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Friday, March 6, 2009

ADVFN World Daily Markets Bulletin - Mar 6, 2009

US Stocks at a Glance

US Payrolls Plunge; Jobless Rate At 25-Year High

The U.S. economy continues to hemorrhage jobs at monthly rates not seen in six decades, a government report showed, signaling that there's still no end in sight to the severe recession that has already cost the U.S. over four million jobs.

The report suggests that households, already seeing the value of their homes and investments plunge, face added headwinds from the labor market, which could put more pressure on consumer spending in coming months.

Non-farm payrolls, which are calculated by a survey of companies, fell 651,000 in February, the U.S. Labor Department said Friday, in line with economist expectations. However, December and January were revised to show much steeper declines. In the case of December, the revision was to a drop of 681,000, the most since 1949 when a huge strike affected half a million workers. However, the labor force was smaller then than it is now.

The economy has shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone. And unemployment is lasting much longer. As of last month, 2.9 million people were unemployed for 27 weeks or more, up from just 1.3 million at the start of the recession.

"The sharp and widespread contraction in the labor market continued in February," said Keith Hall, Commissioner of the Bureau of Labor Statistics. Layoffs announcements continued last month across industries including Macy's Inc. Time Warner Cable Inc. Estee Lauder Cos. Goodyear Tire & Rubber Co. and General Motors Corp.

The unemployment rate, which is calculated using a survey of households, jumped 0.5 percentage point to 8.1%, the highest since December 1983 and slightly above expectations for an 8% rate. Some economists think it could hit 10% by the end of next year.

By some broader measures, labor-market conditions are already there. When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers actually reached 14.8% last month, up almost six percentage points from a year earlier.

Average hourly earnings increased a modest $0.03, or 0.2%, to $18.47. That was up 3.6% from one year ago, as the recession has made it harder for workers to bid up wages. According to the Fed's latest economic summary known as the Beige Book, "a number of reports pointed to outright reductions in hourly compensation costs."

That, in turn, could weigh further on consumer spending. Friday's numbers suggest that the economy hasn't stabilized in the wake of the fourth quarter's 6.2% slide in gross domestic product, which was the steepest since 1982. Economists expect a decline of similar or even greater magnitude this quarter.

"Consumers and businesses are likely to become even more cautious after a bleak report such as this, and if they stop spending, the economy cannot get going again," said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi.

There's little Fed policymakers can do on the monetary policy side to stem the slump, given that official rates are already near zero. But the Fed has created a number of credit programs - financed through an expansion of its balance sheet - aimed at spurring new lending. Officials this week unveiled a long-awaited initiative aimed at stimulating consumer lending.

Ironically, some of the pressure on labor markets appears to be a byproduct of robust productivity, which is actually a big plus for the economy over the long run. But in the current environment, it seems to be making things worse for workers as nimble businesses shed labor in anticipation of falling demand, which could become a self-fulfilling prophesy.

Hiring last month in goods-producing industries fell by 276,000. Within this group, manufacturing firms cut 168,000 jobs bringing the total since the recession began to 1.3 million.

Construction employment was down 104,000 last month. Service-sector employment tumbled 375,000. Business and professional services companies shed 180,000 jobs, the fourth-straight six-figure loss, and financial-sector payrolls were down 44,000.

Retail trade cut almost 40,000 jobs, while leisure and hospitality businesses shed 33,000 as households curtail nonessential spending.

Temporary employment, a leading indicator of future job prospects, fell by almost 80,000. The sole bright spot among private sector industries was health care, which tends to be more labor intensive and less productive than manufacturing and other services. Health care payrolls rose 26,900.

The government added 9,000 jobs. The average workweek was unchanged at 33.3 hours. A separate index of aggregate weekly hours fell 0.7 point to 101.9.

Forex

Euro Hits Session Highs After US Jobs Data
The euro rose to session highs versus the dollar and yen after the release of the February U.S. payrolls report, which was in line with expectations.

Non-farm payrolls fell 651,000 in February, the U.S. Labor Department said Friday, in line with economist expectations. However, December and January were revised to show much steeper declines.

The euro advanced to a session high of $1.2739 as investors, who widely girded themselves for a larger decline, felt comfortable taking on more risk as U.S. stock futures edged higher.

The euro hit an intraday high against the yen as well, Y124.21, recently. The dollar also rose some versus the yen, but remains down on the day.

"The market reaction tells us of an expectation of a truly shocking number," said Adam Cole, global head of foreign exchange strategy at RBS Capital Markets.

"For that reason, stock futures have gone better bid, and that is generally seeing the dollar going down," he said.

The dollar is a safe haven asset, and is typically sold off versus the euro when encouraging news reaches the market.

However, this report in no way paints a positive picture for the U.S. economy. When traders look deeper into the details, stocks could reverse direction, which would push the dollar back versus the euro, said Cole.

