Morning Market Update

Modest Direction as Jobs Report Fails to Ignite Conviction

The US equity markets are nearly unchanged in early action, as traders digest a mixed US nonfarm payrolls report, which showed the unemployment rate and the drop in jobs were better-than-expected, while private sector job growth and average hourly earnings were below expectations. Treasuries are modestly higher in reaction to the labor data and ahead of May’s factory orders. Equity news is light, with Google acquiring ITA Software Inc, and AutoNation posting a rise in June vehicle sales. Overseas, Asia was mixed in a muted reaction to the conclusion of the Australian mining tax, while Europe is trading higher.

As of 8:45 a.m. ET, the September S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is at fair value, while the DJIA is 5 points below fair value. Crude oil is down $0.48 at $72.47 per barrel, and the Bloomberg gold spot price is up $5.45 at $1,204.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 84.26.

In M&A news, Google Inc. (GOOG $439) announced that it has signed a definitive agreement to acquire privately-held flight information software firm ITA Software Inc. for $700 million in cash. GOOG’s CEO said ITA has created an impressive product to organize flight information, and their technology opens up exciting possibilities for it to create new ways for users to more easily find flight information online.

AutoNation Inc. (AN $19) reported that its new vehicle sales in June rose 13% year-over-year (y/y), with sales of domestic and premium luxury cars increasing 23% and 25%, respectively, while import segment sales rose 4%.

Jobs fall by smaller amount than expected, unemployment rate unexpectedly drops

Nonfarm payrolls fell by 125,000 jobs in June, less than the consensus estimate of economists surveyed by Bloomberg, which called for a 130,000 decrease, and on a net combined basis, May’s and April’s readings were revised 25,000 higher. Meanwhile, excluding government hiring, private sector payrolls grew by 83,000, versus the forecast of a gain of 110,000, after expanding by a downwardly revised 33,000 in May. The unemployment rate fell to 9.5% from 9.7%, as the labor force dropped by 652,000 in the month, while the expectation was for it to come in at 9.8%. Average hourly earnings declined by 0.1% versus the Street's forecast of a 0.1% increase, and average weekly hours dipped to 34.1 from the 34.2 where economists expected for it to remain. Government payrolls fell as Census hiring dropped 225,000 temporary workers. Treasuries are modestly higher after the report.

Later this morning, the economic calendar will yield the release of factory orders for May, expected to decline by 0.5%, following the solid 1.2% gain that was seen in April.

Europe rebounding

Stocks in Europe are higher as issues, such as financials, are leading the way amid some potential bargain hunting in the areas that have been hit the hardest in the recent slide in the global equity markets. Meanwhile, oil and gas and basic materials issues, which are among the aforementioned sectors, are also pacing the advance after receiving some additional support from the conclusion of the hefty resource tax in Australia, which was agreed to be not as stern. Also, there are several economic reports across the pond that are garnering some attention.

The euro-zone unemployment rate came in at 10.0% for May, unchanged from the downwardly revised April figure, and compared to the 10.1% that economists had expected, while euro-area producer prices rose by an amount that was expected. Also, the Italian unemployment rate came in at 8.7% for May, compared to the 9.0% that was anticipated, after April’s rate was downwardly revised. In other economic news, the UK PMI Construction Index unexpectedly declined and separate reports in Spain showed industrial output was stronger than expected, and the number of unemployed workers in June fell by a larger amount than was anticipated.

The UK FTSE 100 Index is 1.1% higher, France’s CAC-40 Index is up 0.7%, Germany’s DAX Index is gaining 0.6%, Italy’s FTSE MIB Index is advancing 0.6%, and Spain’s IBEX 35 Index is rising 1.7%.

Asia mixed ahead of US jobs data

Stocks in Asia were mixed in lackluster trading as there was a lack of any major economic data and as traders gain their footing from yesterday’s steep losses in the region on the disappointing Chinese manufacturing data. The biggest story out of the region was the conclusion of negotiations regarding the hefty Australian mining industry tax, in which new Australian Prime Minister Julia Gillard and major mining firms came to agreement on a 30% tax for iron ore and coal and the levy on oil and gas remaining at 40%. The original proposal was for a 40% tax on profits of all resources. Moreover, the return on capital trigger point for the tax was raised as part of the agreement. The tax deal still needs to be passed by the Australian Parliament. However, stocks in Australia finished nearly unchanged on the agreement, with the S&P ASX/200 Index eking out a modest gain, as the resurfaced global recovery concerns kept sentiment in check. The only other piece off data that was worth mentioning included a jump in Hong Kong’s retail sales, which rose 19.7% year-over-year (y/y) in May, above the 17.3% that economists had expected. But the Hang Seng Index posted a 1.1% decline, as Hong Kong markets reopened after being closed for yesterday’s broad-based declines in the area on the aforementioned disappointing Chinese Manufacturing report.

Also, traders may have been treading with some caution ahead of the US labor report that was scheduled to be released after the closing bell in Asia. Elsewhere, Japan’s Nikkei 225 Index inched 0.1% higher, China’s Shanghai Composite Index rose 0.4%, and Taiwan’s Taiex Index posted a solid 1.1% advance, while South Korea’s Kospi Index fell 0.9% and India’s BSE Sensex 30 index declined 0.3%.