Weekend Update

Tepid Reaction to Mixed Job Report

Stocks rose modestly, as traders struggled to discern the trend in the jobs market after the headline gain in payrolls missed expectations but was seen to have been negatively impacted by severe weather. Another significant drop in the unemployment rate was also downplayed as a decline in the labor force contributed to the fall. Meanwhile, Treasuries fell and the US dollar rose, following through on yesterday’s move driven by lowered expectations of a rate hike by the European Central Bank. Rumors that Egyptian President Mubarak would step down propelled a decline in crude oil and energy names. In equity news, Aetna, JDS Uniphase and Tyson Foods beat the Street and UPS raised its dividend, while Las Vegas Sands’ revenues were short of expectations.

The Dow Jones Industrial Average was 30 points (0.3%) higher at 12,092, the S&P 500 Index rose 4 points (0.3%) to 1,311, and the Nasdaq Composite gained 15 points (0.6%) to 2,769. In moderately light volume, 920 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. Crude oil fell $1.51 to $89.03 per barrel, wholesale gasoline lost $0.06 to $2.51 per gallon, and the Bloomberg gold spot price fell $6.32 to $1,348.03 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— rose 0.3% to 78.03. For the week, including dividends, the DJIA rose 2.3%, the S&P 500 Index gained 2.7%, and the Nasdaq Composite advanced 3.1%.

Aetna Inc. (AET $37) reported 4Q EPS of $0.63, one penny ahead of the consensus estimate of analysts surveyed by Reuters, with revenues declining 2% year-over-year (y/y) to $8.5 billion, above the $8.4 billion that the Street had forecasted. The health benefits company said its earnings were driven by higher commercial underwriting margins, partially offset by lower commercial insured membership. AET issued full-year 2011 EPS guidance that easily topped analysts’ projections. Shares were up solidly.

United Parcel Service Inc.  (UPS $74 ¹) reported that its Board of Directors approved an 11% increase in the company’s regular quarterly dividend to $0.52 per share. The package company said it believes that 2011 is going to be “a great year” and it is committed to significantly increasing distributions to shareowners. UPS was nearly unchanged.

Las Vegas Sands Corp.  (LVS $46) announced 4Q adjusted earnings of $0.42, above the $0.39 that was estimated by analysts, but revenues, although jumping 57% y/y to $2.0 billion, were short of the $2.1 billion that was anticipated on the Street. The hotel and casino operator said strong revenue growth and margin expansion in Macau, together with outstanding results at Marina Bay Sands in Singapore and improving results in Las Vegas and Bethlehem, contributed to its results. Shares were solidly lower.

JDS Uniphase Corp.  (JDSU $23) posted fiscal 2Q earnings ex-items of $0.29 per share, ten cents above the consensus forecast, with revenues increasing 16% y/y to $477 million, exceeding the $439 million that was expected. The communications product maker issued 3Q revenue guidance that topped forecasts. JDSU shares gained over 25%.

Tyson Foods Inc (TSN $19) shares rose after the company announced 1Q earnings ex-items of $0.75 per share on revenue of $7.6 billion, higher than the $0.62 EPS and $7.15 billion sales consensus estimates. For fiscal 2011, the company noted that overall domestic protein (chicken, beef, pork and turkey) production is expected to increase slightly, but that since exports will likely grow as well, prices will continue to be supported.

Distortions to data cloud the jobs picture

Nonfarm payrolls rose by 36,000 jobs month-over-month (m/m) in January, well below the consensus estimate of economists surveyed by Bloomberg, which forecasted a 146,000 increase. This marks the third straight large miss, but December’s figure was upwardly revised by 18,000 to 121,000, and November was adjusted higher by 22,000 to 93,000. Excluding government hiring and firing, private sector payrolls increased by 50,000, versus the forecast of a gain of 145,000. The unemployment rate unexpectedly fell to 9.0% from 9.4% in December, compared to expectations of a rise to 9.5%, and after posting a 9.8% rate in November. Average hourly earnings were up 0.4% m/m, versus the Street's forecast of a 0.2% increase, but average weekly hours declined to 34.2, versus expectations for the figure to remain at 34.3.

