Morning Market Update

Labor Pains Erase Gains

The equity markets have relinquished an early advance and are moving to the downside following a much softer-than-expected US labor report, which showed the unemployment rate unexpectedly increased to 9.8% and private sector job growth come less than a third of what economists had expected. Treasuries gave up modest losses and moved higher in reaction to the jobs data, ahead of a key reading of US service-sector activity and factory orders. In equity news, VeriFone Systems Inc and Phillips-Van Heusen Corp both topped the Street’s earnings expectations. Overseas, Asia was mixed amid some profit taking, while the disappointing US labor data is pressuring European equities.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 13 points below fair value, while the DJIA is 48 points below fair value. Crude oil is $0.67 lower at $87.33 per barrel, and the Bloomberg gold spot price is up $13.38 at $1,398.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.8% at 79.64.

VeriFone Systems Inc. (PAY $37) reported fiscal 4Q EPS ex-items of $0.40, above the $0.36 consensus estimate of analysts surveyed by Bloomberg, with revenues jumping 27% year-over-year (y/y) to $276 million, topping the $263 million that the Street had expected. Also, the electronic payment equipment firm issued 1Q and full-year 2011 guidance that exceeded analysts’ forecasts.

Phillips-Van Heusen Corp. (PVH $71) reported 3Q EPS ex-items of $1.55, above the $1.43 that was anticipated by analysts, with revenues more than doubling y/y to $1.5 billion, compared to the $1.4 billion that was expected. The retailer raised its full-year outlook.

Labor report disappoints as unemployment rate increases and job growth is soft

Nonfarm payrolls rose by 39,000 jobs in November, well below the consensus estimate of economists surveyed by Bloomberg, which forecasted a 150,000 increase. Additionally, excluding government hiring and firing, private sector payrolls increased by 50,000, versus the forecast of a gain of 160,000, after expanding by a modest upwardly revised 160,000—from an initially reported 159,000 gain—in October. The unemployment rate rose from 9.6% to 9.8%, compared to expectations of the rate to remain unchanged. Average hourly earnings were flat month-over-month (m/m), versus the Street's forecast of a 0.2% increase, and average weekly hours remained at 34.3, as expected. Treasuries are higher after erasing modest losses on the employment data.

Later this morning, the economic calendar will yield the releases of the ISM Non-Manufacturing Index, forecasted to increase from 54.3 in October to 54.8 in November, and factory orders, which are expected to drop 1.2% in October, after rising 2.1% in September.

US jobs data pressures Europe

After posting two-straight sessions of strong upward moves on upbeat US data and relatively eased euro-area debt concerns, the equity markets in Europe have turned lower in afternoon action, courtesy of today’s disappointing US labor report. Meanwhile, financials, which have led the aforementioned rally, are leading the decline across the pond as traders grapple with the US employment report and whether the European Central Bank will provide further support to help combat the region’s sovereign debt crisis. Although the ECB disappointed the markets yesterday when it did not announce an expansion of its current government debt purchase program after its monetary policy meeting, stocks received a boost from reports that the central bank was more aggressively buying government debt of Portugal and Ireland. However, technology shares are posting solid gains, led by a sizeable advance in shares of STMicroelectronics NV (STM $9) as the region’s largest semiconductor maker, per Bloomberg, was on the receiving end of a recommendation from BNP Paribas.

Elsewhere, the European economic calendar is painting a mixed picture with service-sector activity reports on the euro-zone, Italy, and Germany—Europe’s largest economy—all exceeding economists’ expectations, being met with lower-than-anticipated service-sector readings from the UK and France. Moreover, euro-zone retail sales rose more than forecasted, but Spain’s industrial output fell and a separate reading showed the nation’s service sector, although improving, remained at a level depicting contraction.

The UK FTSE 100 Index is down 0.6%, France’s CAC-40 Index is 0.3% lower, Germany’s DAX Index is declining 0.5%, Italy’s FTSE MIB Index is decreasing 0.4%, Spain’s IBEX 35 Index is falling 0.3%, and Ireland’s Irish Overall Index is dropping 0.6%, while Portugal’s PSI 20 Index is gaining 0.4%.

Asia mixed ahead of US jobs data

Stocks in Asia were mixed to close out the week with traders booking some profits following yesterday’s broad-based gains, while awaiting the results of the US labor report. Japan’s Nikkei 225 Index inched 0.1% to the upside after touching a six-month high during today’s session, as profit harvesting and a solid drop in shares of Fast Retailing Co. (FRCOY $16) limited the advance in Japan. The largest clothing retailer in Asia, per Bloomberg, posted a double-digit drop in sales at its Uniqlo stores, marking the fourth-consecutive monthly drop in sales at the retail chain. Meanwhile, the equity markets in China were tilted to the downside by continued uneasiness that the government will announce further measures to cool inflation, as well as a couple of reports showing expansion in the nation’s service-sector activity slowed in November. The Hong Kong Hang Seng Index declined 0.6% and the Shanghai Composite Index finished flat.

Elsewhere, Australia’s S&P/ASX 200 Index gained 0.4% on the optimism from yesterday’s global rally in the equity markets, with the mining sector leading the way, helping offset a decline in a gauge of the service-sector. Rounding out the day, South Korea’s Kospi Index gained 0.4%, while India’s BSE Sensex 30 Index declined 0.1% even after a service-sector report showed further expansion.