Jobs Data May Not Bode Well For Recovery - RTTNews Daily Market Analysis

(RTTNews) - The major U.S. index futures are pointing to a lower opening on Thursday, with the weakness intensifying following the release of the non-farm payroll employment report that showed bigger-than-expected job losses. The jobless rate only rose marginally. The weak data may exert pressure on oil, which does not bode well for the commodity space. That said, as a solace, the weekly jobless claims repot showed a decline in claims along the expected lines. At the same time, continuing claims also moved lower.

The impending reporting season is also likely to introduce some caution among traders. Given the three day-long-weekend coming ahead, trading volume action is likely to be light and any move during the session is unlikely to be significant enough to impact the market trend.

U.S. stocks went about another languid low volume session on Wednesday, as a lack of clarity on the economic outlook is increasing caution among traders. The major averages opened higher and moved sharply higher in early trading on an initial buying surge.

Thereafter, as traders digested mixed pieces of economic data, selling pressure set in, pulling the averages off their highs. The Dow Industrials ended up 57.06 points or 0.68% at 8,504, the S&P 500 Index rose 4.01 points or 0.44% to 923 and the Nasdaq Composite Index closed up 10.68 points or 0.58% at 1,846.

Twenty-six of the thirty Dow components ended the session higher, with consumer stocks such as Kraft Foods (KFT | Quote | Chart | News | PowerRating) (up 5.01%) and Coca-Cola (KO | Quote | Chart | News | PowerRating) (up 2.48%) leading the gains along with Intel (INTC | Quote | Chart | News | PowerRating), which was up 2.96%. On the other hand, American Express (AXP | Quote | Chart | News | PowerRating), Bank of America (BAC | Quote | Chart | News | PowerRating) and JP Morgan Chase (JPM | Quote | Chart | News | PowerRating) lost about 1% each.

The Dow Jones Transportation Average confirmed the Dow's upward move and rose 1.36%, the Dow Jones Utility Average climbed 1.07% and the NYSE Arca Airline Index ended up about 2%. The NYSE Arca Gold Bugs Index rallied 4.36%. In the technology space, the NYSE Arca Disk Drive Index advanced 1.70% and the NYSE Arca Networking Index climbed 1.67%. The NYSE Arca Biotechnology Index fell 1.42%.

On the economic front, the Institute for Supply Management said its index of manufacturing activity rose for the sixth straight month to 44.8 in June, up about 2 points from May. Economists had expected a reading of 44.6. The new orders index dipped 2 points to 49.2, dropping below the 50 mark once again, and the orders backlog index eased to 47.5. On the other hand, the production index rose 6.5 points to 52.5. On a positive note, the employment index climbed 6.4 points to 40.7.

The Commerce Department said construction spending declined 0.9% month-over-month in May, with private construction spending and public construction spending dropping 1% and 0.6%, respectively. Among private residential construction, spending on single-family construction declined for the 39th consecutive month, dropping 4.5% compared to a 9.6% drop in multi-family construction spending. At the same time, private non-residential construction rose 0.5%.

Pending home sales rose 0.1% month-over-month in May, according to a report released by the National Association of Realtors. The previous month's gain was revised up to 7.1% from the initially reported 6.7% increase.

Currency, Commodity Futures

Crude oil futures are trading down $1.18 at $68.13 a barrel after declining $0.58 to $69.31 a barrel on Wednesday, which saw the release of a mixed inventory report. The EIA said that crude oil stockpiles declined by 3.7 million barrels to 350.2 million barrels in the week ended June 26th. Inventories of crude oil remained above the upper end of the average range.

Gasoline inventories rose by 2.3 million barrels and were in the lower half of the average range, while distillate stockpiles climbed by 2.9 million barrels and were above the upper boundary of the average range. Refinery capacity utilization averaged 86.4% in the week ended June 26th compared to 86.3% in the previous week, although it is off significantly from 89.4% in the year-ago period.

There has been a pick up in the demand environment, with gasoline demand averaging 9.2 million barrels per day over the four-week period ended June 26th, up 0.9% from the same period last year. Distillate fuel demand was still week, falling 9.4% in the same period.

Gold futures, which rose $13.90 to $941.30 an ounce yesterday, are currently slipping $9.30 to $932 an ounce.

On the currency front, the U.S. dollar is trading at 96.33 yen compared to the 96.655 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is currently valued at $1.4046 versus yesterday's $1.4142.

Asia

The major Asian markets closed Thursday's session mostly lower, with Hong Kong's Hang Seng Index and the Singaporean Straits Times leading the slide with over 1% decline. On the other hand, the Taiwanese Weighted Average, India's Sensex and Indonesia's Jakarta Composite Index closed higher.