Friday morning in New York, the euro was at $1.2712 from $1.2550 late Thursday. The dollar was at Y97.05 from Y96.70 earlier and from Y97.92 Thursday, according to EBS. The euro was at Y123.38 from Y122.88. The U.K. pound was at $1.4250 from $1.4122, and the dollar was at CHF1.1541 from CHF1.1700 Thursday.

The report follows rate cuts across Europe Thursday, which had left the euro and U.K. pound weaker.

The European Central Bank and Bank of England conformed with expectations and cut their respective policy rates by 50 basis points, taking the ECB's key rate to 1.5% and the BOE's rate to a record low 0.50%.

The BOE also signaled it will begin a program of quantitative easing by purchasing up to GBP75 billion of government bonds and other assets. Meanwhile, the ECB's economic staff drastically cut its inflation and growth projections for this year and next.

Global sentiment is down. For that reason, rebounds in the euro and U.K. pound have been short-lived. "The ECB's new projection makes the Bank one of the most pessimistic monetary or governmental institutions in its 2010 growth forecasts," said Scotia Capital currency strategist Sacha Tihanyi, based in Toronto. "This either makes the ECB too pessimistic, or more frighteningly, one of the more realistic..."

Barclays Capital analysts note that U.S. Treasury International Capital flow data point to a record net foreign buying of the haven dollar over the past four months.

Elsewhere, overnight, the People's Bank of China said Friday that China will continue this year to push forward reform of the yuan exchange rate, increasing its flexibility but keeping it at a reasonable and balanced level. It also said it is studying allowing greater flexibility in the floor for lending rates and that it would continue work on yuan-denominated bond issuances in Hong Kong.

Canada Morning

The Canadian dollar is higher in choppy trading early Friday, logging the bulk of its improvement overnight and then eking out fresh gains in the wake of the U.S. nonfarm payrolls report.

The U.S. dollar fell to an intraday low of C$1.2790 overnight as profit-taking trimmed U.S. dollar gains against a variety of currencies. The greenback briefly returned to touch as high as C$1.2871, before getting fresh legs when the U.S. employment figures were released close to consensus expectations.

Scotia Capital said that a breach of 4-year lows for the Canadian dollar in the C$1.3000 area remains a threat, but the relative lack of relevant economic data prior to Canada's own February employment report out in a week's time "will most likely keep the currency trading in line with the whims of general market trend over the next five sessions."

Friday morning, the dollar was at C$1.2818 from C$1.2905 late Thursday.

European Shares

European Shares Lower Ahead Of US Jobs Data

European shares declined on Friday as investors prepared for data expected to show the largest U.S. job losses in one month for 60 years.

The pan-European Dow Jones Stoxx 600 index couldn't hold on to early gains and traded down 0.4% at 161.01 as banking stocks weighed.

On a regional level, the French CAC-40 index declined 0.8% to 2,249.91, the German DAX 30 index fell 0.5% to 3,676.97 and the U.K. FTSE 100 index edged down 0.2% at 3,524.51.

U.S. stock futures were also lower on Friday. More hemorrhaging in the financial sector weighed in the U.S. on Thursday and major indexes slid back under their recent bear-market closing lows.

"Equity markets have fallen further over the past week, as weak economic conditions have continued to exert strong downward pressure on profit and dividend estimates," noted Darren Winder, head of macro strategy at Cazenove.

More weak data is expected on Friday, when the Labor Department will release its latest snapshot of the job market on Friday at 8:30 a.m. Eastern. Economists are predicting non-farm payrolls fell by 650,000 in February, the largest one-month job loss in almost 60 years as the recession tightened its grip on the economy.

BNP Paribas reportedly close to Fortis deal BNP Paribas was the main drag on the Stoxx 600 banking sector, with shares of the French bank down 7.8% in Paris.

The losses came amid speculation that BNP Paribas could be on the verge of signing a fresh deal with the Belgium government that would give BNP a majority stake in Fortis Bank as well as a 25% stake in Fortis' insurance business.

BNP and Belgian authorities had set a deadline of midnight Friday to agree a new deal after Fortis shareholders voted down a previous proposal.

Fortis shares jumped 26.5%.

As well as banks, insurance companies were under pressure again in Europe on Friday. Shares of U.K. life insurer Aviva fell another 6.1%, extending steep losses from Thursday when it revealed fiscal-year results.

Allianz shares fell 2.2%, Prudential shares declined 4.2% and Legal & General shares fell 3.4%. Still, shares in Lloyds Banking Group managed to rise on Friday, trading up 6.2% amid renewed hopes that it will agree an asset insurance deal with the U.K. government.

The BBC reported late Thursday that the bank is close to a deal to insure around 250 billion pounds ($353 billion) of its assets. The BBC said the deal could increase the government stake in the bank above its current level of 43% and that the final details haven't yet been agreed.

