US & World Daily Markets Financial Briefing 06-07-2007

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Stocks trade narrowly after jobs data

Stocks wavered in a narrow range Friday after bond yields jumped on a government report that employers created more jobs than expected last month.

The Labor Department said the unemployment rate held steady at 4.5 percent in June for the third straight month, as expected, but that 132,000 jobs were added -- more than the average forecast. The data also showed that more jobs were created in April and May than previously thought, and that June's average work week ticked up 0.1 percent, more than anticipated.

Friday's jobs report was the most significant economic release of the shortened Fourth of July week, and for the most part, most investors were relieved that the data indicated a robust job market. If Americans are employed, they will likely keep spending and boosting corporate profits.

But while the positive snapshot boded well for the long-term performance of the stock market, it also raised worries that a too-strong economy will make the Federal Reserve more willing to raise rates to curb inflation. Though the central bank said last week that inflation appears to be moderating, it wants to see further evidence before it considers loosening monetary policy.

Treasury bond prices weakened after the employment numbers, pushing up the 10-year Treasury note's yield to 5.18 percent from 5.15 percent late Thursday.

In mid-morning trading, the Dow Jones industrial average rose 3.33, or 0.02 percent, to 13,569.17.

Broader stock indicators slipped. The Standard & Poor's 500 index was off 1.13, or 0.07 percent, at 1,524.27, while the Nasdaq composite index fell 1.55, or 0.06 percent, to 2,655.10.

Stocks closed mixed Thursday in an erratic session after rebounding bond yields dampened enthusiasm over new buyout activity and U.S. service sector strength. Trading volumes were low Thursday, and were expected to be low again Friday, as many traders take time off after the Wednesday holiday.

The stock market got another piece of buyout news late Thursday, when Advanced Medical Optics Inc. made a $4.23 billion cash-and-stock bid for eye-care products competitor Bausch & Lomb Inc., beating a $3.67 billion cash bid by a private equity firm.

Advanced Medical Optics fell $1.56, or 4.4 percent, to $34.33, and Bausch & Lomb slipped 26 cents to $71.74.

And on Friday, Chicago Mercantile Exchange Holdings Inc. upped its bid to buy its rival CBOT Holdings Inc. for the third time ahead of Monday's shareholders vote.

The Chicago Mercantile Exchange fell $8.76 to $546.93, while CBOT jumped

$7.43, or 3.7 percent, to 213.58.

Crude oil futures, trading at 10-month highs, rose 64 cents to $72.45 a barrel on the New York Mercantile Exchange, buoyed by renewed violence and kidnappings in Nigeria, Africa's biggest oil producer.

The dollar was mixed against most other major currencies. Gold prices edged higher.

The Russell 2000 index of smaller companies was down 2.55, or 0.30 percent, at 847.58.

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 170.1 million shares.

In Asian trading, Hong Kong's Hang Seng Index rose 1.25 percent to its fourth straight record close. After plummeting 5.3 percent Thursday, the China's Shanghai Composite Index surged 4.6 percent, its biggest daily percentage rise since January. Japan's Nikkei stock average fell 0.44 percent.

In European trading, Britain's FTSE 100 was up 0.34 percent, Germany's DAX index was up 0.23 percent, and France's CAC-40 was up 0.43 percent.

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The dollar continued to trade in a tight range against major currencies as the market awaited guidance from the crucial US labour market report later today.

The data will provide further signs on the progress of the US economy following some strong data this week, and a continuation of the positive trend could well help the US currency gain some lost ground. A Thomson Financial news poll predicts a 130,000 increase in non-farm payrolls for June.

Marc Ostwald at Insinger de Beaufort said the figures seem likely to beat forecasts in light of the recent strong data.

Yesterday's strong ADP employment estimate showed US companies adding 150,000 jobs in June, well above expectations for a rise to 110,000, while the Institute for Supply Management's non-manufacturing business index climbed to 60.7 in June from 59.7 in May, above analyst expectations for a pullback to 58.1.

Elsewhere, the yen plumbed new depths against the euro and the Australian dollar as investors' renewed hunger for risk supported the carry trade -- a high-risk strategy where people borrow in yen and other low-yielding currencies to invest in high-yield assets elsewhere.

Meanwhile, the euro and the pound were both steady as the market digested interest rate decisions and hawkish rhetoric from central banks yesterday.

The European Central Bank left its base rate on hold at 4.00 pct, as expected, but indicated it may well hike euro zone rates in September. The Bank of England confirmed expectations by lifting rates to 5.75 pct, with its accompanying statement giving no indication the tightening cycle is over.

Earlier, the pound gained some support from signs of continued recovery by UK manufacturers.

Official figures showed growth in the UK manufacturing sector continued to pick up in May, with output reaching its highest level since August 2001 thanks to growth of 0.4 pct, a touch stronger than expected.

Inflation picked up in September in Europe as both areas show fragile economic growth. Just as in the U.S., rising energy prices are to blame. Read free, daily market reports available only at CMS Forex and open your free demo trading account today. Click here

Leading European shares edged higher, helped by strength in mining and oil stocks amid expectations global economic growth will continue to sustain demand for commodities, but caution ahead of the release of US employment data was putting a cap on gains.

At 9.34 am, the Dow Jones STOXX 50 Index was up 16.36 points, or 0.4 pct at 3,964.71 while the DJ STOXX 600 gained 0.83 points, or 0.2 pct to 395.76. The DJ Euro STOXX 50 Index, which tracks the performance of blue chip companies in 12 countries using the euro, rose 8.41 points, or 0.2 pct to 4,500.28.

