Morning Update

Nonfarm Payrolls Pare Optimism

Stocks are under pressure in morning action after the labor report showed more jobs were shed from nonfarm payrolls than what economists had anticipated. The unemployment rate rose slightly less than expected and a separate report showed weekly initial and continuing jobless claims both declined, but are doing little to soothe concerns on Wall Street that the road to an economic recovery may be bumpy and longer than the recent rally in equities in 2Q had suggested. Treasuries have pared losses and are moving higher. In equity news, Exelon Corp. upped its bid for NRG Energy, Johnson & Johnson will invest $1 billion in Elan Corp, and Sepracor received bad news on a couple of drug studies. Overseas, markets are mostly lower with the European Central Bank leaving its key interest rate unchanged.

As of 8:48 a.m. ET, the September S&P 500 Index Globex futures contract is 14 points below fair value, the Nasdaq 100 Index is 14 points below fair value, and the DJIA is 115 points below fair value. Crude oil is down $1.62 at $67.69 per barrel, while gold is down $13.50 at $927.80 per ounce.

Exelon Corp. (EXC $52) announced that it has increased its offer to acquire all the outstanding shares of NRG Energy (NRG $26) by 12.4% per share to $7.45 billion. EXC cited additional upside value indentified since the initial offer.

Dow member Johnson & Johnson (JNJ $57) said that it will invest $1 billion with Irish drug maker Elan Corp. (ELN $7), representing an 18.4% stake in the company. Also, JNJ will acquire substantially all of the assets and rights of ELN's Alzheimer's Immunotherapy Program, through a newly formed company. Upon closing, JNJ said the transaction will have an estimated dilutive impact of $0.02-0.03 on its adjusted earnings per share.

Shares of Sepracor (SEPR $18) are under pressure after the drug company announced that a Phase II study of the efficacy and safety of a treatment of a major depressive disorder did not meet the primary efficacy endpoint. Also, SEPR said the US Food & Drug Administration (FDA) has put two pediatric studies of its drug Lunesta on clinical hold due to concerns regarding non-clinical data. The FDA said this action does not impact the availability or prescribing information for Lunesta in the treatment of adults with insomnia.

Nonfarm payrolls shed more jobs than anticipated, jobless claims fall

Nonfarm payrolls fell 467,000 in June, more than the Bloomberg estimate that called for a 365,000 decline. May was favorably revised to -322,000 from -345,000, and April was revised from -504,000 to -519,000. The unemployment rate rose from 9.4% to 9.5%, versus the consensus forecast of the jobless rate to rise to 9.6%. Average hourly earnings were unchanged, versus the Street's forecast of 0.1%.

Meanwhile, weekly initial jobless claims declined by 16,000 to 614,000, versus last week's figure that was upwardly revised by 3,000 to 630,000. The Bloomberg consensus called for claims to reach 615,000. The four-week moving average declined by 2,750 to 615,250, and continuing claims fell, dropping 53,000 to 6,702,000, versus the forecast of 6,740,000. Treasuries have pared losses and are mixed with the short-to-mid end of the curve moving higher following the key reports on employment conditions. Please note that the bond market will close early today and all US markets will be closed tomorrow in observance of the Independence Day holiday.

Later today, the economic calendar will yield the latest report on factory orders for the month of May, forecasted to rise 0.9% on top of April's 0.7% advance.

Europe in the red as autos lose tread

Stocks in Europe are under pressure in afternoon action, as weakness in automakers following yesterday's disappointing US sales data is being exacerbated by a downgrade of European auto stocks by Credit Suisse. Basic materials are also under pressure with traders booking profits from yesterday's strong gains as lingering uncertainty regarding whether the recent economic data supports a sustainable recovery in the global economy. In equity news, shares of Clariant (CLZNY $6) are under solid pressure after the chemical maker said it plans to sell 225 million Swiss francs of convertible bonds.

On the economic front, the European Central Bank, as widely expected, left its key interest rate unchanged at 1.0%. Traders are now waiting for the press conference conducted by ECB President Jean-Claude Trichet, explaining details of the decision and traders are most likely looking for details on the progress or the announcement of any changes to the central bank's recent deployment of unconventional monetary policy measures to help stabilize the financial markets. They may also be looking for any comments on the inflation front, given the recent surge in commodity prices on the increased economic optimism that has fueled the equity markets since reaching the mid-March lows, and the fact that Trichet has been a notorious inflation hawk. Separately, eurozone producer prices unexpectedly fell in May and eurozone unemployment rose more than expected to 9.5%.

Asia mixed ahead of US labor data

Stocks in Asia were mixed as strength in metals and mining stocks, on yesterday's jump in key metals prices, were met by pressure on automakers following yesterday's worse-than-expected sales of vehicles in the US. Japan's Nikkei 225 Index declined 0.6%, Hong Kong's Hang Seng Index fell 1.1% after returning to trading following yesterday's holiday, while China's Shanghai Composite Index posted a solid advance, gaining 1.7%. Traders treaded cautiously ahead of today's US labor report. In economic news, the Indian finance ministry said India's economic growth may rise to as much as 7.75% this year amid signs of a "bottoming out" in the US, and monsoon rains supporting harvests. However, India's BSE Sensex 30 Index only eked out a modest 0.1% gain today.