Market Happenings for Friday, June 03, 2011

Jobs data disappoints! Pre-market, futures are down, down, down. Winners this morning include AEE, BLK, FAST, NYX and PX. Losers include NWL, AMT, NVLS, MOLX and AKS. Light Crude is down -0..89%.

U.S. Stock News

* Employment rose far less than expected in May to record its weakest reading since September, while the jobless rate rose to 9.1 percent as high energy prices and the effects of Japan’s earthquake bogged down the economy. Nonfarm payrolls increased 54,000 last month, the Labor Department said on Friday, with private employment rising 83,000, the least amount since June. Government payrolls dropped 29,000. Economists polled by Reuters had expected payrolls to rise 150,000 and private hiring to increase 175,000 in May. The government revised employment figures for March and April to show 39,000 fewer jobs created than previously estimated. The job creation slowdown confirmed the economic weakness already flagged by other data from consumer spending to manufacturing. It could stoke fears about the depth and duration of a slowdown that started early in the year. The Labor Department said severe weather last month, including tornadoes and flooding, in the Midwest and the South did not materially affect data collection.It also said that while some workers in those regions may have been temporarily displaced from their jobs, it found “no clear impact of the disasters on the national employment and unemployment data for May.”

* June S&Ps this morning are tradingdown -3.90 points ahead of May US nonfarm payrolls. The US stock market yesterday settled mixed as concern the economy is slowing weighed on prices: Dow Jones -0.34%, S&P 500 -0.12%, Nasdaq Composite +0.15%. The Dow and S&P 500 fell to 1-1/2 month lows while the Nasdaq slipped to a 1-week low. Bearish factors for stocks included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), (3) weakness in financial stocks after Moody’s Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade, and (4) the sell-off in retailers after May sales trailed analysts’ estimates amid rising prices and soaring gasoline costs.

* Bullish factors included (1) reduced concerns over the European debt crisis after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is “very positive,” and (2) a rally in for-profit colleges after the US Education Department gave the industry more time to comply with rules that will cut off federal aid to institutions whose students struggle the most to repay their government loans.

The Markets

* September 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fluctuated on either side of unchanged until late morning as weaker-than-expected economic data supported prices but T-notes headed lower in the afternoon and finished with modest losses after Moody’s warned it may put the US government’s rating under review: TYU11 -11, FVU11 -6.2, EDZ11 -0.5. Sep T-notes posted a 6-month nearest-futures high but erased their gains and closed lower. Bearish factors included (1) long-liquidation and position squaring ahead of Friday’s all-important monthly payrolls report, (2) reduced concerns over the European debt crisis which cut the safe-haven demand for Treasuries after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is “very positive,” and (3) the warning from Moody’s Investors Service that it will place the US government’s rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks. Bullish factors included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), and (3) increased safe-haven demand for Treasuries over debt concerns in the banking sector after Moody’s Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade.

* The dollar index this morning is little changed with the dollar/yen -0.33 yen and the euro/dollar +0.02 cents. The dollar index yesterday slid to a 3-1/2 week low and finished modestly lower after comments from German Chancellor Merkel lifted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.344, USDJPY -0.052, EURUSD +0.01621. Bearish factors included (1) comments from German Chancellor Merkel who said the European Union remains committed to the euro and the outlook for German growth is “very positive,” (2) weaker-than-expected US economic data on weekly jobless claims and Apr factory orders, which indicate economic weakness and is dollar negative, and (3) the warning from Moody’s that it will place the US government’s rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks. Bullish factors included (1) increased safe-haven demand for the dollar after credit-default swaps to insure Portuguese and Irish government debt rose to records, which indicate the European sovereign-debt crisis may worsen, and (2) the early slide in stock prices which also boosted the safe-haven demand for the dollar.

* July crude oil prices this morning are trading down -87 cents a barrel and July gasoline -1.50 cents per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows and finished mixed as an increase in fuel demand and a weak dollar offset weaker-than-expected economic data and an unexpected increase in weekly crude inventories: CLN11 +$0.11, RBN11 -0.73. Bearish factors included (1) weaker-than-expected US economic data that showed a smaller-than-expected decline in weekly US jobless claims along with the biggest monthly decline in Apr factory orders in 11 months, which suggests economic weakness that may curtail energy demand, (2) the unexpected increase in weekly DOE crude oil inventories for a second week (+2.88 million bbl versus expectations of -1.6 million bbl), and (3) the larger-than-expected rise in weekly DOE gasoline supplies (+2.55 million bbl versus expectations of +800,000 bbl). Bullish factors included (1) the drop in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) increased demand after US gasoline demand in the week ended May 27 rose +4.5% w/w to 9.43 million barrels a day, the highest in 9 months.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) BTH-Blyth (BEST earnings consensus $2.13), AMWD-American Woodmark (-0.23), JRJC-China Finance Online Co. Ltd. (0.07).

Financial Calendar

0830 ET May nonfarm payrolls expected +170,000, Apr +244,000. May private payrolls (ex-government) expected +180,000, Apr +268,000. May unemployment rate expected -0.1 to 8.9%, Apr +0.2 to 9.0%. May manufacturing payrolls expected +10,000, Apr +29,000. May avg hourly earnings all employees expected +0.2% m/m, Apr +0.1% m/m and +1.9% y/y. May avg weekly hours all employees expected unchanged at 34.3 hours, Apr unchanged at 34.3 hours.

0830 ET USDA weekly export sales.

1000 ET May ISM non-manufacturing index expected +1.2 to 54.0, Apr -4.5 to 52.8.

1230 ET Fed Governor Daniel Tarullo speaks on the international discussions on new financial regulation at the Peterson Institute for International Economics.

1530 ET Boston Fed President Eric Rosengren will be the keynote speaker at the Stanford Finance Forum at Stanford University.

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