Morning Market Update

Bulls Corralled by Weak Jobs Report

US equities are sharply lower in early action, as nonfarm payrolls came in far below expectations, while the unemployment rate ticked slightly higher to 9.2%. Nearly every aspect of the report was disappointing, including a downward revision to last month’s gain, as hopes of a turnaround in the jobs market that were raised by yesterday’s ADP report were severely dampened. Treasuries moved higher on the news, and ahead of the release of wholesale inventories later this morning, as well as consumer credit this afternoon. Equity news is light, highlighted by positive test results for a new diabetes drug from Amylin Pharmaceuticals, Alkermes, and Eli Lilly. Overseas, Asian stocks finished higher as news out of Japan continues to signal recovery, while European markets are lower after giving up gains on the US jobs data.

As of 8:50 a.m. ET, the September S&P 500 Index Globex future is 12 points below fair value, the Nasdaq 100 Index is 13 points below fair value, and the DJIA is 84 points below fair value. WTI crude oil is $1.89 lower at $96.78 per barrel, and the Bloomberg gold spot price is up $7.54 at $1,539.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is 0.2% higher at 75.10.

Drug makers Amylin Pharmaceuticals Inc. (AMLN $14), Alkermes Inc. (ALKS $19), and Eli Lilly & Co. (LLY $38) announced that tests conducted on the diabetes drug Bydureon were positive, as the treatment didn’t slow patients’ heart rate. The U.S. Food and Drug Administration (FDA) requested the study back in October, substantially delaying a widely expected approval. The companies plan to submit the results to the FDA this quarter, while European regulators approved the treatment last month.

June job growth falls far short of expectations

Nonfarm payrolls rose by 18,000 jobs in June, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 105,000 increase, and the initial 54,000 gain seen in May was revised lower to a growth of 25,000 jobs. Additionally, excluding government hiring and firing, private sector payrolls increased by 57,000 in June, versus the forecast of a gain of 132,000, after expanding by a downwardly revised 73,000—from an initially reported 83,000 gain—in May. The unemployment rate increased to 9.2%, while economists were looking for an unchanged rate of 9.1%. Additionally, average hourly earnings were unchanged month-over-month (m/m), versus the Street's forecast of a 0.2% increase, while average weekly hours came in slightly lower at 34.3, versus expectations of an unchanged 34.4 reading.

Treasuries moved higher following the employment data, with the yield on the two-year note down 7 bps to 0.40%, the yield on the 10-year note 9 bps lower at 3.05%, and the 30-year bond yield declining 4 bps to 4.32%.

Later this morning, the economic calendar will yield the release of wholesale inventories, anticipated to increase 0.6% in May, after rising 0.8% in April. Additionally, at 3:00 p.m. ET, we will get the release of consumer credit for May, forecasted to increase $4.00 billion, after rising $6.25 billion in April.

Europe falls on US jobs number

The equity markets in Europe are lower in afternoon action, as gains were pared following the release of the U.S. jobs data. The region is also anticipating that the International Monetary Fund (IMF) executive board will approve the disbursement of over 3 billion euros for Greece today, in time to help the struggling country pay debts due this month. Meanwhile, European regulators are receiving heavy criticism over the banking stress tests that are due to be announced next Friday. Many banks are upset that they were forced to rerun the stress scenarios with tougher standards than originally suggested when preparations for the tests began back in March, while other banks are upset that the tests have been standardized too much in the name of consistency. The changes are leading some to predict that nearly a dozen banks may fail the tests, mainly in Spain, Germany and Greece.

In other economic news in the region, producer prices in the UK increased in June at the slowest pace since last September, matching the expectation of economists. The report helped justify yesterday’s decision by the Bank of England (BoE) to leave its target benchmark interest rate unchanged at 0.5%, even as current inflation rates are more than double its 2% target level. Meanwhile, industrial production in Italy came in lower than expected, while Germany’s trade balance expanded in May on a substantial increase in exports.

In equity news across the pond, German utility RWE AG (RWEOY $55) is under pressure after the company said it will consider further financing instruments, including a capital increase and more asset sales, in an effort to maintain its credit rating.

The UK FTSE 100 Index is down 0.7%, France’s CAC-40 Index is down 1.1%, and Germany’s DAX Index is declining 0.4%.

Asia closes higher ahead of Chinese data

Stocks in Asia finished to the upside, as the region awaits a flood of data out of China, beginning tomorrow with reads on consumer and producer prices. Chinese stocks posted a third consecutive week of gains, led by the banks and property companies, as the Shanghai Composite Index added 0.1%, while the Hong Kong Hang Seng Index posted a 0.9% gain. There was little economic data to report in the region, although Japan did report that its current account surplus narrowed less than expected in May, another indicator that the country is on its way to recovering from the steep decline in exports seen after the March tsunami and earthquake. In equity news in the region, Seven & I Holdings Co. (SVNDY $56) increased its full-year earnings outlook for 2012 by 20%, while also raising its revenue outlook. The retail giant, which runs 7-Eleven convenience stores in Japan and the U.S., reported a sharp y/y drop in earnings due to extraordinary losses from the March 11th disaster, but the results beat the expectations of economists. Elsewhere, shares of SK Telecom (SKM $17) traded lower after South Korea’s leading mobile carrier submitted a bid to acquire a controlling stake in chipmaker Hynix Semiconductor Inc. (HXSCL $29) for about $2.3 billion. SK Telecom said it is seeking to diversify its business lines and to secure a future growth engine by reorganizing its mobile telecom business portfolio. The Nikkei 225 Index was up 0.7%, the BSE Sensex 30 Index fell 1.2%, while Australia’s S&P/ASX 200 Index was 1.1% higher.