Weak Employment Report, Sharp Market Losses

123jump.com Staff
07 Sep, 2007
New York City

It was a reversal of psychology after the release of August employment report in the U.S. The employment declined by 4,000 in sharp constrast to forecasts from economists of increase of 100,000. The weakness in manufacturing and construction contributed to the overall decline. The payroll additions for June and July months were revised lower averaging only 44,000 increase in the last three months. Markets in the U.S. and Europe tumbled nearly 2% at close after the news.

[R]4:30PM New York, 10:30PM Frankfurt, 2:00 AM Mumbai[/R]

[R]Market averages in New York closed sharply lower in August month employment report. The sharp decline in employment put investors on the defensive. Banks and financial sectors stocks quickly fell in the U.S. and Europe. Latin American indexes declined across the region.[/R]

Dow Jones Industrial Average fell 1.87% or 249.97 to 13,113.38, Nasdaq declined 1.86% or 48.62 to 2,565.70, and S&P 500 lost 25.00 or 1.7% to 1,453.55.

FTSE 100 Index in London increased 42.60 or 0.68% to 6,313.30, in Tokyo Nikkei 225 closed at 16,257.00, up 0.61% or 98.55, and in Brazil, iBovespa Index traded down 0.3% or 161.17 to 54,569.00.

Yields edged lower on 10-year U.S. bonds and closed at 4.37% and 30-year bond rose to close at 4.69%.

Crude oil increased 40 cents to close at $76.70 per barrel, natural gas closed down 13 cents to $5.52 per mBtu, and gasoline futures decreased 1.47 cents to close at 198.64 cents per gallon.

Gold gained $5.10 in New York trading to close at $709.70 per ounce, silver closed 22 cents higher to close at $12.76 per ounce, and copper for August month deliver in London gained $146 to $7,361.00 per pound in New York trading.

In New York trading averages closed lower on the August month employment report. Only yesterday investors cheered the same store sales August month growth but the enthusiasm did not last that long.

Employment report indicated that in August total payroll employment declined by 4,000 and the numbers for the July month was revised to lower 68,000 and in June to 68,000. In August employment fell in manufacturing by 46,000 and in construction by 22,000 but gained 35,000 in healthcare and 24,000 in leisure, hospitality, and food services.

The survey is based on data collected between August 12th and 18th as credit market malaise was still rippling through the economy. Most analysts expect the next report to show deeper problems in the economy. The credit shock rumbling through the economy is not likely to be captured fully in the August employment report.

Over the last three months total payroll increases have averaged 44,000 per month after the revisions, significantly lower than forecasted by the government and private economists. Unemployment in the month held steady at 4.6% and 7.1 million people were estimated to be unemployed in civilian labor force of 152.8 million people.

The reversal in job growth after four years of steady growth fed worries that corporate profits may be hurt in the coming quarters. Most analysts lowered the earnings growth forecast for the current quarter from 6% to 4% after the report. Traders are now worried that even if the Fed cuts rate by 25 basis points in the next meeting at September 18th, it may not be enough and may be too late.

Of the 30 stocks in Dow Jones Industrial Average listed, 29 closed lower and 1 closed higher. General Motors led the decliners with a loss of 4.6% followed by declines in Alcoa of 4.5%, Caterpillar and Honeywell of 3.3%, Intel 3.0%, and Home Depot and American Express of 2.7%. Of the 30 stocks in Dow 14 closed lost more than 2%.

Of the stocks in S&P 500, 481 stocks closed lower and 17 gained, 2 stocks closed unchanged. Thirty six stocks lost more than 4% in the index. Office Depot led the decliners with a sharp loss of 9.6% followed by declines of 9.2% in Harley Davidson, 7.8% in CB Richard Ellis, 6.5% in Terex, and 5.7% in Discover Financials. Office Max, Sandisk, and Tyco International lost 5.6%. Federated, Meredith and Fannie Mae led the gainers with a rise of more than 1.2%.

