| LastUpdated 7/3/2008 9:03:18 AM
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Sentiment Evenly Poised as In-line Jobs Report May Weather Impact of Record Oil Prices
The major U.S. index futures are pointing to a higher opening for the truncated session on Thursday. Traders may express some relief over the Labor Department’s non-farm payrolls data that came more or less in-line with expectations. The oversold levels of the markets could prompt traders to use the fairly in-line jobs report as a reason for buying. Nevertheless, a steep increase in the weekly jobless claims to above the 400,000 mark should increase apprehensions over an improvement in labor market conditions. Additionally, sentiment could hinge on the direction of oil prices and the results of the ISM’s services sector survey. Volumes could be scanty, as traders may refrain from adding to positions ahead of the long weekend
Although the U.S. stocks managed to hold above the unchanged line in early trading on Wednesday, they began a steady decline throughout the reminder of the session to close significantly lower. The weakness stemmed from the caution exercised by traders over the health of the labor market after a private survey showed a steep drop in jobs for June and a climb in oil prices.
The Dow Industrials declined 166.75 points or 1.46% to 11,216 and the S&P 500 Index receded 23.39 points or 1.82% to 1,262, while the Nasdaq Composite Index fell 53.51 points or 2.32% to 2,252. The Dow and Nasdaq are now down more than 20% from their October highs, suggesting that both the averages are now in “bear territory.”
A majority of the Dow components ended the session lower, with General Motors (GM) leading the Dow’s slide with a 15.06% drop. General Electric (GE) (down 2.25%), Home Depot (HD) (down 2.97%), Intel (INTC (down 2.97%), Alcoa (AA) (down 6.77%), Bank of America (BAC) (down 5.33%), Boeing (BA) (down 2.37%), Caterpillar (CAT) (down 4.95%), DuPont (DD) (down 2.32%) and Microsoft (MSFT) (down 3.68%) were among the other notable decliners. On the other hand, JP Morgan (JPM) and Procter Gamble (PG) showed some strength.
Among the sectors, the Dow Jones Transportation Average declined 4.30% and the Amex Airline Index slumped 6.66%. Notwithstanding the rise in the price of oil, the Amex Oil Index fell 3.24% compared to a 4.43% slide by the Philadelphia Oil Service Index. The Amex Gold Bugs Index ended down 3.33%, while the Philadelphia Housing Index slid 4.38%.
The Nasdaq Composite Index, which has been making lower highs and lower lows in its recent downtrend that began on July 6th, is inching closer to a support level around 2,227. If the downtrend continues, the index could descend down to its next support level around 2,168. On the upside, the targets are 2,330, 2,402, 2,444 and 2,498.
On the economic front, the Commerce Department’s factory goods orders report showed a 0.6% increase in orders for manufactured goods in May following a 1.3% increase in April. Meanwhile, durable goods orders rose marginally. Shipments of factory goods edged up 0.1%, while unfilled orders and inventories climbed 0.9% and 0.5%, respectively.
Currency, Commodity Markets
Crude oil futures are trading up $1.50 at $145.07 a barrel after advancing $0.63 from Wednesday’s closing price of $143.57 a barrel. Yesterday, the commodity climbed $2.60 a barrel after the U.S. Energy Information Administration released its weekly inventory report for the week ended June 27th that showed that crude oil inventories declined by 2 million barrels to 299.8 million barrels, and they are near the lower boundary of the average range for this time of the year.
However, gasoline and distillate stockpiles increased by 2.1 million barrels and 1.3 million barrels, respectively. Refinery capacity utilization averaged 88.9% over the four weeks ended June 27th compared to 89.1% in the previous week.
Meanwhile, gold futures are slipping $1 to $945.50 an ounce after the precious metal rose $2 to $946.50 an ounce on Wednesday.
On the currency front, the U.S. dollar is trading at 106.51 yen, stronger than the 105.911 yen it fetched at the close of New York trading on Wednesday. The dollar is currently valued at $1.5804 versus the euro.
Asia
Stock markets across the Asia-Pacific region closed mostly lower Thursday, led by India, as crude oil set fresh record highs, raising stagflation fears. Bucking the trend, China’s Shanghai composite index gained nearly 2% and the Taiex ended slightly higher.
The Japanese market closed lower for the eleventh straight trading session, recording its longest losing streak in more than half a century. After opening sharply lower, the market recovered by late morning, but it ended slightly below the flat line ahead of the release of key U.S. jobs data and the European Central Bank's policy meeting.
The benchmark Nikkei 225 index lost 20.97 points or 0.16% to finish the session at 13,265.40. The Nikkei has shed nearly 1,200 points or over 8% during the past 11 trading days, its longest losing streak since late April 1954.
Among the major losers, Nippon Steel dropped 2.9% and JFE Holdings fell 3.9%. Weakness in steel sector also hurt trading houses. Mitsubishi Corp plunged 4.4%, Mitsui & Co lost 3.6% and Itochu Corp. gave away 3.2%. Major exporters either trimmed or erased early losses. On the other hand, financial and oil firms rallied
The South Korean market closed lower, but off its early lows, with the KOSPI falling to near its 2008 lows on stagflation fears. The market extended its losses for a sixth trading session.
