Equity markets snapped a three-day winning streak as a better-than-expected non-farm payrolls report could not offset more disappointing news out of Europe. Debt crisis fears were exacerbated by Fitch cutting their ratings on Spanish and Italian debt. While in the US, excluding the payroll report, releases from the economic calendar added to the market’s weakness with wholesale inventories failing to meet economists expectations and consumer credit suffering its worst decline in a year. In equity news, Sprint and Clearwire were sharply lower after Sprint announced plans to raise capital and not use Clearwire for its next generation network. Illumnina also sold-off sharply after providing a disappointing estimate for 3Q revenues. Despite the negative news, Treasuries finished lower ahead of a long weekend for the US bond market, which will be closed on Monday in observation of Columbus Day.
The Dow Jones Industrial Average dropped 20 points (0.2%) to 11,103, the S&P 500 Index fell 10 points (0.8%) to 1,155, and the Nasdaq Composite declined 27 points (1.1%) to 2,479. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil picked up $0.25 to $82.84 per barrel, wholesale gasoline fell $0.04 to $2.64 per gallon, and the Bloomberg gold spot price declined $12.91 to $1,638.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was nearly unchanged at 78.72. For the week, including dividends, the DJIA was up 1.7%, the S&P 500 Index rose 2.1%, and the Nasdaq Composite gained 2.7%.
Shares of Sprint Nextel Corp. (S $2) gave up early gains and finished solidly lower after the company’s chief financial officer suggested at an investor meeting that it may need to raise capital, as it also announced that it plans to launch its 4G network by midyear 2012. Early gains came from the telecom service provider noting that its users of Apple Inc’s (AAPL $371) iPhone will be among the company’s most profitable. Also, CNBC reported that the company’s CEO Dan Hesse said the device will be “huge” for its cash flow. Sprint will begin selling the iPhone for the first time this month.
In a related story, the stock of Clearwire Corp. (CLWR $1) lost nearly a third of its value after Sprint announced it will not be using networks offered by Clearwire for its 4G endeavor, opting instead to use technology that is becoming the industry standard.
Illumina Inc . (ILMN $27) closed down over 30% after the life science tool maker estimated 3Q revenues of about $235 million, below the $276 million consensus estimate of analysts surveyed by Reuters. The company said its revenues were negatively impacted by an “unprecedented slowdown” in purchasing due to continued uncertainty surrounding the levels of research funding in the US and Europe and overall economic conditions, as well as temporary excess capacity in the market. ILMN also suspended its guidance for the full year.
Nonfarm payrolls top forecasts, but wholesale inventories and consumer credit disappoint
Nonfarm payrolls rose by 103,000 month-over-month (m/m) in September, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 60,000 increase. Prior months were also revised higher, with August’s initial flat reading revised to an increase of 57,000 jobs, and July’s prior 85,000 gain was adjusted to a rise of 127,000. Additionally, excluding government hiring and firing, private sector payrolls increased by 137,000 in September, versus the forecast of a gain of 90,000, after expanding by an upwardly adjusted 42,000—from an initially reported 17,000 gain—in August. The unemployment rate remained at 9.1%, matching expectations. Additionally, average hourly earnings were also inline with forecasts, rising 0.2% m/m but August’s 0.1% decline was revised to a decrease of 0.2%, while average weekly hours unexpectedly rose to 34.3, from 34.2 in the previous month, where economists expected it to remain.
The report was positively impacted by a return of striking Verizon workers, which had lowered payrolls by 45,000 in August. Other job gains came as temporary help increased by 48,000, retail trade added 13,600 jobs, and construction grew by 26,000. Another positive aspect included a gain in worker’s incomes as both hourly earnings and the workweek rose. Lastly, the unemployment rate remained unchanged despite a gain in the labor force. On the negative side of the ledger, jobs in manufacturing fell by 13,000 and government lost 34,000. Additionally, the broader definition of unemployment, which includes people working part-time for economic reasons, rose to 16.5% from 16.2% in August.
