Morning Market Update

Stocks Pare Losses as Labor Data Preserves Stimulus Talk

The US equity markets are nearly unchanged in early action after paring losses following the US labor report, which showed more jobs were lost from nonfarm payrolls and fewer private sector jobs were added to payrolls, fostering the growing expectation of the possibility of further Fed stimulus efforts. Treasuries are higher in reaction to the jobs data, and ahead of a report on wholesale inventories. Meanwhile, Dow member Alcoa Inc’s better-than-forecasted earnings report unofficially kicked off 3Q profit season in favorable fashion. However, chipmaker Micron Technology Inc’s worse-than-expected report may be weighing on the tech sector. Overseas, Asia was mixed as stocks in mainland China played catch up after a week long holiday, while Japan found pressure from the continued strength in the yen. Elsewhere, European markets are mostly lower in afternoon action, but did pare some losses in reaction to the US employment data.

As of 8:55 a.m. ET, the December S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is at 3 points below value, while the DJIA is 21 points below fair value. Crude oil is down $0.96 at $80.71 per barrel, and the Bloomberg gold spot price is up $4.80 at $1,338.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 77.22.

Dow member Alcoa Inc. (AA $12) unofficially kicked off 3Q earnings season, posting profits ex-items of $0.09 per share, above the $0.05 consensus estimate of analysts surveyed by Reuters, with revenues increasing 15% year-over-year (y/y) to $5.3 billion, compared to the $5.0 billion that the Street was expecting. The aluminum producer said higher volumes in alumina, flat-rolled products, and engineered products and solutions partially offset the impact of lower metal prices and negative currency impacts. The company added that it is seeing markets strengthening and it has increased its 2010 global aluminum consumption forecast, aided by “more and more people” moving into the middle class in countries such as China, Brazil, India, and Russia, driving demand in building and construction, transportation, and packaging.

Micron Technology Inc. (MU $7) reported fiscal 4Q EPS of $0.32, below the $0.39 that analysts were anticipating, and although revenue almost doubled y/y to $2.5 billion, the figure came up short of the $2.7 billion that the Street was expecting. The chipmaker said DRAM—chips used in PCs and video-game consoles—revenue was down 14% quarter-over-quarter (q/q) due to a 12% decline in unit sales volume and a slight decrease in average selling prices, and revenue from its NAND flash—chips used in smartphones, MP3 players, and digital cameras—was 9% lower q/q due to a 7% decrease in sales volume and a slight decline in prices.

Private sector job growth smaller than expected, wholesale inventories on deck

Nonfarm payrolls fell by 95,000 jobs in September, more than the consensus estimate of economists surveyed by Bloomberg, which forecasted a 5,000 decline. Additionally, excluding government hiring and firing, private sector payrolls rose by 64,000, versus the forecast of a gain of 75,000, after expanding by an upwardly revised 93,000—from an initially reported 67,000 gain—in August. The unemployment rate remained at 9.6%, compared to expectations of a slight increase to 9.7%. Average hourly earnings were unchanged month-over-month (m/m) versus the Street's forecast of a 0.2% increase, and average weekly hours remained at 34.2, matching economists’ forecasts. Government payrolls dropped by 159,000 as Census employment fell by 77,000 temporary workers and state and local governments shed 76,000 jobs. Treasuries are higher, overcoming early losses following the report.

Later this morning, the economic calendar will yield the release of wholesale inventories, forecasted to increase by 0.5% in August, after a 1.3% gain in July.

Europe under pressure as financials lag

Stocks in Europe are under some pressure in afternoon action, with weakness in financials pressuring the equity markets across the pond, led by a solid decline in shares of Barclays Plc. (BCS $19) after Abu Dhabi’s ruling family hedged its entire stake in the UK bank, which involved selling a sizeable portion of its shares of the company. Meanwhile, the reaction to the US labor report helped trading in European markets as losses have been pared. In other equity news, shares of Actelion Ltd. (ALIOF $47) are sharply higher following a report from the Wall Street Journal suggesting that Switzerland’s largest biotech firm is reviewing strategic alternatives, including the a possible sale of the company. Actelion has not commented on the matter.

The European economic calendar has plenty of reports for traders to digest, highlighted by reports showing the trade balance in Germany—Europe’s largest economy—narrowed by a larger amount than expected, due to a bigger-than-forecasted drop in exports, and UK producer prices came in hotter-than-anticipated. Other reports included: French business sentiment improving, Sweden’s industrial production unexpectedly falling, and Switzerland’s unemployment rate falling surprisingly.

The UK FTSE 100 Index is 0.5% lower, France’s CAC-40 Index is down 0.2%, Germany’s DAX Index is declining 0.1%, and Switzerland’s Swiss Market Index is dropping 0.4%, while Sweden’s OMX Stockholm 30 Index is advancing 0.1%.

Asia mixed as mainland Chinese markets return to action

Stocks in Asia were mixed with Japan’s Nikkei 225 Index falling 1.0% amid caution ahead of today’s US jobs report and as the Japanese yen reached a new 15-year high versus the dollar to pressure export issues and sentiment about the Asian nation’s economy. Also, Japan’s trade surplus narrowed by a larger amount than economists forecasted for August, exacerbating the uneasiness regarding the impact of the surging yen on the overall Japanese economy. Meanwhile, the strength in the yen was noted by Seven & I Holdings Co. (SVNDY $50), which fell solidly after the operator of 7-Eleven convenience stores cut its sales forecast. In other Japanese equity news, shares of Panasonic Corp. (PC $14) moved nicely higher after it scrapped a plan to sell as much as 500 billion yen ($6.1 billion) in new shares.

In other action in Asia, China’s Shanghai Composite Index jumped 3.1% after returning from a week-long holiday as it was the first chance to react to the week’s developments in the region, highlighted by Tuesday’s unexpected monetary policy easing by the Bank of Japan. The Hong Kong Hang Seng Index rose 0.3%. However, South Korea’s Kospi Index and Australia’s S&P/ASX 200 Index both declined 0.2%, while Taiwan’s Taiex Index decreased 0.5%, amid the aforementioned light treading among traders ahead of the US labor report.