Europe

The major European averages are moving to the downside on Thursday, with the French CAC 40 Index and the German DAX Index receding 0.68% and 1.84%, respectively, while the U.K.'s FTSE 100 Index is moving down 1.54%.

On the economic front, the eurozone's jobless rate came in at a seasonally adjusted 9.5% in May, up from a revised 9.3% in the preceding month, a report from Eurostat showed Thursday. Economists expected the rate to be 9.4%. This was the highest rate since May 1999. A year earlier, the jobless rate was 7.4%.

A separate report released by Eurostat showed that eurozone's industrial producer prices dropped 5.8% year-over-year in May, compared with a 4.6% drop in the previous month. Economists had expected a decline of 5.6%. On a monthly basis, producer prices declined 0.2% in May after falling 0.9% in April.

As expected, the European Central Bank left its key interest rate unchanged at a record low of 1% for the second straight month. The ECB also retained its interest rate on marginal lending facility at 1.75% and the rate on deposit facility at 0.25%.

U.S. Economic Reports

A report released by the Labor Department said initial claims for unemployment benefits declined 16,000 to 614,000 in the week ended June 27 from the upwardly revised reading of 630,000 for the previous week. Economists expected a decline in claims to 615,000 from the initially estimated figure 627,000 for the previous week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, declined 2,750 to 615,250. Continuing claims, which measure people receiving ongoing unemployment help, fell 53,000 in the week ended June 20th to 6.702 million. The Labor Department also said non-farm payroll employment fell by 467,000 in June 345,000 jobs in May following a downwardly revised decrease of 322,000 jobs in May. Economists had expected a decrease of about 365,000 jobs compared to the decrease of 345,000 originally reported for the previous month.

The continued decrease in jobs reflected declines in employment in both the good-producing and service-providing sectors. While goods-producing sectors lost 223,000 jobs, service-providing sectors lost 244,000 jobs.

At the same time, the Labor Department said that the unemployment rate edged up slightly to 9.5% from 9.4% in May. The rate came in lower than the 9.6% rate expected by economists.

The Commerce Department is due to release its report on factory goods orders for May at 10 AM ET. Orders for manufactured goods are likely to have increased 0.9% in the month.

The durables goods orders report released last week showed an unexpected increase for May. Durables goods make up the bulk of the factory goods orders. In May, new orders for manufactured durable goods rose 1.8% month-over-month to $163.9 billion following an upwardly revised 1.8% increase in April. Economists had been looking for a 0.9% decline in durable goods orders for May compared to the originally reported 1.7% increase for April.

Machinery orders, which rose in three of the past four months, showed the biggest increase of 7.7%. However, shipments fell 2.1% and unfilled orders declined by 2%. Inventories at the end of the month were down 0.8%. Orders for non-defense capital goods excluding aircrafts, a key measure of capital spending, climbed 4.8% following a 2.9% increase in the previous month. Shipments of this category of goods edged up 0.3%.

Stocks in Focus

Walgreen (WAG | Quote | Chart | News | PowerRating) is likely to move in reaction to its announcement that its June same store sales rose 3.4%. Total sales climbed 6% year-over-year. Meanwhile, Xilinx (XLXN | Quote | Chart | News | PowerRating) may see some activity after it said its June quarter sales would be down 5% sequentially, which is a downward revision from its earlier guidance of a 4% sequential growth to a 4% sequential decline. The company attributed the shortfall to supply constraints on certain Virtex-5 devices that are in high demand.

Continental Airlines (CAL | Quote | Chart | News | PowerRating) may be in focus after it said its consolidated load factor was 84.8% in June, up 1.1 percentage points from June 2008. Traffic fell 6.5% year-over-year compared to a 7.8% decline in capacity.

Quest Software (QSFT | Quote | Chart | News | PowerRating) is likely to gain ground after Standard & Poor's said the company would replace Wind River Systems (WIND | Quote | Chart | News | PowerRating) in the S&P MidCap 400 Index after the close of trading on a date to be announced. Wind River is to be acquired by Intel.

AIG (AIG | Quote | Chart | News | PowerRating) could also be in focus after it said it has completed the sales of its car insurance units to Zurich Financial Services Group by receiving $1.7 billion in cash and $200 million in euro-denominated capital notes. As part of the agreement, Zurich Financial sold the regulated insurance business it acquired from AIG to Farmers Exchanges. Myriad Genetics (MYGN | Quote | Chart | News | PowerRating) is likely to react to its announcement that it has completed the spin-off of Myriad Pharma, its molecular diagnostics business.

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