Weekend Summary

Labor Market Weathers the Storm

After a lackluster week of conviction-less action, stocks posted the majority of their solid gains for the week on Friday as the Street breathed a sigh of relief that fewer jobs were lost than expected from nonfarm payrolls, despite high uncertainty regarding the impact of the severe weather. The better-than-expected labor report, along with China reaffirming its growth forecast and waning fears about Greece's deficit problems helped boost optimism that the global economy continues to be on the mend. Treasuries finished lower after the jobs data and after the first increase in consumer credit in a year. Equity news was light today, as Marvell Technology beat Street earnings estimates, Apple announced that the iPad will be available in the US on April 3, and Southwest Airlines said that while traffic was light, a measure of revenue improved.

The Dow Jones Industrial Average rose 122 points (1.2%) to close at 10,566, the S&P 500 Index was 16 points (1.4%) higher at 1,139, and the Nasdaq Composite gained 34 points (1.5%) to 2,326. In modest volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares were traded on the Nasdaq. Crude oil was $1.29 higher at $81.50 per barrel, wholesale gasoline rose $0.04 to $2.27 per gallon, and the Bloomberg gold spot price dipped $0.14 to $1,132.06 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-was down 0.1% to 80.45. For the week, the DJIA rose 2.3%, the S&P 500 Index advanced by 3.1%, and the Nasdaq Composite gained 3.9%.

Marvell Technology (MRVL $20) reported adjusted 4Q EPS of $0.40, higher than the forecast the company gave in December of a range of $0.33-0.39 per share and analyst estimates of $0.37 per share. Revenues came in at $842.5 million, within the range the company forecast of $820-850 million, and near the analyst average of $842.8 million. The semiconductor company, whose products include processors for the BlackBerry phone, said that they are pleased with their progress, but mindful of the challenging economic environment they operate in, focusing on aspects of the business they can control and influence. On a conference call with analysts, MRVL said it expected 1Q EPS ex-items to be in a range of $0.30-0.40, compared to the Street's forecasts of $0.32. Shares finished higher in choppy trading.

Apple Inc (AAPL $219) moved solidly higher after it announced that the iPad would be available in the US on April 3 and pre-orders for the product will start on March 12. The iPad will be available in 9 other countries in late April. The prices for the device range between $499-829 depending on the hard drive size and whether the model has 3G capability, which will be available in late April.

Southwest Airlines Co (LUV $13) said that traffic fell in February by 2.3% from a year earlier, the first time since last June, but because the carrier has decreased capacity, the load factor - the percentage of seats filled - rose to 73.9% from 69.1%. Meanwhile, the RASM, or revenue per available seat mile, rose by 17% in February, accelerating from the 14-15% estimate for January, and was the highest since LUV returned to positive figures in August. Shares were modestly higher.

Fewer jobs lost than anticipated

Nonfarm payrolls fell by 36,000 jobs in February, compared to the Bloomberg estimate, which called for a 68,000 decrease in jobs, while January was revised lower to a loss of 26,000 from the initial decline of 20,000 and December's figure was positively revised to a decrease of 109,000 from the initial report of a loss of 150,000. The unemployment rate remained at 9.7%, while expectations were that the rate would increase to 9.8%. Average hourly earnings rose 0.1%, slightly below the Street's forecast of a 0.2% increase, while average weekly hours fell to 33.8 from 33.9, compared to the forecast calling for it to decline to 33.7. Losses were largest in construction, at 64,000, while temporary services added 48,000, and manufacturing and retail were nearly flat. Government payrolls fell by 18,000, as Census hiring of 15,000 was offset by declines in the number of postal workers and losses at the local level.

Job losses were smaller than expected and it was anticipated that snowstorms would affect payrolls to the downside, with the survey being conducted during the week that included the 12th of the month, but the Labor Department said "Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures."

Underlying components of this month's report were less positive than last month, as number of involuntary part-time workers (workers who want full-time work, but are working part-time) rose 475,000 on a seasonally adjusted basis, offsetting half of the improvement seen last month, and the number of discouraged workers, persons not seeking work because they believe no jobs are available, increased to 1.2 million.

The tepid move in markets and desynchronized nature of economic data this week ahead of the report indicate that traders are uncertain about the next move in the market and economy. Manufacturing has played a part in the overall recovery, which continues as illustrated by a 10th straight monthly improvement in the Index of Leading Economic Indicators (LEI), with January's 9% year-over-year increase posting the largest annual increase since April 2004. Following the recent market pullback, sentiment corrected quickly and is now positioned for a renewed market uptrend.

Late in the day on Friday, a report from the Federal Reserve showed that US borrowers increased consumer credit in January for the first time in a year, rising by $5 billion, following a larger-than-previously reported $4.6 billion drop in December and compared to the $4.5 billion drop that economists expected. Within the report, revolving debt, such as credit cards, fell $1.7 billion, while debt such as auto and mobile-home loans rose by $6.6 billion. The Fed’s report doesn't cover lending secured by residential real estate.

Treasuries remained lower after extending losses following the labor report. The yield on the 2-year note was up 4 bp to 0.89%, while the yields on the 10-year note and the 30-year bond increased 8 bp to 3.68% and 4.64%, respectively.

