Market Happenings for Friday, September 02, 2011

Pre-market, futures are down on a August Jobs data that had no growth (flat with July). Gainers this morning include NEM, JDSU, CPB and DF. Losers include NFLX, HRB, BAC, BTU and C.

U.S. Stock News

September S&Ps this morning are trading down -9.40 points. The US stock market yesterday gyrated between gains and losses and finished lower on trepidation before Friday’s U.S. payrolls report: Dow Jones -1.03, S&P 500 -1.19%, Nasdaq Composite -1.30%. The Dow posted a 4-week high but relinquished its gains and closed lower. Bearish factors included (1) concern that global economic growth is slowing after Aug China manufacturing PMI was weaker than expected and the Aug Euro-Zone PMI manufacturing index was revised downward to a 2-year low, (2) the unexpected contraction in Jul construction spending which posted its biggest decline in 7 months (-1.3% versus expectations of +0.2%), and (3) concern that Friday’s U.S. Aug nonfarm payrolls report will continue to show weakness in the U.S. labor market.

Bullish factors included (1) increased optimism in the U.S. economic outlook after the Aug ISM manufacturing index failed to contract as expected (-0.3 to 50.6 versus expectations of -2.4 to 48.5) and (2) a slightly bigger-than-expected decline in weekly initial unemployment claims (-12,000 to 409,000 versus expectations of -7,000 to 410,000).

Bank of America (BAC) fell 1.4% in pre-market trading after the New York Times reported that the bank may be sued by he U.S. Federal Housing Finance Agency for misrepresenting the quality of mortgage securites sold at the height of the housing bubble.

The Markets

December 10-year T-notes this morning are up +4 ticks. T-note prices yesterday fell to their lows after the stronger-than-expected Aug ISM manufacturing index was released but they recovered their losses and rallied the remainder of the day as the stock market tumbled and on speculation Friday’s Aug payrolls report will show continued weakness in the U.S. labor market: TYZ11 +18, FVZ11 +6, EDH12 -0.5. Bullish factors included (1) the unexpected contraction in Jul construction spending which posted its biggest decline in 7 months (-1.3% versus expectations of +0.2%), (2) concern that global economic growth is slowing after Aug China manufacturing PMI was weaker than expected and the Aug Euro-Zone PMI manufacturing index was revised downward to a 2-year low, and (3) speculation that Friday’s Aug U.S. nonfarm payrolls report will continue to show weakness in the U.S. labor market. Bearish factors included (1) the larger-than-expected downward revision to Q2 nonfarm productivity along with a bigger-than-expected increase in Q2 unit labor costs (Q2 nonfarm productivity revised down to -0.7%, weaker than expectations of -0.5% and Q2 unit labor costs revised up to +3.3%, larger than expectations of +2.3%) and (2) the smaller-than-expected decline in the Aug ISM manufacturing index (-0.3 to 50.6 versus expectations of -2.4 to 48.5).

The dollar index this morning is lower with the dollar/yen -0.17 yen and the euro/dollar unchanged. The dollar index yesterday rose to a 2-1/2 week high as stronger-than-expected manufacturing data dampened speculation the Fed will provide additional stimulus along with weakness in the euro which fell to a 2-week low against the dollar after European manufacturing activity contracted last month: Dollar Index +0.439, USDJPY +0.267, EURUSD -0.01109. Bullish factors included (1) the stronger-than-expected Aug ISM manufacturing index which unexpectedly remained above the growth/contraction level of 50.0 and reduces the chance the Fed will take further steps to stimulate the economy, (2) weakness in the euro which fell to a 2-week low against the dollar after the unexpected downward revision to the Aug Euro-Zone manufacturing index to its lowest level in 2 years, and (3) strong dollar demand from European banks as the 3-month dollar Libor rate rose for the 27th consecutive day to a 1-year high of 0.32944%. Bearish factors for the dollar included (1) speculation that Friday’s U.S. Aug payrolls report will show continue weakness in the labor market and (2) the unexpected decline in Jul U.S. construction spending which posted its biggest drop in 7 months.

Oct crude oil prices this morning are down -98 cents a barrel and Oct gasoline is -2.77 cents per gallon. Crude oil and gasoline prices yesterday moved higher after U.S. manufacturing unexpectedly expanded last month along with concern a weather system in the Gulf of Mexico may become a tropical depression and pose a threat to U.S. oil installations and refineries in the region: CLV11 +$0.12, RBV11 +0.83. Oct crude posted a 4-week high and Oct gasoline rallied to a 1-month high. Bullish factors included (1) the stronger-than-expected Aug ISM manufacturing index which unexpectedly remained above the growth/contraction level of 50.0 and indicates growth in the economy and energy demand and (2) concern a weather system in the Gulf of Mexico may strengthen and threaten refineries along the Gulf Coast after the National Hurricane Center warned the system has an 80% chance of becoming a tropical cyclone within the next 2 days. Bearish factors included (1) the rally in the dollar index to a 2-1/2 week high, which reduces investment demand in commodities and (2) the weaker-than-expected Aug China manufacturing PMI along with the downward revision to the Aug Euro-Zone PMI manufacturing index to a 2-year low, which signals a slowdown in global economic growth and fuel consumption.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): CPB-Campbell Soup (BEST earnings consensus $0.38), TLVT-Telvent GIT SA (0.42), BTH-Blyth (2.13), MSB-Mesabi Trust (0.60).

Global Financial Calendar

0830 ET Aug nonfarm payrolls expected +70,000, Jul +117,000. Aug private payrolls (ex-government) expected +100,000, Jul +154,000. Aug unemployment rate expected unchanged at 9.1%, Jul -0.1 to 9.1%. Aug manufacturing payrolls expected unchanged, Jul +24,000. Aug avg hourly earnings all employees expected +0.2% m/m and +2.2% y/y, Jul +0.4% m/m and +2.3% y/y. Aug avg weekly hours all employees expected unchanged at 34.3 hours, Jul unchanged at 34.4 hours.

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