Meanwhile, wholesale inventories rose 0.4% month-over-month (m/m) in August, compared to the 0.6% increase that was forecasted by economists, and July’s 0.8% gain was left unrevised. Durable goods inventories rose 1.1% m/m, led by auto-related goods, as well as electrical and electronic stockpiles, while inventories of nondurable goods were down 0.6%, on declining inventories of paper and petroleum. Meanwhile, sales rose 1.0% m/m on a 2.3% increase in durable goods, while nondurable goods declined 0.1%. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at a downwardly revised 1.16 months for August.
After rising by $12.0 billion in July, consumer credit was forecasted to increase by $8.0 billion in August, but unexpectedly fell $9.5 billion. The decrease is the largest drop in consumer credit in over a year and non-revolving credit suffered its most drastic downturn in over three years.
Treasuries finished lower, with the yield on the 2-year note up 2 bp to 0.29%, the yield on the 10-year note 8 bps higher at 2.07%, and the yield on the 30-year bond advancing 6 bps to 3.01%.
Eurozone issues remain the focal point overseas
Uncertainty about a Greek debt default reemerged as France and Germany appear to be at odds regarding the future for the troubled nation ahead of a meeting in two days and a final decision on Greece’s next installment of bailout aid has yet to be determined. Also weighing on sentiment, Fitch cut its ratings on Italy and Spain, due to their high levels of debt as well as their exposure to the eurozone debt crisis. Moody’s Investors Service downgraded 12 U.K. banks, including Royal Bank of Scotland Group Plc. (RBS $7) and Lloyds Banking Group Plc. (LYG $2), due to a lesser probability of government support for the financial institutions. In European economic news, German industrial production fell 1.0% m/m in August, after rising a downwardly revised 3.9% in July, but compared to the 2.0% drop that economists had projected. UK producer prices came in hotter than expected for September and the French trade deficit narrowed more than anticipated in August.
In Asian economic news, the Bank of Japan left its benchmark interest rate unchanged at 0.10%, as expected, and Japan’s Leading Index declined from 104.6 in July to 103.8 for August. A report from Taiwan showed the nation’s trade surplus narrowed more than expected as imports outpaced exports, but both came in stronger than expected for September.
US data and eurozone bank optimism fuel a solid advance
Coming off a dismal 3Q for the equity markets, stocks posted solid gains to kick off 4Q amid some favorable US economic data and some relatively eased concerns about the eurozone debt crisis. Growing fears of a return to a recession for the US economy were curbed somewhat as both the ISM Manufacturing and non-Manufacturing Indices remained in territory depicting expansion—with the former surprisingly accelerating—construction spending rose unexpectedly, jobless claims rose less than forecasted—after complications with seasonal adjustments—and September retail sales mostly bested projections. However, the bulk of the week’s support came from across the pond amid reports that suggested eurozone leaders may be moving closer to some form of a coordinated effort to recapitalize the region’s liquidity-strapped banking sector. The equity front took a back seat to the focus on the macroeconomic picture, but next week, 3Q earnings season will begin, potentially adding another catalyst for the markets. Earnings and guidance will be closely watched as traders try to determine how the recent downshift in the economy will impact valuations going forward.
Focus to shift as earnings season begins
The US economic calendar will be less active next week, with the major releases including of Friday’s advance retail sales, forecasted to rise 0.6% month-over-month (m/m) in September, after a flat performance in August, while sales ex-autos and ex-autos and gas are both expected to increase 0.3%. Same-store sales results for September from the nation’s retailers reported this week were generally better than expected, while the retail sales report includes spending at supermarkets and gas stations. The other major US release next week will be Wednesday’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. The Fed noted “significant” downside risks to the economy at the last meeting, and began “Operation Twist,” wherein it will reduce its holdings of shorter-term securities and buy longer-term securities.
Other US releases next week include MBA mortgage applications, the trade balance, initial jobless claims, import prices, business inventories and the preliminary University of Michigan Consumer Sentiment Index reading for October. The US bond market will be closed on Monday in observance of the Columbus Day holiday. Other reports in the Americas include Canada’s housing starts and prices, as well as manufacturing sales, Brazil’s retail sales, and Mexico’s industrial and vehicle production.