Greece nears meeting with German officials, China reaffirms growth and policy stance

Concerns continued to ease toward Greece's deficit problems after Thursday's Greek bond deal saw demand outpacing the size of the offering by nearly three times, indicating that investors are willing to buy the debt, quelling fears of the ability of the nation to raise funds. Also, the Greek Parliament passed the additional 4.8 billion euros ($6.5 billion), or 2% of GDP, austerity package discussed this week. Greek Prime Minister Papandreou and German Chancellor Merkel are set to meet in Berlin on Friday, and ahead of the meeting, Merkel said "we should stand helpfully by Greece's side, and not encourage complications," while adding that Greece has "grabbed the bull by the horns" with the additional deficit reduction cuts this week and that the bond issue yesterday gives "cause for optimism." Papandreou today said that Greece is "not looking for money" from Merkel, adding "What we need is the support of the EU" to borrow at more favorable conditions should financial markets confidence in the nation wane.

In euro-zone economic news, German factory orders surged in January, more than offsetting the prior month's decline, after orders increased 4.3% month-over-month and 19.6% year-over-year, better than expectations of 1.3% and 15.4%, respectively. In the UK, producer prices rose in February from a year earlier by the most since December 2008, at 4.1%, on higher gas and food prices.

In Asia, at China's annual legislative meeting, Chinese Premier Wen opened the 10-day National People's Congress meeting by affirming a target of 8% growth, which has been set and exceeded for each of the last five years, along with 3% inflation and a "basically stable" currency. Wen said- in a speech equivalent to the US State of the Union address-that moderately loose monetary policy and proactive fiscal stance will continue, adding that the government "must not interpret the economic turnaround as a fundamental improvement in the economic situation." Wen reiterated pledges to crack down on housing speculation, land hoarding and excessive property price gains in some cities by using taxes and credit policies, saying "latent risks in the banking and public-finance sectors are increasing."

Bulls led by multiple reins

The US equity markets posted solid gains this past week, as several pieces of data from multiple fronts gave the bulls reason to be optimistic that the US economy continues down the recovery path. However, concerns about euro-area debt problems-which were soothed somewhat by Greece's austerity actions to pare its deficit and a favorable bond auction-along with uncertainty regarding what Friday's US labor would reveal promoted cautious trading among investors throughout the week, leading to some less-than-stellar action despite what the plethora of data suggested.

M&A activity continued, headlined by UK insurer Prudential Plc's (PUK $16) $35.5 billion agreement to acquire American International Group's (AIG $28) Asian life-insurance unit, as the bailed out US firm attempts to pay back the government, continuing the recent uptick of corporate dealmaking to suggest optimism is returning to the corporate sector, which could foreshadow better employment conditions down the road. Meanwhile, both the ISM Manufacturing and Non-Manufacturing Indexes remained at levels depicting expansion, with the non-manufacturing gauge-a more domestically driven measure of business activity-showing its employment component moved closer to piercing though to expansion as it reached the highest level since April 2008, adding to the week's optimism that labor conditions are relatively improving, along with a larger-than-expected drop in weekly initial jobless claims, which stopped a recent upswing in claims. The bulls also received support from US same-store sales reports from the nation's retailers that were largely better than expected.

However, there were some mixed signals on the economic front that exacerbated the aforementioned caution, with personal incomes rising by a smaller amount than expected but personal spending exceeded economists' forecasts, while even though nonfarm productivity was revised solidly higher, it suggested that despite being positive for corporate profits, it could mean companies are holding off on hiring. Finally, the reaction to the Fed's Beige Book was tepid even as the report that Fed policy makers use to asses monetary policy showed conditions improved modestly across a broader geographic region.

Measure of consumer spending on tap

Advance retail sales for February will be released next Friday, forecasted to fall 0.2% month-over-month (m/m), after growing 0.5% in January, while sales ex-autos are estimated to increase 0.1%, on the heels of a rise of 0.6% in January. On a month-to-month basis the data can be volatile, but on a 3-month basis, retail sales comparisons have been positive since July.

Consumer confidence remains near a record low, as consumers face the headwinds of repairing net worth from stock and home price declines, while continuing to hold elevated levels of debt amidst a tough employment environment. Consumers responded to the crisis by stopping in their tracks, postponing spending while letting their savings rates increase. However, uncertainty has subsided, and while sentiment remains tenuous, consumers have been resilient, adjusting to the new environment by changing their behavior from "shop until you drop" to bargain hunting. Retailers have adjusted too, by reducing inventory levels and product offerings to meet changing consumer tastes.

Other releases on the US economic agenda next week include the MBA Mortgage Application Index, wholesale inventories, the trade balance, initial jobless claims, business inventories and the University of Michigan consumer sentiment survey.

The international economic calendar in Europe includes euro-zone and German industrial production, German consumer and wholesale prices, Italian 4Q GDP, and UK industrial and manufacturing production. In the Americas, Canada is scheduled to report housing starts and prices, as well as employment, while Brazil is set to announce retail sales and 4Q GDP.

In Asia/Pacific, Japan is scheduled to announce machine tool orders, the leading index, bank lending, final 4Q GDP, as well as industrial production and capacity utilization. Australia will report consumer and business confidence and the employment change. Elsewhere, China will be announcing housing prices, money supply, new loans, the trade balance, CPI and PPI, retail sales, and industrial production. Markets will continue to monitor any news out of the Chinese National People's Congress meeting, the annual legislative planning session.