DEC 5th – GLOBAL EQUITIES – DAILY REVIEW

DEC 5th

Upbeat Jobs Data Leads To Modest Strength On Wall Street – Shy of a Major Milestone, Dow Closes at New High – Nov jobs report comes in well ahead of expectations – Financials lead on the day, energy falls again

U.S. stocks rose on Friday, with the Dow and S&P 500 on track for their seventh straight weekly advance after the November jobs report came in much stronger than anticipated, boosting banks and other sectors tied to the pace of growth, but perhaps to the point where interest rates could rise sooner than previously anticipated.

Despite some late-day volatility, stocks managed to end Friday’s trading mostly higher in reaction to upbeat employment data. The gains on the day more than offset the modest weakness seen in the previous session, lifting the Dow and the S&P 500 to new record highs.

The major averages ended the day modestly higher but well off their best levels. The Dow rose 58.69 points or 0.3 percent to 17,958.79, the Nasdaq inched up 11.32 points or 0.2 percent to 4,780.76 and the S&P 500 climbed 3.45 points or 0.2 percent to 2,075.37.

Nonetheless, the major averages turned in a mixed performance for the week. While the Nasdaq edged down by 0.2 percent, the Dow advanced by 0.7 percent and the S&P 500 rose by 0.4 percent.

The strength on Wall Street came following the release of a report from the Labor Department showing much stronger than expected job growth in the month of November.The report said non-farm payroll employment surged up by 321,000 jobs in November compared to economist estimates for an increase of about 230,000 jobs. The increase reflected the strongest monthly job creation since January of 2012.The Labor Department also said the job gains in September and October were upwardly revised to 271,000 and 243,000, respectively, reflecting a net upward revision of 44,000 jobs.However, while the report paints a positive picture of the employment situation in the U.S., the data also raised concerns about the outlook for interest rates.Peter Boockvar, managing director at the Lindsey Group, said, “Bottom line, how could the Fed with a straight face keep rates at zero in the face of strong job growth and now the possibility of wage inflation?””They can’t and it’s why the two-year note yield is spiking by 7 basis points to the highest since April 2011,” he added. “We reiterate a March rate hike and now maybe sooner and markets need to adjust to this reality.”The monthly jobs report largely overshadowed a report from the Commerce Department showing that the U.S. trade deficit narrowed in October but still came in wider than expected.The Commerce Department said the trade deficit narrowed to $43.4 billion in October from a revised $43.6 billion in September, while economists had expected the deficit to narrow to $41.0 billion.A separate report from the Commerce Department said factory orders fell by 0.7 percent in October compared to expectations for a 0.3 percent decrease.Bank stocks and other sectors tied to the pace of growth led on the day, though continued weakness in crude oil weighed on energy shares. While major indexes ended off their highs of the session, both the Dow and S&P closed at records.Financials led the day’s gains, up 1.2 percent as higher interest rates would prop up earnings in the sector. Bank of America (BAC) rose 2.8 percent to $17.70 while Goldman Sachs (GS) was up 2.4 percent to $196.50, boosting the Dow.Utilities, a dividend play, fell 1.1 percent as Treasuries yields rose. Energy fell 0.5 percent alongside a 1.1 percent drop in crude prices.”This report solidifies the idea that the economy is getting stronger, and the more economic activity on Main Street, the better it will be for financials,” said Adam Sarhan, chief executive of Sarhan Capital in New York.”The economy doing well is win-win-win across the board for financials, because it means more lending, more economic activity, and with markets at highs, brokers are getting more in commission and this and that. Financials are poised to move much higher.””The day’s market action has to be seen in the context of the recovery we’ve had year-to-date. Payrolls confirm the strength of the economy, but that strength is reflected in stock prices,” said Sanchez, who helps oversee $16 billion in assets.Starbucks powered to an-all time high as the coffee shop icon debuted a huge flagship Starbucks store in its hometown of Seattle. SBUX ended the day at $83.57 per share, a gain of 2.8%.American Eagle Outfitters (AEO) fell 14 percent to $11.82 after the teen apparel retailer forecast a current-quarter profit below analysts’ estimates and reported its fifth straight drop in quarterly income.Sector NewsElectronic storage stocks turned in some of the market’s best performances on the day, resulting in a 2 percent gain by the NYSE Arca Disk Drive Index. With the gain, the index reached its best closing level in over three years.Quantum (QTM) and Hutchinson Technology (HTCH) posted standout gains within the storage sector, jumping by 7.1 percent