Other international releases include euro-zone industrial production, CPI and trade balance, UK housing prices, industrial and manufacturing production, Japan’s machine orders, Australia’s business and consumer confidence, as well as employment. China will release new yuan loans, money supply, trade data for September, PPI and CPI. The central banks of South Korea and Mexico will meet and the Bank of Japan will release the minutes from its latest meeting.
The Dow Jones Industrial Average dropped 20 points (0.2%) to 11,103, the S&P 500 Index fell 10 points (0.8%) to 1,155, and the Nasdaq Composite declined 27 points (1.1%) to 2,479. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil picked up $0.25 to $82.84 per barrel, wholesale gasoline fell $0.04 to $2.64 per gallon, and the Bloomberg gold spot price declined $12.91 to $1,638.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was nearly unchanged at 78.72. For the week, including dividends, the DJIA was up 1.7%, the S&P 500 Index rose 2.1%, and the Nasdaq Composite gained 2.7%.
Shares of Sprint Nextel Corp. (S $2) gave up early gains and finished solidly lower after the company’s chief financial officer suggested at an investor meeting that it may need to raise capital, as it also announced that it plans to launch its 4G network by midyear 2012. Early gains came from the telecom service provider noting that its users of Apple Inc’s (AAPL $371) iPhone will be among the company’s most profitable. Also, CNBC reported that the company’s CEO Dan Hesse said the device will be “huge” for its cash flow. Sprint will begin selling the iPhone for the first time this month.
In a related story, the stock of Clearwire Corp. (CLWR $1) lost nearly a third of its value after Sprint announced it will not be using networks offered by Clearwire for its 4G endeavor, opting instead to use technology that is becoming the industry standard.
Illumina Inc . (ILMN $27) closed down over 30% after the life science tool maker estimated 3Q revenues of about $235 million, below the $276 million consensus estimate of analysts surveyed by Reuters. The company said its revenues were negatively impacted by an “unprecedented slowdown” in purchasing due to continued uncertainty surrounding the levels of research funding in the US and Europe and overall economic conditions, as well as temporary excess capacity in the market. ILMN also suspended its guidance for the full year.
Nonfarm payrolls top forecasts, but wholesale inventories and consumer credit disappoint
Nonfarm payrolls rose by 103,000 month-over-month (m/m) in September, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 60,000 increase. Prior months were also revised higher, with August’s initial flat reading revised to an increase of 57,000 jobs, and July’s prior 85,000 gain was adjusted to a rise of 127,000. Additionally, excluding government hiring and firing, private sector payrolls increased by 137,000 in September, versus the forecast of a gain of 90,000, after expanding by an upwardly adjusted 42,000—from an initially reported 17,000 gain—in August. The unemployment rate remained at 9.1%, matching expectations. Additionally, average hourly earnings were also inline with forecasts, rising 0.2% m/m but August’s 0.1% decline was revised to a decrease of 0.2%, while average weekly hours unexpectedly rose to 34.3, from 34.2 in the previous month, where economists expected it to remain.
The report was positively impacted by a return of striking Verizon workers, which had lowered payrolls by 45,000 in August. Other job gains came as temporary help increased by 48,000, retail trade added 13,600 jobs, and construction grew by 26,000. Another positive aspect included a gain in worker’s incomes as both hourly earnings and the workweek rose. Lastly, the unemployment rate remained unchanged despite a gain in the labor force. On the negative side of the ledger, jobs in manufacturing fell by 13,000 and government lost 34,000. Additionally, the broader definition of unemployment, which includes people working part-time for economic reasons, rose to 16.5% from 16.2% in August.
Meanwhile, wholesale inventories rose 0.4% month-over-month (m/m) in August, compared to the 0.6% increase that was forecasted by economists, and July’s 0.8% gain was left unrevised. Durable goods inventories rose 1.1% m/m, led by auto-related goods, as well as electrical and electronic stockpiles, while inventories of nondurable goods were down 0.6%, on declining inventories of paper and petroleum. Meanwhile, sales rose 1.0% m/m on a 2.3% increase in durable goods, while nondurable goods declined 0.1%. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at a downwardly revised 1.16 months for August.
