the second quarter of 2008. This marked the fifth consecutive quarter of declines. Capex was down an annual 4.9% in the first quarter of the year.

Financial stocks receded sharply, while exporters fell on the back of a stronger yen. In the tech space, Advantest slid 2.5%, Kyocera declined 2.6%, Fanuc lost 2.8% and Matsushita Electrical Industrial shed 3.1%.

Inpex Holdings pared early losses to finish 2.1% higher, while Nippon Oil shed 1.0% and Nippon Mining Holdings plunged 3.3%. Trading house Mitsubishi Corp closed flat, Mitsui & Co slipped 0.2%, and Itochu gave away 1.7%.

South Korea's Kospi opened sharply lower on Thursday. While the index recouped some of its losses, it still finished down 1.55% or 22.05 points at 1,404. Over the week, the key index lost 4.7%.

In the tech space, Hynix Semiconductors lost 2.8% and LG Electronics lost 1.6%, while market heavyweight Samsung Electronics advanced 1.2%. Automaker Hyundai Motor dropped 0.8% after its union blocked a wage deal and steel maker POSCO plummeted 4.5%.

In the financial sector, top lender KookMin Bank declined 0.7%, Shinhan Financial Group slid 1.7% and Woori Finance slumped 7.1%. Top brokerage Samsung Securities gave away 1.0% and Mirae Asset Securities fell 0.9%.

The Chinese market closed sharply lower, as reports of a large IPO from China Merchants Securities and a new rule on share sales that would shorten the lock-up period for holders of pre-IPO shares dented sentiment. Property developers and non-ferrous metal stocks led the decliners. The benchmark Shanghai Composite Index closed down 74.97 points or 3.29% at 2,202.

Hong Kong's Hang Seng Index gap-opened lower and moved sideways for the rest of the session. Continued weakness in the mainland markets dampened investor sentiment. The index closed down 456.20 points or 2.24 pct at 19,933.

Property stocks and financials led the decline, but select other blue chips came off their lows. China Mobile fell 2.4%, but Esprit rose 1.9%, reversing early losses. HSBC plunged 3.4% and China Life declined 1.9%.

Australia's All Ordinaries opened unchanged, but it moved sharply lower in early trading before moving sideways for the rest of the session. Bank stocks led the decliners on growing concern about the turmoil in the financial markets all over the world. The All Ordinaries index lost 101.4 points or 2.0% to finish at 4,950.

Among banks, Commonwealth Bank of Australia dropped 3.1%, Westpac lost 2.8%, National Australia Bank plunged 4.3% and ANZ plummeted 3.9%. Takeover target St George Bank shed 2.5% and investment bank Macquarie Group tumbled 4.7%.

In the resources sector, index leader BHP Billiton slipped 0.3% and Rio Tinto declined 1.4%. Gold miners closed mixed, with Lihir Gold falling 4.0% and Newcrest Mining gaining 3.0%. Among energy stocks, Woodside Petroleum lost 0.8%, Oil Search plunged 3.9%, and Santos dropped 1.0%.

Europe

The major European averages are seeing significant weakness in Friday's session. The French CAC 40 Index and the German DAX Index are receding 1.44% and 2.26%, respectively, while the U.K.'s FTSE 100 Index is declining 1.60%.

U.S. Economic Reports

A Labor Department report showed that the U.S. economy lost 84,000 jobs, which was worse than the 75,000 job losses predicted by economists. The previous month's job loss was revised up to 60,000 from the originally reported decline of 51,000.

The unemployment rate rose to 6.1%, higher than the 5.7% rate expected by economists. Average hourly earnings rose 0.39% to $18.14.

Among the sectors, the good producing sector lost 57,000 jobs, with the construction and manufacturing sectors losing 8,000 and 61,000 jobs, respectively. Meanwhile, the services sector lost 27,000 jobs. Retail trade and professional and business services lost about 20,000 and 53,000 jobs, respectively. The leisure and hospitality segment shed 4,000 jobs, while the government and the leisure and hospitality sectors added 55,000 and 17,000 jobs.

Stocks in Focus

Take-two Interactive Software (TTWO) could be in focus after it reported a profit of 67 cents per share in its third quarter compared to a loss of 81 cents per share in the year-ago period. On an adjusted basis, the company reported a profit of 93 cents per share. Revenues rose solidly to $433.8 million. Analysts, on average, estimated earnings of 54 cents per share on revenues of $381.3 million. At the same time, the company reduced its earnings guidance for the fourth quarter, expecting adjusting earnings of 1-5 cents per share, which is well below the consensus estimate of 19 cents per share. The company's revenue guidance of $285-$335 million is also below the mean analysts' estimate of $350.3 million.

ADC Telecommunication (ADCT) traded lower in Thursday's after hours session after it reported third quarter earnings from continuing operations of 12 cents per share, which included one-time expenses of 15 cents per share. Sales climbed 13% to $390.2 million. Analysts expected earnings of 26 cents per share on revenues of $388.55 million. The company reaffirmed its full year sales estimate of $1.50-$1.52 billion, while it lowered its reported earnings from continuing operations estimate to 10-18 cents per share from its earlier estimate of 18-26 cents per share.

Long Drug Stores (LDG) is likely to react to its announcement that its same store sales declined 1.4% in August. Meanwhile, Northwest Airlines (NWA) could also be in focus after it said its consolidated load factor for August declined to 86.6% from 87.6% in the year-ago period.

Quicksilver (ZQK) is likely to see some strength after it reported that its net income for the third quarter was 2 cents per share compared to a loss of 6 cents per share last year. The company's net income from continuing operations declined to 25 cents per share from 28 cents per share in the year-ago period. Revenues from continuing operations rose 7% to $564.9 million. The consensus estimates had called for earnings of 21 cents per share on revenues of $543.9 million.

TD Ameritrade Holding Corp. (AMTD) may be in the spotlight over the appointment of Dave Kelley, its Chief Information Officer, as its Chief Operating Officer. Fred Tomczyk, who is currently serving as the COO, will be elevated to the post of CEO in October.

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