In European Markets trading indexes closed sharply lower on the worries that economic data are lagging in reflecting worsening market conditions in the U.S. Indexes in France, Germany, Italy, and Spain fell more than 2%. U.K., the Netherlands, and Switzerland lost nearly 1.8%. Of the $1.2 trillion sub-prime loans sold in the U.S. between a quarter and a third are held by the European banks. European banks and financial stocks fell sharply on the weak August month employment report. Societe Generale, Barclays, and Commerzbank lost more than 4% but HSBC lost 1.6%.

In Latin Markets trading Chile led the decliners with a loss of 2.00% followed by decreased of 1.8% in Argentina and Mexico. Brazil was closed for Independence Day holiday.

The Bank of Mexico reported consumer price index increased 0.41% in August. The employment report in the U.S. fed worries that economic slowdown is more likely in the coming months. This may affect manufacturing employment and its export growth. Telecom stocks American Movil and Telmex declined more than 2%.

[R]2:00PM New York, 6:00PM London - UK shares slumped on weak U.S. jobs data, extending losses started Monday. U.K economic growth slows down in second quarter.[/R]

Shares in London dropped after the latest U.S employment report indicated that jobs fell by 4,000 in August versus expected rise of 112,000. The new figures put investors on alert that financial markets problem may be widening into broader economy. FTSE 100 dropped 2% on the news dragged by losses in financial and mining shares. Of the 102 FTSE 100 stocks, 96 fell while only 6 gained.

FTSE 100 in London sank 1.93% or 122.1 to 6,191.20 in a sell-off led by mining and bank stocks. The National Institute for Economic and Social Research reported Friday the UK economic growth dropped to 0.7% in the three months to August, from 0.9% in the previous quarter. The Institute said it sees ``no need'' for the bank (of England) to lift borrowing costs further from the current six-year high. ``We expect to see a further slight deceleration in the rest of this year as recent interest rates start to bite,'' the Institute was quoted by British media as saying. ``At present there is no reason to expect any significant impact on the economy arising from the problems that credit markets are facing.”

The Bank of England left its key rate unchanged at 5.75% Thursday as it assessed whether a surge in credit costs caused by the collapse of the U.S. subprime mortgage market is harming the British economy.

Of the FTSE 100 shares, financial and mining stocks fell most. British Airways plc paced decliners skidding 5.44% followed by Old Mutual plc down 5.3%. British Land Co plc dropped 5.11% while Punch Taverns slowed down 4.9%. Miners fell sharply. Anglo American plc shed 4.87%, Antofagasta down 4.6% and Kazakhmys plc lost 4.52%. Vedanta Resource, Xstrata plc, Rio Tinto plc closed lower 4.22% and 3.33% respectively.

Of the index shares, financials fell. Royal Bank of Scotland finished down 4.7%, Barclays dragged 4.2% while Alliance & Leicester eased 4.1%. ICAP plc, Schroders plc, Northern Rock and Capita Group plc all lost over 3%.

Only six shares gained in the FTSE 100 index. Sage Group led gainers rising 1.8% followed BAE Systems plc up 1.34% and Sainsbury plc closing up 0.92%. British Energy and William Morrison Supermarkets rose 0.65% and 0.45% respectively.

[R]1:00PM NY, 5:00 PM Frankfurt European markets closed deeply in the red on weak U.S. jobs data.[/R]

European stock markets finished deeply in the red Friday, tracking U.S. losses amid concerns about the health of the economy, raised by weaker-than-expected U.S. jobs data. Employment in August fell for the first time in four years, well below expectations of a notable increase. Banks, auto makers and miners led the decline. Across regional markets, France posted the steepest drop of 2.6%, followed by Germany, down 2.4% and the U.K. losing 1.9%.

In Frankfurt bank shares suffered weakness, with Commerzbank falling 5.2%. Export-related issues posted losses as the dollar slipped on the weak economic data. Automakers stood out among losers. Shares in Porsche slid 5.2%, BMW dropped 3.9% and DaimlerChrysler fell 3.3%.

