NOVICE

Labor Shock May Accentuate Risk Aversion

The major U.S. index futures are pointing to a sharply lower opening on Friday, with the anemic job numbers likely to take wind out of the sails of the market. The global macroeconomic scenario is scary, with Chinese growth poised for a hard landing and the eurozone strangulated by a debt crisis that is threatening the very existence of the monetary union. Added to that, the domestic economic growth is flailing- a perfect scenario for an exodus into safe havens. The equity market is likely to retreat sharply and the Dow could see a pullback to the region around 12,170. Further support levels are around 12,028 and 11,926.

U.S. stocks retreated modestly on Thursday amid the release of some lackluster domestic economic reports. After opening on a nervous note, the major averages declined sharply in the morning. Thereafter, the major averages pared their losses but continued to show a lack of direction amid lackluster sentiment before closing lower.

The Dow Industrials fell 26.41 points or 0.21 percent before closing at 12,394, the S&P 500 Index ended down 2.99 points or 0.23 percent at 1,310 and the Nasdaq Composite closed at 2,827, down 10.02 points or 0.35 percent at 2,827

Sixteen of the thirty Dow components closed lower, with Caterpillar (CAT), Intel (INTC) and Exxon Mobil (XOM) leading the slide. On the other hand, Bank of America (BAC), Disney (DIS), Travelers Co. (TRV) and AT&T (T) showed strength.

Basic material, oil service and semiconductor stocks came under selling pressure, while transportation and financial stocks advanced.

Currency, Commodity Markets

Crude oil futures are slipping $2.98 to $83.55 a barrel after declining $1.29 to $86.53 a barrel on Thursday. 

The previous session’s decline came amid risk aversion in the wake of the soft economic data and the release of the weekly oil inventory report, which showed that crude oil stockpiles rose by 2.20 million barrels to 384.70 million barrels in the week ended May 25th. Meanwhile, gasoline stockpiles fell by 800,000 barrels 

Gold futures, which fell $1.50 to $1,564.20 an ounce in the previous session, are currently adding $21.20 to $1,585.40 an ounce.

Among currencies, the U.S. dollar is trading at 78.24 yen compared to the 78.31 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2337 compared to yesterday’s $1.2369.

Asia

Asian stocks came under selling pressure, although the Chinese markets bucked the downtrend with a marginal gain. The negative lead from Wall Street overnight and insipid Chinese manufacturing data kept sentiment subdued for the third straight session.

The final HSBC manufacturing purchasing managers index showed considerable divergence with the official PMI numbers, with the index falling to 48.4 in May from 49.3 in April, indicating the seventh successive month of deteriorating operating conditions in the manufacturing sector.

Japan’s Nikkei 225 average languished below the unchanged line throughout the session before closing at 8,441, down 102.58 points or 1.20 percent. The yen’s strength triggered selling in export stocks. 

Australia’s All Ordinaries ended down 16.80 points or 0.41 percent at 4,117, with mining stocks serving as a drag. Hong Kong’s Hang Seng Index retreated 71.18 points or 0.38 percent to close at 18,558.

Europe

The European markets are also retreating sharply, with weakness intensifying following the release of the U.S. jobs data.

On the economic front, a report released by Eurostat showed that the eurozone’s jobless rate came in at 11 percent in April, in line with estimates. 

Final estimates released by Markit Economics confirmed the deterioration in the eurozone’s manufacturing activity in May. The revised purchasing managers’ index came in at 45.1 in May compared to 45.9 in April and the flash estimate of 45.

U.S. Economic Reports 

Individual automakers are scheduled to release their monthly U.S. sales results for April. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 14.5 million for May, up 14.4 million last month.

While the Commerce Department released a report showing that U.S. personal income rose by a little less than expected in the month of April, personal spending for the month still increased in line with estimates. 

The report showed that personal income edged up by 0.2 percent in April following a 0.4 percent increase in March. Economists had expected income to increase by about 0.3 percent. Meanwhile, the Commerce Department said personal spending rose by 0.3 percent in April after climbing by 0.2 percent in March. The increase matched the expectations of economists. 

Job growth in the U.S. came in at an anemic rate in May sending the unemployment rate up slightly for the month, according to figures released Friday by the Labor Department. The economy added a net of just 69,000 new jobs in May, far lower than the 150,000 expected by most economists.Furthermore, the already week job creation numbers posted for April were revised down sharply to show a gain of just 77,000 positions, 38,000 fewer than the 115,000 initially reported.

At the same time, the unemployment rate ticked up to 8.2 percent in May from the 8.1 percent reported in April, a disappointing figure to economists who had predicted that the rate would hold level. 

Department of Labor officials said that an increase in the labor force, along with the slow rate of job creation, played a role in the slight increase in unemployment.

The results of the Institute for Supply Management’s manufacturing survey, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 54.0 for May.

In April, the manufacturing purchasing managers' index rose 1.4 points to 54.8. The new orders index rose by 3.7 points to 54.8 and the production index climbed by 2.7 points to 61. The employment index also improved, rising by 1.2 points to 57.3. Meanwhile, the order backlogs index fell 3 points to 49.5.

The Commerce Department's construction spending report is scheduled to be released at 10 am ET and is expected to show a 0.4percent increase in April.

U.S. construction spending edged up 0.1 percent month-over-month in March. Private construction spending climbed 0.7 percent, offsetting a 1.1 percent decline in public construction spending. Among private construction, residential construction spending by 0.7 percent.

Stocks in Focus

Sara Lee (SLE) announced that its board has unanimously approved the separation of its international Coffee & Tea business from Sara Lee Corp. The board also approved a 1-for-5 reverse stock split of its stock, effective immediately after the separation. 

Schlumberger (SLB) announced the completion of the sale of its Wilson distribution business to National Oilwell Varco (NOV). Schlumberger also said it committed to divest the remaining portion of its distribution business by agreeing to support National Oilwell’s previously announced acquisition of CE Franklin for C$12.75 in cash per share.

Esterline (ESL) reported second quarter earnings of $1.44 per share, including discrete items that benefited earnings by 15 cents per share, on sales of $504.8 million. The earnings were in line, while revenues were shy of estimates. The company also provided updated full year earnings guidance of $5.10-$5.25 per share compared to its earlier guidance of $5.10-$5.40 per share. 

Verizon Communications (VZ) agreed to buy Hughes Telematics for $12.00 per share in cash, or a total of $612 million.

vir: http://www.rttnews.com/