Morning Update

Recessionary Conditions Hit Jobs

Stocks are paring early gains after the unemployment rate jumped to a 14-year high, nonfarm payrolls fell more than forecast, and payrolls in the prior months were revised significantly lower, suggesting the struggling economy is forcing employers to shed jobs at a faster rate. Elsewhere, Ford Motor Co., and Walt Disney missed the Street's profit estimates, but Qualcomm, Fluor, and Nvidia topped earnings expectations. Despite the payroll numbers, Treasuries are slightly lower. Markets overseas are mixed.

As of 8:42 a.m. ET, the December S&P 500 Index Globex futures contract is 6 points above fair value, the Nasdaq 100 Index is 17 points above fair value, and the DJIA is 72 points above fair value. Crude oil is up $0.51 to $61.28 per barrel, and gold is up $7.80 per ounce at $740.10. The overnight LIBOR rate was unchanged at 0.33%, and the three-month LIBOR rate fell 10 bp to 2.29%.

Unemployment rate at 14-year high

Nonfarm payrolls dropped 240,000 in October, below the Bloomberg forecast of a 200,000 job decline. September was revised from a loss of 159,000 to a decline of 284,000, and August was revised from a drop of 73,000 to 127,000. The unemployment rate rose from 6.1% to 6.5%, the highest since 1994 and worse than the Bloomberg estimate of 6.3%. Average hourly earnings increased 0.2%, in line with expectations, and the year-over-year rate increased from 3.4% to 3.5%. Treasuries are lower.

Separately, pending home sales and wholesale inventories will be released at midmorning. Sales are expected to be down 3.4% and will provide a look at how the credit crisis affected sentiment among potential homebuyers. September inventories are expected to rise by 0.3%.

Europe holds early gains

European markets are trying to reclaim some of the lost territory from the sell-off of the past two days that knocked close to 8% of the value off stocks. Natural resource companies are being underpinned by stability in oil and key metal prices, but shares of France-based Lafarge (LFRGY $15) are under heavy pressure after abandoning guidance. The world's largest cement company reported operating profits rose a better-than-expected 9% to 1.9 billion euros and alleviated some of the fears in the industrial sector by noting that demand remained solid in emerging market economies. But given the "exceptional uncertainty," Lafarge would not reiterate prior 2010 EPS and cash flow targets.

Following yesterday's steps by the European Central Bank to support growth, Germany reported industrial production fell 3.6% in September, the biggest drop in over 13 years. Year-over-year, production is down 2.1%, the weakest reading in 5 years, signaling that sagging demand in the US and Europe is adding to the gloomy outlook.

Toyota drives Tokyo down

Stocks in Japan came under more pressure as traders had their first opportunity to react to Toyota's (TM $67) profit warning. Shares of the country's largest automaker plunged 9.7%, extending Thursday's drop of 10.6% that occurred prior to the release. Damage from the apparent recession in the US and Europe, coupled with the strong yen, has caused a number of major exporters to pare back forecasts. Honda (HMC $22) lost close to 9% in sympathy, and the Nikkei 225 Index closed down 3.6%. Elsewhere, Panasonic (PC $15), the world's biggest maker of plasma TVs, and Sanyo Electric (SANYF $2), the largest maker of rechargeable batteries, confirmed they are in discussions to form a business alliance that is expected to turn Sanyo into a subsidiary of Panasonic.