In Paris stocks dropped, led by Societe Generale and BNP Paribas. Societe Generale shares fell 3.9% on speculation that the lender may lower its profit forecast. BNP Paribas retreated 3.4%. Among other notable losers, Natixis shares lost 4.5%.

In London financial shares led the decline. Barclays lost 4.2% after the bank said it was prepared to underwrite another of its structured investment funds. Another bank, HSBC Holdings fell 1.6%, reflecting shareholder’s pressure to review its strategy. Mining stocks also traded in the negative. Shares in Xstrata dropped 3.5%, Anglo American shares lost 3.4% and Rio Tinto slipped 3.2%. BAE Systems helped limit losses, posting an advance of 1.3% amid reports of a 20 billion-pound deal next week to supply jets to Saudi Arabia.


[R]11:30AM Market averages plunged, with the Nasdaq down 2%, Dow losing 1.7%.[/R]

U.S. stocks tumbled while bonds surged higher Friday following a deeply disappointing government report which showed payrolls in August fell unexpectedly for the first time in four years. The Dow Jones slipped more than 200 points.

The data raised optimism that the Fed will cut interest rates by at least 25 basis points at the central bank meeting on September 18. By the end of the year, the fed funds rate is expected to drop to 4.25%. In another report, the Commerce Department said U.S. wholesale inventories rose 0.2% in July, a slower pace than in June. as automotive, petroleum and other stockpiles fell.

The markets experienced broad based weakness, with the vast majority of sectors posting significant losses. Financial stocks moved sharply lower. American Express ((AXP)) fell 3%, Lehman Bros ((LEH)) lost 2.4%, Morgan Stanley ((MS)) fell 1.2%, Merrill Lynch ((MER)) lost 1.4%. Among housing stocks, Beazer Homes ((BZH)) dropped 9% after the company received default notices for five senior notes due between 2011 and 2016.

The tech sector also lost ground following the employment report. Apple ((APPL)) fell 3% a day after its CEO replied to customer complaints about a quick price reduction on the iPhone and said the company would give $100 store credits to certain iPhone buyers. Disk drive stocks were notable losers, with Network Appliance ((NTAP)) and SanDisk ((SNDK)) posting losses of 4.1% and 4.7% respectively.

In late morning trading, the Dow fell 221.60, or 1.66%, to 13,141.75. The Standard & Poor''s 500 index fell 24.36, or 1.65%, to 1,454.19, and the Nasdaq composite index fell 53.79, or 2.06%to 2,560.53. Bonds, meanwhile, soared following the jobs report. The yield on the benchmark 10-year Treasury note skidded to 4.39% from 4.51% late Thursday.

[R]Wholesale inventories rose 0.2%.[/R]

The Department of Commerce released its report on wholesale inventories and sales in the month of July on Friday, showing that inventories increased by less than economists had expected and sales rose modestly. The report showed that wholesale inventories rose 0.2 percent in July following a downwardly revised 0.3 percent increase in June. Economists had expected the growth in inventories to match the 0.5 percent increase originally reported for the previous month.

The modest increase in inventories came as a 1.5 percent increase in inventories of non-durable good more than offset a 0.5 percent decrease in inventories of durable goods. The Commerce Department also said that wholesale sales edged up 0.1 percent in July after rising 0.4 percent in June. While sales of non-durable goods rose 0.1 percent, sales of durable goods were unchanged. Subsequently, the report also showed that the wholesale inventories/sale ratio came in unchanged from the previous month at 1.11, although it is down from the July 2006 ratio of 1.13.


[R]10:30AM New York, 8:00PM Mumbai – Wholesale inflation declined at the end of last week. Sensex gained 1.8% in the week.[/R]

Sensex in Mumbai trading lost 25.89 or 0.2% to close at 15,590.42 and CNX Nifty declined 9.10 or 0.2% to close at 4,509.50.