and 5.7 percent, respectively.Banking and brokerage stocks also saw significant strength on the heels of the upbeat jobs data, with the Dow Jones Banks Index and the NYSE Arca Broker/Dealer Index climbing by 1.8 percent and 1.6 percent, respectively.Adding to the strong gains posted in the previous session, airline stocks also moved notably higher on the day. The NYSE Arca Airline Index rose by 1.2 percent to its best closing level in over twelve years.On the other hand, gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 2.6 percent. The weakness in the sector came as gold for February delivery tumbled $17.30 to $1,190.40 an ounce.Energy stocks also moved lower along with the price of crude oil, while interest rate sensitive utilities stocks also saw some weakness.Other MarketsIn overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan’s Nikkei 225 Index inched up by 0.2 percent, while Hong Kong’s Hang Seng Index advanced by 0.7 percent.The major European markets also moved to the upside on the day. While the U.K.’s FTSE 100 Index surged up by 1 percent, the French CAC 40 Index and the German DAX Index soared by 2.2 percent and 2.4 percent, respectively.In the bond market, treasuries came under pressure on the heels of the upbeat jobs data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 5 basis points to 2.307 percent.Looking AheadWhile the economic calendar for next week is relatively light, traders are likely to keep a close eye on reports on weekly jobless claims, retail sales, and producer price inflation.On the earnings front, H&R Block (HRB), Pep Boys (PBY), AutoZone (AZO), RadioShack (RSH), Costco (COST), Toll Brothers (TOL), Ciena (CIEN), and Adobe (ADBE) are among the companies due to report their quarterly results next week.Canada MarketsCanadian stocks rebounded to end a tad higher on Friday, tracking some upbeat economic data out of the U.S. and eurozone, even as Canadian unemployment increased in November, albeit in line with estimates.However, weak commodity prices and speculation that U.S. interest rate hike may come sooner than earlier thought, weighed on the market.Investors also digested a report from Statistics Canada showing Canadian unemployment to have come in at 6.6 percent in November, up from a six-year low of 6.5 percent in the preceding month. However, that was in line with economists’ forecasts.Employment in Canada dropped 10,700 in November, due mainly to decline in retail positions, reflecting a soft recovery for the economy with plunging oil prices impacting the country’s major export.Meanwhile, Canadian trade surplus narrowed for a third straight month in October as export growth slowed, according to Statistics Canada.The benchmark S&P/TSX Composite Index closed Friday at 14,473.70, up 3.75 points or 0.03 percent. The index scaled a intraday high of 14,542.02 and a low of 14,435.04.On Thursday, the main index plunged to end sharply lower after the European Central Bank failed to announce any additional stimulus measures this year while leaving key interest rates unchanged.Crude oil ended lower extending its fall in the previous session after Saudi Arabia slashed prices for its U.S. and Asian customers. Oil prices firmed on news of some solid U.S. jobs data for November, but surrendered much of the gains as the dollar rallied to reach multi-year highs on the news.The Energy Index dipped 0.10 percent, with U.S. crude oil futures for January delivery dropping $0.97 or 1.5 percent to close at $65.84 a barrel on the Nymex Friday.The Global Gold Index shed 2.15 percent, with gold for February delivery dipping $1.00 or 0.1 percent to settle at $1,207.70 an ounce on the New York Mercantile Exchange Thursday.In the gold space, Barrick Gold Corp. (ABX.TO) shed 2.72 percent, Agnico Eagle Mines Limited (AEM.TO) fell 1.78 percent, Goldcorp Inc. (G.TO) dropped 1.89 percent, Franco-Nevada Corp. (FNV.TO) declined 2.78 percent, and Yamana Gold Inc. (YRI.TO) surrendered 1.32 percent.European MarketsEuropean stocks rallied on Friday, with Germany’s DAX hitting a record closing high, boosted by data showing U.S. employers took on the most workers for nearly three years in November.Non-farm payrolls surged by 321,000 last month, the most since January 2012 and well above a forecast of 230,000 by economists polled by Reuters.”We knew that the U.S. economy was getting better and better, but these figures are very strong. It really fuels the bullish sentiment on the market,” Saxo Bank trader Pierre Martin said.The strong U.S. jobs data came after figures on Friday showed German industry orders rose far more than forecast in October.Germany’s DAX surged 2.4 percent, ending at a record closing high of 10,087.12 points.The FTSEurofirst 300 index of top European shares closed up 1.8 percent at 1,405.17 points, with blue-chips such as AB Inbev, Daimler and Vodafone leading the broad-based rally, up 3 percent to 3.6 percent.The FTSEurofirst 300 had fallen 1.4 percent on Thursday after the European Central Bank stuck to its line that any decision on further stimulus would