WPP shares up

On the plus side, WPP shares jumped 6% after the advertising giant reported virtually flat fiscal-year profit and said that its operating profit for the first two months of 2009 exceeded its forecasts.

Competitors Havas , up 5.2%, and Publicis , up 3.9%, were also stronger on Friday. Oil producers also performed well, with Total, up 1% and Royal Dutch Shell up 2.5% as light sweet crude futures climbed $1.03 to $44.64 a barrel.

Commodities

Crude Higher As Market Awaits US Payroll Data

Crude oil futures traded higher in European trade Friday, but gains were tentative as oil and other financial markets waited for key U.S. labor market data due 1330 GMT.

Perceptions that the global crude market is starting to tighten lent some support, with market participants also looking ahead to next week's Organization of Petroleum Exporting Countries' meeting.

However, many investors opted to sit tight, mindful that February U.S. non-farm payrolls and unemployment data could place fresh downward pressure on crude.

"Weak U.S. labor market data today could provide further arguments to sell," said Eugen Weinberg, analyst at Commerzbank in Frankfurt. "However, oil is still trading much higher compared with the lows at the start of the week. Besides the decline in U.S. crude oil stocks, speculation on further production cuts by OPEC at next week's meeting are currently supporting prices."

At 1201 GMT, the front-month April Brent contract on London's ICE futures exchange was up 47 cents at $44.11 a barrel.

The front-month April light, sweet, crude contract on the New York Mercantile Exchange was trading 87 cents higher at $44.48 a barrel.

The ICE's gasoil contract for March delivery was up $3.75 at $369.75 a metric ton, while Nymex gasoline for April delivery was up 182 points at 133.09 cents a gallon.

Libya's top oil official said Friday that OPEC should finish complying with their announced oil production cuts before embarking on new output reductions.

"The inventory situation has improved, it's not as bearish as it was," Shokri Ghanem told Dow Jones Newswires. He cautioned though that OPEC should keep "all options on the table" at its March 15 meeting, including announcing more production cuts.

"If OPEC decided it wants price response to be quicker, it may decide on a cut next week," said Torbjorn Kjus, oil market analyst at DnB NOR in Oslo. "If in one week the price is where it is now, then I think there's a very good chance of a further cut."

Nymex front-month crude futures traded at a premium to their ICE Brent equivalent Friday for the first time since January, reflecting market perceptions that OPEC cuts, the end of U.S. refinery maintenance and de-stocking of an overhang of floating storage, will start to cut U.S. crude oil inventories in coming months.

Starting Friday, the U.S. Oil Fund LP, or USO - which currently accounts for about 23% of all outstanding Nymex front-month contracts - begins its monthly process of transferring its front-month positions to the second-month contract. Due to the size of the fund's holdings, the procedure has helped depress front-month prices in previous months, prompting the fund to this month stretch the timeframe it carries out the 'roll' to four days from one.

"I think a lot of people are very wary of stepping in front of that. They're going to be selling April and buying May, and keeping a weight on the very front end," said Jim Rintoul, analyst at London-based trade advisory TheOilTrader.com.

Top Energy Stories Of The Day

CRUDE HIGHER AS MARKET AWAITS US PAYROLL DATA
Crude oil futures traded higher in European trade Friday, but gains were tentative as oil and other financial markets waited for key U.S. labor market data due 1330 GMT.

VEOLIA NET FALLS DOWN 56% AFTER WRITE-DOWN
French water, waste, transport and energy services group Veolia Environnement says full-year net profit fell 56% after a EUR430 million write-down at its German waste business.

LARSEN IN TALKS TO BUILD INDIA NUCLEAR PLANTS
Larsen & Toubro expects to sign separate initial pacts soon with General Electric, Areva and Russia's state nuclear firm Rosatom to build nuclear reactors in India, a senior executive with Larsen says.

TOTAL EYES RESTRUCTURING NORMANDY REFINERY
French oil firm Total is moving towards a restructuring of its Normandy refinery at Gonfreville after two years of study, a French newspaper reports.

CNPC IN TALKS TO BUY KAZAKHSTAN OIL ASSET
China National Petroleum is in talks to buy an oil asset in Kazakhstan and will build a pipeline to the Russian border, a press report citing the company President Jiang Jiemin says.

CHEAPER COAL LURES JAPAN UTILITIES
Japan's top two thermal coal buyers are taking larger volumes of lower quality, cheaper coal, and are turning to the spot market, in order to cut costs and diversify sources of supply.

US OIL FUND AT THE MERCY OF TRADERS
The exchange-traded fund U.S. Oil Fund LP has expanded from a $7 million ETF just three years ago to $3.8 billion, drawing the attention of regulators and making it harder for the fund to keep up with oil prices.

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