The Labor Department noted that severe weather negatively impacted the payrolls figure, and the decline in the unemployment rate came as job seekers, discouraged by job prospects and with an average length of unemployment at 37 weeks, dropped out of the labor force by no longer looking for work.

Market reaction to the data is mixed, as the unusual factors influencing the data and typical revisions later are clouding the picture. Readings from leading indicators show a gradual improvement in the health of the jobs market, and most market watchers expect future reports to bear this out. .

Treasuries fell following the employment data, with the yield on the two-year note rising 5 bps to 0.75%, the yield on the 10-year note increasing 9 bps at 3.64%, and the 30-year bond yield gaining 7 bps to 4.73%.

Canadian jobs strong

Friday’s economic data was dominated by North America, and while the US jobs report disappointed, Canada reported that its net change in employment rose by 69,200 in January, well above the 15,000 increase that economists were forecasting. However, Canada’s unemployment rate unexpectedly rose from 7.6% to 7.8%, and a separate report showed the nation’s PMI unexpectedly fell, dropping from 50.0 in December to 41.4 in January, compared to the 53.2 reading the was expected. The PMI is a read on business activity and a reading below 50 means the number of respondents that said business deteriorated outweighed those who saw improvement.

In other international releases, UK home prices unexpectedly rose in January Spain’s industrial output unexpectedly fell in December but a preliminary read on 4Q GDP from the nation’s central bank noted an acceleration of growth to 0.2% quarter-over-quarter, and Italy’s consumer prices came in hotter than forecasted.

News in Asia remains subdued amid continued Lunar New Year celebrations. However, the Reserve Bank of Australia issued its quarterly monetary policy statement, in which the RBA lifted its 2011 growth forecast, and Indonesia’s central bank unexpectedly increased its benchmark interest rate by 25 basis points to 6.75%, in a move aimed at curbing inflation expectations, which are being stoked by increases in commodity prices.

Data and Fed keep markets out of the red

The equity markets posted solid gains for the week, overcoming festering political unrest in the Middle East, Friday’s mixed labor report, and increasing concerns about inflation and its possible monetary policy implications. Carrying the load for the bulls were a plethora of favorable economic reports, headlined by the ISM Manufacturing Index reaching the highest level of expansion since May 2004 and the ISM Non-Manufacturing Index unexpectedly jumping to the largest rate of growth in service-sector activity since August 2005. Moreover, despite some mixed earnings reports, the corporate sector lent some support, as January retail same-store sales—sales at stores open at least a year—and US auto sales were broadly better than expected. Finally, the bulls found some comfort in a speech from Fed Chief Ben Bernanke, in which he noted that the economic recovery appears to have strengthened in recent months, while adding that that there is increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold, likely helping—along with accommodative monetary policy and more supportive financial conditions—lead to a more rapid pace of economic recovery in 2011 than we saw last year.

Economic data will be light next week

Scheduled releases on the US economic calendar include consumer credit, the NFIB Small Business Optimism Index, wholesale inventories, MBA Mortgage Applications, initial jobless claims, the trade balance, and the University of Michigan Consumer Sentiment Index. Additionally, Federal Reserve Chairman Ben Bernanke is set to testify in front of the House Budget Committee.

Other reports in the Americas include Canada’s building permits, housing starts and new home prices, and Mexico consumer confidence, consumer prices and industrial production. Reports elsewhere include German factory orders, industrial production, trade balance, and CPI, French manufacturing production, non-farm payrolls and wages, UK home prices, industrial and manufacturing production and PPI, Japan’s leading index, trade balance, consumer confidence, machine orders, and machine tool orders, Australia’s retail sales, consumer confidence and employment, and China’s services PMI and trade balance. Lastly, the Bank of England and the Bank of Korea meet to discuss monetary policy.