Lower Employment Rate Weighs

Elena
06 Oct, 2006
New York City

The Labor Department said that U.S. nonfarm payrolls rose by an estimated 51,000 in September, the lowest rise in 11 months, and came in below the 123,000 rise expected by economists. The weakness in employment, which was mainly concentrated in the manufacturing and retail sectors, was offset by gains in health care and finance.

[R]09:00AM Stock futures pointed to a weaker start on employment data.[/R]
U.S. stock market futures declined Friday after weaker-than-expected September employment data added too worries about an economic slowdown. The Labor Department said that U.S. nonfarm payrolls rose by an estimated 51,000 in September, the lowest rise in 11 months, and came in below the 123,000 rise expected by economists. The weakness in employment, which was mainly concentrated in the manufacturing and retail sectors, was offset by gains in health care and finance.

In corporate news, shares of Micron Technology Inc. ((MU)), chip maker, dropped 6% in electronic trading before the opening bell, as the company reported quarterly profit that missed analysts' expectations. In deal news, wireless tower company Crown Castle International Corp. ((CCI)) agreed to acquire smaller rival Global Signal Inc. ((GSL)) for about $5.8 billion in cash, stock and debt. S&P 500 futures were down 3.1 points, below fair value. Dow Jones industrial average futures fell 21 points, and Nasdaq 100 futures dipped 3.25 points.

[R]Employment rate slowed in September.[/R]
Friday morning, the Department of Labor released its closely watched report on the employment situation in the month of September. The report showed that employment growth came in well below economist estimates. The Labor Department said that non-farm payrolls increased by 51,000 in September after an upwardly revised increase of 188,000 in August. Economists had expected payrolls to increase by about 120,000 compared to the increase of 128,000 originally reported for August. The relatively modest increase in employment reflected continued job growth in the health care and financial sectors. The growth was partly offset by a decline of about 19,000 jobs in the manufacturing sector. The report also showed that the unemployment rate unexpectedly edged down to 4.6 percent in September from 4.7 percent in August. The decrease came as a surprise to economists, who had expected the unemployment rate to remain unchanged. The Labor Department added that average hourly earnings edged up 0.2 percent in September to $16.84, matching the increase that was seen in the previous month. Average hourly earnings were up 4.0 percent on a year-over-year basis. While the weaker than expected employment growth may raise some concerns about the strength of the economy, it may also help to add to recent speculation that the Federal Reserve is likely to cut interest rates in the near future.


[R]8:00AM Crown Castle agreed to acquire Global Signal for $5.8 billion[/R]
Crown Castle International ((CCI)) agreed to acquire Global Signal Inc. ((GSL)) for $5.8 billion in stock and cash. Under the terms of deal, Crown Castle, owner and operator of wireless infrastructure, will assume estimated debt of $1.8 billion, and the total cash consideration will be capped at $550 million. According to the agreement, Global Signal stockholders are entitled to convert each of their shares into 1.61 Crown Castle shares or they can choose to receive the amount of $55.95 per Global Signal share in cash. The transaction, which brings together two tower companies with more than 24,000 wireless sites between them, will enable Crown Castle to expand its business footprint. Global Signal''s three largest stockholders agreed to vote shares representing about 40% of Global Signal''s outstanding shares in favor of the transaction.


[R]7:30AM Japanese stocks edged lower on Friday on profit-taking.[/R]
Asian markets closed mixed. The Nikkei 225 Average closed 0.08% lower at 16436.06. Tech names were lower after a three-week winning streak, as Canon fell 1.2%. Nippon Steel advanced 1.2% as news that Tata Steel was considering a $10 billion bid for Corus Group gave a boost to prospects of more consolidation in the steel sector and lifted steel shares higher. Inpex Holdings added 1.8%, despite worries it may lose part of its stake in Azadegan in Iran oil field. Large financial stocks were notable advancers, as Mizuho Financial Group gained 2% while Nomura Holdings rose 3.3%.

The Hang Seng Index in Hong Kong slipped 0.02% to close at 17903.39. New World Development, which gained 2.6%, was one of the biggest blue-chip advancers. China-related firms fell following big rises recently. China Mobile fell 1.2% after hitting an all-time closing high Wednesday.

Australia S&P/ASX 200 closed 0.03% higher at 5220.70. Minara Resources surged 5.8% after reporting record nickel production for the third quarter. Queensland Gas jumped 4% on hopes of counter offers to the bid launched Thursday by Santos.


[R]6:30AM Airline gains counter telecom sector weakness in Europe.[/R]
European markets were slightly higher by mid-morning on Friday. The FTSE 100 in London reached 6,006.6, Frankfurt Xetra Dax was up 0.1% at 6,083.12, and the CAC 40 in Paris was fractionally higher at 5,289.52.

M&A

Ryanair late on Thursday launched a surprise bid for Aer Lingus, valuing the company at 1.48 billion euros. The board of Aer Lingus rejected the offer saying it undervalued the long-term growth potential of the company.

Advancers

Shares in Ryanair added 1.5%, while Aer Lingus gained 1.7%. EasyJet''s shares rose 2.2% after lifting its profit forecast following a September passenger traffic rise of 9.8%.

European banks enjoyed another session of M&A rumour-driven gains as Banesto in Spain jumped 6.4% on talk of a bid from domestic rival Santander.

Decliners

Mobile and fixed-line telecom stocks were on the wane after Deutsche Bank made downgrades in each sector. Telecom Italia fell 1.1% after it was cut from buy to hold and had its target price lowered. Meanwhile, Vodafone, the UK mobile operator, fell 1.4% after Deutsche lowered its rating from buy to hold and its target price.

French aerospace group EADS is still struggling as it continued to emerge as Rolls Royce, supplier of engines for the ill-fated Airbus A380, said it had suspended work on the project for 12 months. Although Rolls said the suspension would not affect its financial guidance for the year, the shares fell 1.1%, while EADS slid 3.1%.

Oil and gold

U.S. crude oil fell 22 cents to $59.81 a barrel by mid-morning inEurope, after dipping to a low of $59.60 in early trade. London Brent fell 20 cents to $59.80. Gold opened Friday at a bid price of $570.50 a troy ounce, up from $568.55 late Thursday.

Currencies

The euro slipped against the U.S. dollar Friday ahead of new jobs data from the United States. The euro bought $1.2680 in morning European trading, slightly below its level of $1.2690 in New York late Thursday. The British pound dropped to $1.8744 from $1.8786. The dollar rose to 118.07 Japanese yen from 117.61 yen