Markets Shake Off Dismal Employment Data and Point to Higher Open

November 7, 2008 – The futures are pointing towards higher openings this morning on the heels of two sessions of sell-offs on dismal labor market data. They lost considerable steam on after the Labor Department’s report, but surprisingly, they are still in positive territory. This is a good reaction to a very bad report.

Expectations were subdued for this morning’s nonfarm payrolls report from the Labor Department which was expected to show that employers cut 200,000 jobs in October, an increase from the 159,000 cut in September. Unemployment was expected to increase to 6.3% from 6.1%. The Labor market reported 240,000 jobs were lost in October and the unemployment rate jumped to 6.5%. 1.2 million jobs have been lost in the first 10 months this year. Average hourly earnings were up slightly. 90,000 jobs were lost in the manufacturing jobs in October.

Nouriel Roubini’s estimate for unemployment in the U.S. is that we are going to get to 9% unemployment rate. Given the fact that Roubini is one of the few economists that has been right, we are preparing for further deterioration in the labor market. 6.5% is a 14-year high.

Oil prices are up $1.26 this morning to $62.03 on a weaker dollar against the euro, which is up to 1.2771, but still way off the 1.50 levels reached a few months ago. Gold prices are up $5 this morning to $737.20. Our expectations remain bearish for the dollar, and bullish for oil and gold over the longer term, as the U.S. national debt continues to mount. Moreover, Goldman Sachs reported this morning that it expects the Fed to ease another 50 basis points in the near term, so, if they are right this will add further pressure on the dollar. Frankly, even the expectations of further rate cuts will likely create additional downward pressure.

On the international front, Latvia’s economy reportedly contracted by 4.2% on a Y/Y basis. Interbank lending rates in Europe fell Friday by about 0.12 percentage points to 4.47, the lowest level since March 6. The IMF reported that growth in Cambodia will slow to 4.8% next year, which grew by 10.3% last year. Poland is set to provide $200 million to an IMF rescue fund for Iceland.

On the corporate front,

·         Ford (NYSE:F) reported a Q3 loss of $129 million, or $0.06 per share, on sales of $32.1 billion, down 22% Y/Y year. Last year for the same period it reported a loss of $380 million, or $0.19 per share. In the most recent quarter Ford also burned through $7.7 billion in cash. It also announced that it is cutting 2,260 more jobs in North America.

·         Wacker Chemie AG is supplying Yingli Green Energy (NYSE:YGE) with polysilicon from 2010 through 2017 which Yingli says will allow for production of about 380MW of PV modules.

·         In the cellular markets - Microsoft (Nasdaq:MSFT) is reportedly talking to Verizon (NYSE:VZ) about replacing Google’s (Nasdaq:GOOG) search function on Verizon phones, which would be a huge blow to Google’s wireless strategy. And Sprint Nextel reported Q3 revenue of $8.81 billion, down 12% Y/Y, and a loss of $326 million, or $0.11 per share, down from earnings of $64 million, or $0.02 per share last year.

In terms of what we expect in today’s session, we are frankly surprised to see the future pointing to higher openings on the Labor Department report. We get the fact that bad news had been factored into prices over the past two sessions, but with the corporate earnings environment and guidance being what it has been in the past week or so, there is every reason to further dim expectations, and price that further into the broader markets. Our target for further accumulation of stocks has been below the 8,500 mark on the DJIA and its has almost pulled back to this level, down about 1,000 points in the past couple sessions. Our target trading range for the DJIA is between the 8,000 and 9,600 level for the foreseeable future.

Fast Facts

·         The national debt is up to $10.58 trillion this morning.