Of the stocks traded on Bombay Stock Exchange, 1,383 gained, 1,381 declined, and 71 were unchanged. Daily turnover in BSE trading increased to 4,863 crore rupees from 4,670 crore in Thursday trading. Of the 30 stocks listed in Sensex 20 declined and 10 gained. ITC with a gain of 1.6% led the gainers in the index and Cipla led the decliners in the index with a loss of 2.5%.

ICICI Bank is launching an infrastructure fund for $2 billion in the next three months. India has seen a surge of infrastructure funds in the last six months with at least three others funds are in the process of raising more than $1 billion. The country’s rickety infrastructure costs delays in transportation of goods at ports and distribution to the factory locations. Less than 2% of nation’s road network is four lane highways and most ports are antiquated by international standards.

Reliance Industries fell 1.3% to 1,957 rupees after the Communist and Samajwadi Parties expressed their reservation to a proposed price for natural gas sale from Krishna Godavari energy basin. The fertilizer minister Ram Vilas said that the proposed price of $4.33 mBTU is higher than the government is willing to pay. He did not elaborate or offered any alternative price for the purchase.

DLF, the largest property developer, is planning to spin off its subsidiary DT Cinemas in two years. The company plans to increase the number of cinema locations to 100 from seven and number of screens to 500 in the next two years.

Kirloskar Brothers surged 6% to 488 rupees after reporting that its joint venture has received 761 crore rupees project from Andhra Pradesh government. Kirloskar Brothers is likely to provide equipment of 114 crore rupees.

Saregama India soared 7% to 323 rupees after surging 21% in the last two trading days. The recent purchase of 10 lakhs shares by Sonata investments has cheered investors.

Hindoostan Spinning & Weaving Mills surged 10% to 64.75 rupees after adding 16% in the last three trading days. The recent deal to sell mill located in Mumbai for 350 crore rupees has driven the stock to a new high.

Eveready Industries India gained 27% to 54 rupees after it issued equity warrants at 8.8% premium to Thursday closing price of 53 rupees. The warrant holders will be entitled to one share at 53 rupees price.

Tata Power is reported to purchase 15% in the planned power exchange by NTPC and National Commodity and Derivative Exchange. Tata Power fell 1.8% to 716 rupees.

Federal Mogul Goetze lost 3% to 165 rupees after the company announced rights issue date of Sept 24th.

Sintex Industries declined 1.3% to 340 rupees after the company said that it has acquired automotive business of Bright Brothers for 149 crore rupees.

[R]8:00AM New York, 8:00PM Hong Kong – Asian markets closed mixed for the day but fell during the week’s trading.[/R]

Asian markets closed lower in anticipation of employment report from the U.S. and higher bank reserves in China.

Indonesia led the region with a gain of 0.9% followed by increases of 0.6% in Singapore and 0.5% in Australia. Philippines and Taiwan edged up a fraction. Shanghai led the declining markets in the region with a loss of 2.2% followed by losses of 1% in Thailand, 0.3% in Hong Kong and 0.2% in India and South Korea.

China drained liquidity from the financial system by offering bill sales at 3.71%. The People’s Bank of China sold Rmb 151 billion for a three year maturity. Central bank is struggling to control rise of money supply on rising exports. The current liquidity mopping is in line with the bank’s target to keep lending growth below 15%. Japan also drained liquidity from the financial system by selling bond sale of $1.7 billion.

China Communications Construction reported first half sales increase of 24% to Rmb 58.7 billion and net income increased 170% to Rmb 2.74 billion from a year ago. The first earnings report as a public company was bolstered by international expansion and diversifying project work for railroad, airports and subway systems. Domestic investment in highway and port building is robust but expected to slow down in the coming years. The largest port building and construction company is controlled by an arm of the government and the stock has more than doubles since its listing on the Shanghai exchange.

China Oilfield Services jumped 12% in Hong Kong trading after the news that the company is likely to receive listing approval in Shanghai. The company plans to raise funds in the mainland exchange to take advantage of investors’ enthusiasm and higher earnings multiple. The Shanghai listed stocks are trading four times the earnings multiple in Hong Kong where stocks trade at 16 price to earnings multiple.

