U.S. Market Update

Dow +35 S&P 0.0 NASDAQ -1

Markets are very active this morning as rumors and macroeconomic jitters roil markets. Futures ran up respectably in the premarket after the May nonfarm payrolls data came in much, much lower than expected (-345K V -520Ke), making for the smallest decline in the series since last September, coupled with the first upward revision of the back month data in nine months. But equity indices immediately gave back gains after the NY open, dropping straight into negative territory in the first hour of trade as rumors circulated that the nonfarm payrolls number had been significantly miscalculated (with speculation centering on a fishy birth/death adjustment). Labor Secretary Solis denied the rumors in a statement around 10:30amEST. By 10:45amEST indices had bounced back into positive territory. Rumors aside, the May annualized unemployment rate hit 9.4%, a bit higher than expected and now over the psychologically-important 9% level. PIMCO's Bill Gross chimed in right after the data, noting that he believes things are now worse than the government's "more adverse" scenario for unemployment used in the stress tests. Front-month NYMEX crude peeked above $70 this morning before trading back down to around $68 as strength in the Dollar weighed on commodities.

Trading in US Treasury markets was wild this morning as the jobs data and comments from the Fed's Lockhart sent yields flying. All eyes were on the jobs figures, but about 15 minutes before the nonfarm payrolls release Lockhart reiterated his belief that it was imperative the Fed doesn't wait too long to begin tightening and that he is neutral on the notion of increasing long term Treasury purchases at this time because it could imply "purposeful monetization." Yields were at six-month highs heading into the jobs report and surged on the much better than expected non-farm payrolls figure. Interestingly the curve flattened noticeably as 2-year rates moved up a staggering 25 basis points. The benchmark 10-year yield approached 3.9% on the spike but has since backed off to 3.8% while short term rates continue to push higher. The benchmark spread was trading at another all time high of 280bp pre data, but is now dipped back below 260bp. The Dec Fed fund future has sold off and now prices in roughly a 70% chance the Fed hikes rates at the end of the year, although Bill Gross said he doesn't see the Fed raising rates anytime soon because unemployment likely won't peak until the end of the year.

The ADRs of Rio Tino and BHP opened up +9% and +7%, respectively, after the announcement of their game-changing iron ore JV overnight. BHP has been the big winner of the breakdown in Rio Tinto-Chinalco negations, which has Rio walked away from. Rio shareholders had been vehemently opposed to the deal with Chinalco, voicing concerns that the deal would have been a fire sale of valuable assets during a period of unprecedented market turmoil, not to mention the uneasiness over a loss-making arm of the company's biggest client (China) having access to the company's board and pricing agreements. Analysts have noted that BHP appears to have now achieved its main objective of last year's failed takeover of Rio Tinto, namely synergies at Pilbara. For an equity investment of $5.8B, BHP expects to generate $10B in savings in the near term.

Press reports this morning discussed Apple's plans to launch a cheaper version of the iPhone at its developers conference next Monday. In addition, the WSJ writes that Steve Jobs is likely to return to work this month. Chip giants Applied Materials and Intel have been commenting on the state of the market. AMAT's CEO told the Commercial Times that there are no signs of a stable recovery in demand in the global chip market. More specifically, he said that while the decline in demand has bottomed, orders are coming only from China, not the US and Europe. Intel's EMEA Chief concurred, noting that the slump may have hit bottom, noting that he expects to see demand growth in the second half of 2009.

In other equity news, Merck is down 2% on news that a Phase III study of its Rolofylline drug did not meet the primary or secondary efficacy endpoints for acute heart failure. Guess? is up a respectable 6% after beating revenue and earnings estimates in its first quarter earnings report. Midcap retail services firm ABM Industries is up 10%% after missing estimates slightly but reaffirming its 2009 guidance. IT services Agilysys is off 5% after a disastrous Q4 report.

In currencies, the greenback was steady heading into the payroll data. The deceleration in job losses indicated by the data, combined with recent signs of stabilization in housing and manufacturing, may signal the economic slump is easing. Still, dealers are keeping in mind that US consumers are spending less and saving more than in quite some time. USD and JPY were initially weaker on the rise in risk appetite from the positive data; EUR/USD tested 1.4265 in the initial knee-jerk market reaction. However, the miscalculation rumors and Lockhart's comments quickly reversed USD sentiment. All in all, the USD has maintained a firm tone for most of the New York session, with the EUR/USD testing below the 1.40 handle and GBP/USD dipping below the 1.60 level.

Trade The News Staff
Trade The News, Inc.

Legal disclaimer and risk disclosure

All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.