Morning Market Update

Labor Report Helps Rally Continue

The equity markets are nicely higher in morning trading as the better-than-forecasted US labor report is adding to the week’s string of favorable data, which included manufacturing, retail sales, and housing data, prompting some concerns about a double-dip recession to dissipate. Treasuries are under pressure after extending losses following the employment reading, and ahead of a key report on the health of service sector economic activity. The economic front is overshadowing equity news, but there were some reports the deserve a mention, as Campbell Soup Co reported better-than-expected earnings but its revenues came in short of analysts’ expectations and it offered a cautious outlook, while H&R Block Inc posted a narrower-than-forecasted loss in 1Q. Overseas, Asia moved modestly higher ahead of today’s US jobs data, which is helping Europe extend its weekly rally in afternoon action across the pond.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is 14 points above fair value, the Nasdaq 100 Index is 25 points above fair value, while the DJIA is 117 points above fair value. Crude oil is up $0.20 at $75.22 per barrel, and the Bloomberg gold spot price is down $10.40 at $1,240.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 82.31.

Campbell Soup Co. (CPB $37) reported fiscal 4Q EPS ex-items of $0.33, three cents above the Reuters estimate, but revenues declined 1% year-over-year (y/y) to $1.5 billion, just below the $1.6 billion that analysts were expected. The company said US beverage sales jumped 12% y/y, but US soup sales decreased 5%. CPB said it expects fiscal 2011 sales and earnings growth to be slightly below the company’s long-term growth targets, reflecting the challenging economic and consumer conditions in the marketplace.

H&R Block Inc. (HRB $13) posted a smaller-than-expected fiscal 1Q loss ex-items of $0.36 per share, compared to the shortfall of $0.41 that the Street expected, with revenues coming in flat y/y at $274.5 million, exceeding the $268.5 million that was forecasted by analysts. The tax preparation firm said its quarterly results reflect the progress it has made in reducing embedded costs and it is “working diligently” to reverse the early-season client losses it has experienced in each of the past two years.

Private sector payrolls rise more that expected, service sector read on the horizon

Nonfarm payrolls fell by 54,000 jobs in August, a smaller drop than the consensus estimate of economists surveyed by Bloomberg, which forecasted a 105,000 decline. Additionally, excluding government hiring, private sector payrolls increased by 67,000, versus the forecast of a gain of 40,000, after expanding by an upwardly revised 107,000—from an initially reported 71,000 gain—in July. The unemployment rate rose to 9.6% from 9.5% the previous month, matching expectations. Average hourly earnings increased by 0.3% month-over-month (m/m) versus the Street's forecast of a 0.1% increase, and average weekly hours remained at 34.2, as expected. Government payrolls fell by 121,000 as Census employment dropped by 114,000 temporary workers. Treasuries are lower after losing ground following the report.

Later this morning, the ISM Non-Manufacturing Index, will be released and is expected to show growth in economic activity outside of the manufacturing sector slowed to 53.2 in August from 54.3 in July, but activity continued to expand—measured by a reading above 50—for the eighth-straight month (economic calendar). Key components of the index that will likely garner some attention include new orders, which is a gauge of demand and showed accelerated growth in July, and employment, which has oscillated around the 50 mark in recent months. The employment component has posted only two readings of expansion since December 2007, both in July and May of this year, and if the August reading posts the third month of growth in the past four reports, this could add to today’s labor report in helping soothe some of the concerns about the still weak jobs market.

Europe extending weekly advance, supported by US jobs report

Stocks in Europe are solidly higher in afternoon trading, adding to the week’s solid gains across the pond as the focus was on the better-than-expected US jobs report. Meanwhile, traders are also digesting a slew of services data in the area as well as a reading on retail sales. Services PMI reports out of Italy, France, and the euro-zone all posted better-than-expected growth, while growth in services activity out of the UK, Spain, and Germany—Europe’s largest economy—decelerated and came in below economists’ forecasts. Moreover, euro-zone retail sales rose 0.1% m/m in July, below the 0.2% increase that was forecasted, while June’s flat reading was revised to a 0.2% gain. In other economic news in the region, Spain’s consumer confidence improved in August, and consumer prices in Switzerland came in flat in August as expected. In equity news, shares of Theolia (THIXF $3) are under steep pressure after the French wind energy firm posted a first-half loss that widened from a year earlier.

The UK FTSE 100 Index is 1.4% higher, France’s CAC-40 Index is up 2.0%, Germany’s DAX Index and Spain’s IBEX 35 Index are advancing 1.4%, Italy’s FTSE MIB Index is rising 1.7%, and Switzerland’s Swiss Market Index is gaining 1.5%.

Asia post modest advance ahead of US jobs data

Stocks in Asia moved mostly higher, posting modest gains on the heels of continued favorable housing, retail sales, and jobless claims data out of the US to extend the week’s solid advance, which was supported by strong GDP growth out of Australia and manufacturing reports in China. However, today’s upward move was limited by some cautious sentiment ahead of the US labor report. Japan’s Nikkei 225 Index increased 0.6% on the improved economic sentiment, which also pressured the Japanese yen versus the dollar and other major currencies during the trading session to help soothe some concerns about the Japanese currency’s steep advance recently and its impact on the bottomlines of companies that rely on sales abroad. Also, a report that showed Japanese capital spending fell much less than forecasted in 2Q aided the gains in the nation. Meanwhile, South Korea’s Kospi Index gained 0.2% in the wake of the final read on the nation’s 2Q GDP, which showed 1.4% expansion in output quarter-over-quarter (q/q), a slightly smaller rate of growth than the initial 1.5% pace of expansion that was reported in July.

Stocks in China were mixed, with the Shanghai Composite Index nearly unchanged, while the Hong Kong Hang Seng Index rose 0.5%. There were some equity and economic news to digest in China, with shares of Hong Kong-based retailer Esprit Holdings (ESPGY $11) falling solidly after it reported disappointing full-year profits yesterday. Moreover, two separate reports showed Chinese non-manufacturing activity grew in August, and growth in the PMI in Hong Kong increased. In other economic news, the pace of growth in service sector activity in India slowed in August and a report showed y/y wholesale prices in the nation rose at a higher rate compared to the previous period, while Australian services activity improved. India’s BSE Sensex 30 Index dipped 0.1% and Australia’s S&P/ASX 200 Index rose 0.2%. However, Taiwan’s Taiex Index posted a solid 1.4% advance to lead the way in Asia.