Market Happenings for Friday, July 08, 2011

Pre-market, futures are down hard with Dow set to tumble down -106 to 12,575 after the monthly jobs report showed employers added just 18,000 positions in June. Gainers this morning include MPC, NYX, DVN, AN and FLR. Losers include XL, MWW, HUM, NOV and ANR. Light Crude is DOWN -2.00% at 96.70.

U.S. Stock News

September S&Ps this morning are trading down -0.90 of a point ahead of this morning’s Jun US nonfarm payrolls. The US stock market yesterday rallied right from the open and continued higher throughout the day on increased confidence in the economic outlook after the Jun ADP employment change showed companies added more workers than expected and monthly retail sales data rose more than expected: Dow Jones +0.74%, S&P 500 +1.05%, Nasdaq Composite +1.36%. The Dow and S&P 500 posted 1-3/4 month highs and the Nasdaq climbed to a 10-1/3 year high. Bullish factors included (1) optimism that the US labor market may be improving after weekly initial unemployment claims fell more than forecast (-14,000 to 418,000 versus expectations of -8,000 to 420,000) and the Jun ADP employment change showed companies added jobs at more than twice market expectations (+157,000 versus expectations of +70,000), (2) a rally in retailers as monthly sales projections for Jun exceeded forecasts as warmer temperature and lower gas prices in the US enticed consumers to spend, and (3) a rally in energy and raw-material producers after commodities rallied on increased optimism in the economic outlook.

Bearish factors included (1) concern the European sovereign-debt crisis may worsen after credit-default swaps to insure the government debts of Portugal, Greece and Ireland all rose to records, and (2) comments from Kansas City Fed President Hoenig who reiterated that the Fed should raise the Fed funds rate to 1.00% and that there are “risks in this fragile recovery” for the US economy.

Google (GOOG) slipped 1.3% in pre-market tradng after Morgan Stanley cut its recommendation on the stock to “equal weight” from “overweight.”

The Markets

September 10-year T-notes this morning are trading down -1 tick. T-note prices yesterday weakened after the Jun ADP employment change showed companies added more jobs than expected along with reduced safe-haven demand for Treasuries after the stock market rallied: TYU11 -16.5, FVU11 -15, EDZ11 +1.5. Bearish factors included (1) the larger-than-expected increase in the Jun ADP employment change (+157,000 versus expectations of +70,000), (2) the larger-than-expected decline in weekly initial unemployment claims (-14,000 to 418,000 versus expectations of -8,000 to 420,000), and (3) reduced safe-haven demand for Treasuries after the S&P 500 rallied to a 1-3/4 month high. Bullish factors included (1) increased safe-haven demand for Treasuries after credit-default swaps to insure the government debts of Portugal, Greece and Ireland all rose to records and (2) increased safe-haven demand on concern the ECB thinks the debt crisis situation in Portugal is as bad as Greece and Ireland after it suspended its minimum collateral rules for Portuguese government debt.

The dollar index this morning is trading higher with the dollar/yen +0.13 yen and the euro/dollar -1.01 cents. The dollar index yesterday rallied to a 1-week high early on stronger than expected US employment data but shed its gains and closed lower after the euro rallied when ECB President Trichet signaled additional interest rate increases: Dollar Index -0.219, USDJPY +0.326, EURUSD +0.00445. Bearish factors included (1) the ECB’s action to raise its benchmark 2-week refinancing rate for the second time this year by 25 bp to 1.50%, along with ECB President Trichet’s comments that monetary policy remains “accommodative,” which hints at additional ECB interest rate hikes that may further weaken the dollar’s interest rate differentials, (2) the euro supportive action by the ECB to suspend its minimum collateral rules for Portuguese government debt, which will allow Portugal to access ECB funds, and (3) the stronger-than-expected May German industrial production, which is euro positive. Bullish factors included (1) increased safe-haven demand for the dollar after credit-default swaps to insure the government debts of Portugal, Greece and Ireland all rose to records, and (2) the larger-than-expected increase in the Jun ADP employment change, which signals economic strength and is dollar supportive.

Aug crude oil prices this morning are down -58 cents a barrel and Aug gasoline is -2.95 cents per gallon. Aug crude oil and gasoline prices yesterday rallied sharply on better-than-expected US employment data along with a larger-than-expected drop in weekly gasoline supplies: CLQ11 +$2.02, RBQ11 +12.94. Aug crude rallied to a 3-week high and Aug gasoline posted a 1-3/4 month high. Bullish factors included (1) the reversal in the dollar index which rallied to a 1-week high but erased its gains and closed lower, which encourages investment demand in commodities, (2) the stronger than expected Jun ADP employment change, which bolsters confidence in the sustainability of the economic recovery and energy demand, (3) the larger-than-expected decline in weekly DOE gasoline inventories (-634,000 bbl versus expectations of -150,000 bbl), and (4) the unexpected decline in weekly distillate inventories (-191,000 bbl versus expectations of a +800,000 bbl build). Bearish factors included (1) the smaller-than expected decline in weekly crude inventories (-889,000 bbl versus expectations of -2.5 million bbl) and (2) concern the European debt crisis will worsen and crimp economic growth and fuel demand after credit-default swaps to insure the government debts of Portugal, Greece and Ireland all rose to records.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): GBX-Greenbrier (BEXT earnings consensus $0.21).

Financial Calendar

0830 ET Jun nonfarm payrolls expected +100,000, May +54,000. Jun private payrolls (ex government) expected +125,000, May +83,000. Jun unemployment rate expected unchanged at 9.1%, May+0.1 to 9.1%. Jun manufacturing payrolls expected +5,000, May -5,000. Jun avg hourly earnings all employees expected +0.2% m/m and +1.9% y/y, May +0.3% m/m and +1.8% y/y. Jun avg weekly hours all employees expected unchanged at 34.4 hours, May +0.1 to 34.4 hours.

1000 ET May wholesale inventories expected +0.6%, Apr +0.8%.

1500 ET May consumer credit expected +$4.0 billion, Apr +$6.247 billion.

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