The benchmark KOSPI index closed down 17.06 points or 1.1% at 1,606.54 after falling below the 1,600 mark for the first time in almost three months in early trading. The benchmark index has dropped more than 6% during its six-day losing streak and is now about 15% below its 2008 best seen in mid-May.
Automakers fell after General Motors slumped overnight. Hyundai Motor tumbled 4.5% and Kia Motors fell 2.6%. Among the steel makers, POSCO plunged 6.3% amid worries over costlier raw materials, including iron ore. Hyundai Steel dropped 5.3%. However, high-tech stocks rebounded following recent losses. Samsung Electronics gained 0.5% and Hynix jumped 5.5%.
The Chinese market extended its gains on Thursday, following a broad recovery among blue chips. The Shanghai Composite Index gained 51.80 points or 1.95% to finish at 2,703.53. The market ended a four-day losing streak on Wednesday, recording a modest recovery after the key index lost nearly 50% of its value so far this year as the worst performing market in the world. Real estate, banking and metal sectors posted strong gains.
The Australian market fell to near two-year lows on concerns that record oil prices would hurt global economic growth. The All Ordinaries index closed down 117.6 points or 2.3% at 5,094.0.
On the economic front, the Australian Bureau of Statistics said that Australia’s trade deficit was a seasonally adjusted A$965 million in May, following a large upward revision to a A$12 million surplus in April. Economists expected a deficit of A$950 million in May.
Europe
The major European markets are trading on a mixed note in Thursday’s session. The French CAC 40 Index is advancing 0.32% compared to a 0.09% drop by the German DAX Index, while the U.K.’s FTSE 100 Index is gaining about 0.11%.
Among the economic reports from across the Atlantic, the European Union’s statistical agency, the Eurostat, reported that the euro zone’s retail sales rose 1.2% in May compared to the previous month. In the previous month, retail sales had declined by 0.6%. On a year-over-year, basis, retail sales edged up 0.2% in May.
Meanwhile, the European Central Bank announced a 25 basis point increase in its main refinancing operations minimum bid rate to 4.25%. The bank also raised its marginal lending facility and deposit facility to 5.25% and 3.25%, respectively. Till last month, the central bank was in a hold mode since it raised interest rates to 4% on June 7th, 2007. The inflation rate in the euro zone region remains well above the central bank target of 2%, inspiring the central bank to be proactive despite the economic slowdown being experienced domestically and abroad.
U.S. Economic Reports
The Labor Department reported today that U.S. non-farm sector lost 62,000 jobs in June compared to expectations for a decline of 60,000 jobs. The U.S. economy has been losing jobs even since the beginning of the year, triggering concerns over the health of the labor market, even as the economy grapples with slowing growth.
The unemployment rate based on the household survey held steady at 5.5%. Meanwhile, the average hourly earnings increased $0.06 or 0.3% to $18.01.
Among the sectors, the good producing sector lost 69,000 jobs, with the construction and manufacturing sectors losing 43,000 and 43,000 jobs, respectively. Meanwhile, the services sector added 7,000 jobs, as gains in education and health services, leisure and hospitality and government helped to offset the weakness in the professional and business services sectors.
A separate report from the Labor Department showed that jobless claims rose to 404,000 in the week ended June 28th from the previous week's revised figure of 388,000. Economists had been expecting jobless claims to edge up to 385,000 from the 384,000 originally reported for the previous week.
The Labor Department also said that the less volatile four-week moving average jumped to 390,500 from the previous week's revised average of 379,250. At the same time, the report also showed that continuing claims in the week ended June 21st fell to 3.116 million from the preceding week's revised level of 3.135 million.
The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM ET on Thursday. The non-manufacturing index is likely to show a reading of 51 for June.
In May, the non-manufacturing index declined to 51.7 from 52 in the previous month. Evidence of a build-up in inflationary pressures increased, as the price paid index showed a 4.9 point-increase to 77. The production and the new orders index rose 2.7 points and 3.5 points, respectively, while the exports orders index climbed to 48.5 in May from 54 in April. On the flip side, the employment index fell below the cut-off mark of '50' to 48.7.
Stocks in Focus
NVIDIA Corp. (NVDA) may come under selling pressure after it lowered its second quarter revenue guidance to $875 million - $950 million. Analysts, on average, estimate earnings of 34 cents per share on revenues of $1.10 billion. The company also lowered its gross margin guidance. The company attributed to the lowered expectations to end-market weakness across the globe, a delay in the ramp up of its next-generation microprocessors and price adjustments of its graphic processing unit. Additionally, the company said it expects to incur a one-time charge of $150-$200 million in the second quarter relating to a defect in the die/packaging material set in its previous generation GPU and MCP products used in notebooks.
Abbott Labs (ABT) could see some buying interest after it announced that it has received FDA approval for its drug-coated stent Xience V. The company also said it would begin marketing the stent immediately.
AMR Corp. (AMR) may see some weakness after it said its June load factor declined 1.7 points to 85.5%. The airline said traffic declined 3.1% and capacity fell 1.2%. The company had earlier said in an SEC filing that it would take a $1.1-$1.2 billion charge related to the write down of the MD-80 and Embraer RJ-135 aircrafts it plans to retire. Additionally, the company stated that it may have to take other accounting charges related to capacity reductions of the magnitude 11%-12% it planned for the fourth quarter due to the surge in fuel prices and the softness of the economy.
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