After rising by $12.0 billion in July, consumer credit was forecasted to increase by $8.0 billion in August, but unexpectedly fell $9.5 billion. The decrease is the largest drop in consumer credit in over a year and non-revolving credit suffered its most drastic downturn in over three years.
Treasuries finished lower, with the yield on the 2-year note up 2 bp to 0.29%, the yield on the 10-year note 8 bps higher at 2.07%, and the yield on the 30-year bond advancing 6 bps to 3.01%.
Eurozone issues remain the focal point overseas
Uncertainty about a Greek debt default reemerged as France and Germany appear to be at odds regarding the future for the troubled nation ahead of a meeting in two days and a final decision on Greece’s next installment of bailout aid has yet to be determined. Also weighing on sentiment, Fitch cut its ratings on Italy and Spain, due to their high levels of debt as well as their exposure to the eurozone debt crisis. Moody’s Investors Service downgraded 12 U.K. banks, including Royal Bank of Scotland Group Plc. (RBS $7) and Lloyds Banking Group Plc. (LYG $2), due to a lesser probability of government support for the financial institutions. In European economic news, German industrial production fell 1.0% m/m in August, after rising a downwardly revised 3.9% in July, but compared to the 2.0% drop that economists had projected. UK producer prices came in hotter than expected for September and the French trade deficit narrowed more than anticipated in August.
In Asian economic news, the Bank of Japan left its benchmark interest rate unchanged at 0.10%, as expected, and Japan’s Leading Index declined from 104.6 in July to 103.8 for August. A report from Taiwan showed the nation’s trade surplus narrowed more than expected as imports outpaced exports, but both came in stronger than expected for September.
US data and eurozone bank optimism fuel a solid advance
Coming off a dismal 3Q for the equity markets, stocks posted solid gains to kick off 4Q amid some favorable US economic data and some relatively eased concerns about the eurozone debt crisis. Growing fears of a return to a recession for the US economy were curbed somewhat as both the ISM Manufacturing and non-Manufacturing Indices remained in territory depicting expansion—with the former surprisingly accelerating—construction spending rose unexpectedly, jobless claims rose less than forecasted—after complications with seasonal adjustments—and September retail sales mostly bested projections. However, the bulk of the week’s support came from across the pond amid reports that suggested eurozone leaders may be moving closer to some form of a coordinated effort to recapitalize the region’s liquidity-strapped banking sector. The equity front took a back seat to the focus on the macroeconomic picture, but next week, 3Q earnings season will begin, potentially adding another catalyst for the markets. Earnings and guidance will be closely watched as traders try to determine how the recent downshift in the economy will impact valuations going forward.
Focus to shift as earnings season begins
The US economic calendar will be less active next week, with the major releases including of Friday’s advance retail sales, forecasted to rise 0.6% month-over-month (m/m) in September, after a flat performance in August, while sales ex-autos and ex-autos and gas are both expected to increase 0.3%. Same-store sales results for September from the nation’s retailers reported this week were generally better than expected, while the retail sales report includes spending at supermarkets and gas stations. The other major US release next week will be Wednesday’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. The Fed noted “significant” downside risks to the economy at the last meeting, and began “Operation Twist,” wherein it will reduce its holdings of shorter-term securities and buy longer-term securities.
Other US releases next week include MBA mortgage applications, the trade balance, initial jobless claims, import prices, business inventories and the preliminary University of Michigan Consumer Sentiment Index reading for October. The US bond market will be closed on Monday in observance of the Columbus Day holiday. Other reports in the Americas include Canada’s housing starts and prices, as well as manufacturing sales, Brazil’s retail sales, and Mexico’s industrial and vehicle production.
Other international releases include euro-zone industrial production, CPI and trade balance, UK housing prices, industrial and manufacturing production, Japan’s machine orders, Australia’s business and consumer confidence, as well as employment. China will release new yuan loans, money supply, trade data for September, PPI and CPI. The central banks of South Korea and Mexico will meet and the Bank of Japan will release the minutes from its latest meeting.
No comments:
Post a Comment