But investors must remember that rising yields are due largely to data in the US showing that economic growth appears to be picking up again, said McAlinden. Yesterday a key report on the nation's services sector came in better than expected.

Indeed, mining and metals stocks led European advancers, helped by buoyant metals prices and continuing speculation of consolidation among its key players.

Credit Suisse lifted its forecasts for commodity prices by up to 50 pct, prompting the broker to raise price targets on miners Anglo-American, Rio Tinto, Xstrata and Kazakhmys.

Also, Rio Tinto is set to gatecrash Alcoa's 28 bln usd hostile takeover bid for Alcan, according to the UK's Daily Telegraph.

Rio Tinto was up 0.7 pct. Among other miners, Anglo American gained 0.7 pct, Xstrata was up 1.3 pct while Kazakhmys climbed 1.1 pct.

UBS shares rose 0.5 pct after the surprise resignation of chief executive Officer Peter Wuffli.

Wuffli's resignation comes in the wake of the board's decision not to accept chairman Marcel Ospel's proposal for Wuffli to become his successor.

Wuffli had been under fire since the Basel-based banking group's disappointing first quarter results and the decision to close loss-making hedge fund Dillon Read Capital Management.

The dealer said his departure also raises expectations among some investors of an increased likelihood it may dispose of or hive off its investment banking operations.

UBS has been the subject of market speculation that more value could be extracted from the bank if it was split up into various units, but the company has always insisted that its sum-of-the-parts value does not equal the value derived from its strength as a combined group.

Imperial Chemical Industries has asked the UK Takeover Panel to require Akzo Nobel to state its intentions over whether it is going to launch a revised bid for the UK company, according to the Financial Times.

Market speculation has swirled that Akzo Nobel will make a new, higher bid for ICI after the UK company rejected a 600 pence a share offer from its Dutch rival Akzo Nobel as too low.

Fortis shares were down 1.5 pct. The bank said last night Dutch financial markets regulator AFM has extended the deadline when Fortis and consortium partners need to publish its offer documentation for its takeover bid on ABN-Amro to July 23.

Fortis said according to Dutch regulation it was required to publish the offer documentation by July 10, but the AFM has now confirmed that the deadline for a previously-granted extension will end on July 23.

Fortis is part of a Royal Bank of Scotland-led consortium locked in a takeover battle with Barclays to acquire ABN-Amro.

Elsewhere, shares in Danisco fell 1.2 pct. Broker Goldman Sachs started coverage on the Danish sugar and ingredients maker with a 'sell' rating and a 12 months price target of 390 dkr, on concern the company is going to face increasing pressure on its profit margins due to higher raw material prices and to a lack of pricing power.

In other news, shares in Premiere AG were trading at an 18-month high after media reports said that the pay-TV operator may receive full sublicensing rights from Arena to broadcast Bundesliga Football Matches.

Shares in Rhodia rose 4.3 pct after Morgan Stanley raised its price target on the French chemicals group to 42 eur from 40.80, saying the stock has the

Thomson's IFR Markets are forecasting the US economy to have created 130,000 jobs in June while the unemployment rate is expected to remain steady at 4.5 pct.

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Key Asian markets were mixed Friday. Japanese shares ended the morning session down while South Korean shares extended gains into a fifth successive session, as investors built positions in large cap technology stocks.

Philippine stocks were unable to sustain early gains that pushed the key index to another record high, as investors decided to pocket profits while awaiting fresh leads.

Malaysian shares having opened lower, firmed in early trading Friday, supported by gains in the stocks of palm oil companies after the chairman of the Malaysian palm oil board, Sabri Ahmad, painted a bright picture of the outlook for crude palm oil (CPO) prices.

Australian share markets were pulled down by banking shares.

Japanese government bond prices ended Friday's morning session mostly lower as market sentiment remains depressed following the weak bond market performance in the Euro zone and the US overnight. Investors remained cautious s they waited for US Treasuries' reaction to the employment report there for June later today and the Bank of Japan's decision on interest rates next week.

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Gold steadied this afternoon after dipping immediately after the release of strong US economic data which in turn boosted the dollar and sent the precious metal lower.

Gold often moves in the opposite direction to the US currency as it is seen as an alternative investment asset.

At 2.44 pm, in London, spot gold was trading at 648.10 usd per ounce against 648.60 usd in late New York trade yesterday.

The yellow metal fell as low as 645.00 usd, however, seconds after the dollar gained an immediate boost as a key employment measure came in slightly above expectations.

Figures from the Labor Department showed the US added 132,000 jobs in June, slightly more than expected, while the unemployment rate was unchanged at 4.5 pct and previous months' job gains data were revised sharply upward.

Suki Cooper, an analyst at Barclays Capital, said gold was in need of a new catalyst to push prices higher.

A string of positive economic data from the US in recent days has boosted the dollar and dampened sentiment in the gold market.

Gold has lost over 1 pct since hitting an intra day high of 658.50 on July 2.

Elsewhere, traders ignored high oil prices which should, in theory, lift the metal as investors hedge against inflationary pressures. London benchmark Brent prices earlier hit over 76 usd, just a few dollars off last year's all time high of above 78 usd.

The possibility of strike action at South African gold mines also failed to boost sentiment.

The Congress of South African Trade Unions said it would support the National Union of Mine Workers (NUM) should they strike. Yesterday, NUM officials rejected any wage increase offer of less than 15 pct, because they maintain that for many years mine workers have made huge profits for producers and have not shared in the profits.

In other precious metals, silver was up slightly at 12.49 usd from 12.48 usd, platinum was flat at 1,287 usd while palladium was down at 360 usd from 363 usd.

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