Australian government will permit BHP Billiton and other local companies to sell nuclear fuel to Russia. The deal is expected to generate A$1 billion a year. Russia has agreed as a condition not to sell the reprocessed fuel to Iran or for military purpose. Russian companies have invested nearly $5 billion in Australian mining companies. Australia exports more than A$520 million of uranium in the year 2006 and is likely to raise its production by 50% in the next three to five years. Earlier China signed a deal with Australia to purchase liquefied natural gas for A$35 billion.

[R]7:00AM New York, 8:00PM Tokyo - Shares in Japan extended losses to end the week in the red on renewed U.S housing market woes. Japan forex reserves hit $932.2 billion. Imported vehicle sales rise 9.1% in August. Honda recalls 63,000 cars.[/R]

Tokyo shares capped a week of losses dropping 0.83% Friday after U.S housing data showed the number of mortgage borrowers to default, or make late payments climbed to 14.82% in the second quarter from 13.77% in the first quarter. For the week, Japan lost Nikkei 225 lost 2.7% and Topix fell 3.2%. Of the 225 stocks, 170 dropped, 51 gained while 4 traded unchanged. Of the index shares 44 stocks fell above 2% while 12 shares rose over 2%.

In Tokyo Nikkei 225 lost 0.83% or 134.84 to 16,122.16 in volatile trading, as the yen gained strength. Financials fell on concerns the sub-prime market problems were far from over. The yen rose to 115.14 per dollar from 115.38 yesterday, and over 116 earlier in the week. Against the euro, yen finished up at 157.45 from 157.95 Thursday. Because of the gains, some exporters dragged.

The Finance Ministry reported today that Japan’s foreign currency reserves surged for third month running to a record $932.2 billion in August, up $8.44 billion from July of this year. The rise was helped by valuation gains in holding of U.S. treasuries and lower interest rates.

Japan's imported vehicle sales including those built by Japanese carmakers abroad rose 9.1% in August to 18,100 units from a year ago, according to data released by the Japan Automobile Association Thursday. The increase is the fourth consecutive in as many months. Imports of foreign brands alone, however, fell 5.5% to 14,406 cars, falling for the 14th month in a row due to weaker sales of new models.

Of the Nikkei 225 index stocks Fast Retailing led the decliners with a fall of 4.3% followed by Resona Holdings down 4.04%. NSK Ltd ended down 3.73%, Nikon Corp shed 3.7% while Nippon Oil Corp lost 3.61% after BBC reported Thursday the firm would start paying in yen for Iranian oil. The first payments for crude oil contracts will be made in October. Iran has been increasingly selling oil in currencies other than dollar because of political differences with the U.S. over its nuclear program.

Of the index shares, financials fell. Mizuho Financial closed down 3.42% while Softbank Corp, Sumitomo Trust and Banking Co Ltd, Shinsei Bank Ltd and Sumitomo Mitsui Ltd lost 3.2%, 3.1%, and 3% respectively.

In other Tokyo stocks, Mitsubishi UFJ Nicos led gainers rallying 4.5% followed by Shionogi & Co up 3.33% and Astellas Pharmacy rose 3.13%. Mitsumi Electrical Co rose 2.9% while Daikin Industries closed up 2.32%.

Rising metal and crude oil prices lifted refiners and miners. Inpex increased 1.9% and Japan Petroleum Exploration soared 6.5%. Sumitomo Metal & Mining advanced 2.23%.

Honda Motor Co closed down 0.8% after announcing Thursday that it will recall more than 63,000 vehicles due to faulty brake-light system and speedometers. The automaker said it will recall the Civic and Civic Hybrid sedans as well as Stream minivans manufactured between August 2005 and January 2007. Honda said it received a total of 155 reports from customers about the two types of defects. It said in some cases excess lubricating oil on the telescoping steering wheel system meant drivers were not able to move the gear shift lever from the park position, affecting the brake-light system.