be made next year, sparking a profit taking.”People had bought the rumor and they sold the news. There was no major surprise in Draghi’s speech. We’re still betting on a slow recovery in the European economy,” Barclays France director Franklin Pichard said.Bucking the trend, shares in oil services firms lost ground again as Brent crude hovered around $69 a barrel. Seadrill lost 5.6 percent and Saipem fell 6.2 percent.This year’s sharp drop in crude prices has forced a number of oil services firms, including Seadrill, to scrap their dividends as oil majors accelerate cost-cutting efforts.The STOXX oil and gas index has tumbled 23 percent since June, wiping $240 billion off market capitalisation, more than the entire market value of Shell, Europe’s biggest oil major, Thomson Reuters data shows.Asian MarketsAsian stocks rose broadly on Friday as expectations of more stimulus from central banks in Japan and China helped cushion the disappointment over the lack of clarity from European Central Bank Mario Draghi on deploying additional monetary stimulus to mitigate deflation risks.While Draghi failed to provide any new details about the central bank’s quantitative easing plan or the outright purchase of sovereign bonds, he left the door open for drastic measures early next year if the ECB saw the risks of “too prolonged a period of low inflation.”Meanwhile, investors keenly awaited the closely-awaited U.S. jobs data due out later in the day for further signs that the world’s largest economy is on the mend. The jobs report is expected to show that U.S. employers added more than 200,000 jobs for the 10th straight month in November, with the jobless rate seen holding steady at the lowest level since July 2008.Chinese shares ended an extremely volatile session sharply higher, led by gains in financials. The benchmark Shanghai Composite index saw wild intraday swings, gaining as much as 2.7 percent and falling 3 percent before finishing 1.32 percent higher at 2,937.65. The benchmark index surged 4.4 percent on Thursday.Hong Kong’s Hang Seng index rose 0.71 percent to 24,002.64, with sentiment aided by increased investment flowing from mainland through the Shanghai-Hong Kong Stock Connect scheme.Japanese shares extended gains for a sixth consecutive session as a weaker yen boosted exporter shares. The dollar rose above the 120-yen mark for the first time in seven-and-a-half years amid fresh signs of resilience in the world’s largest economy. The benchmark Nikkei average rose 0.2 percent to 17,920.45, its highest level since July 2007, while the broader Topix index advanced 0.4 percent.Exporter shares outperformed, with Nissan Motor, Fanuc, Hitachi Construction Machinery and Isuzu Motors climbing 1-5 percent. Heavyweight Fast Retailing dropped 1.6 percent on profit taking after recent sharp gains.Australian shares ended firmly in the red after opening on a positive note. The benchmark S&P/ASX 200 index gave up early gains to end down 0.62 percent at 5,335.3, dragged down by mining and energy stocks. Mining giant Rio Tinto fell 3.5 percent, BHP Billiton dropped 1.5 percent, smaller rival Fortescue Metals Group tumbled 3.3 percent and gold miner Newcrest lost a percent.In the energy sector, Woodside Petroleum, Oil Search and Santos fell 2-4 percent. Banks also fell broadly, with ANZ, Commonwealth, Westpac and NAB closing down between 0.4 percent and 1.3 percent.Leighton Holdings eased 0.4 percent despite the construction firm winning a $150 million contract to widen Sydney’s M4 motorway. Shares of engineering & construction company Bradken soared over 36 percent as private equity giants Bain Capital Asia and Pacific Equity Partners made a joint bid to acquire 100 percent of its ordinary shares for $5.10 each.Seoul shares ended flat after moving in a narrow range all through the session. The benchmark Kospi average rose 0.01 percent to 1,986.62.New Zealand shares ended little changed with a negative bias as investors turned risk averse after sharp gains earlier this week. The benchmark NZX-50 index slipped 0.01 percent to 5,522, with profit booking seen in most of the recent outperformers. Air New Zealand tumbled 2.5 percent while Spark New Zealand, formerly Telecom Corp, lost a percent. Milk marketer The A2 Milk Company paced the declines on the exchange, falling 4.8 percent to 60 cents, and biotech firm Pacific Edge slumped 4.5 percent. Elsewhere, Indian shares were marginally lower and the Taiwan Weighted average dropped 0.2 percent, while the benchmark indexes in Indonesia, Malaysia and Singapore were up between 0.2 percent and 0.4 percent.** Sensex Erases Early GainsIndian shares erased early gains to end lower on Friday as selling in sectors like IT, oil/gas and healthcare offset gains in FMCG and realty stocks.The benchmark S&P BSE Sensex ended the session down 104.72 points or 0.37 percent at 28,458.10, while the broader CNX Nifty index dropped 26.10 points or 0.30 percent to 8,538.30.Among the top losers, Hero MotoCorp, ONGC, Infosys, Cipla, Tech Mahindra, BPCL, Wipro, Sun Pharma, TCS and Dr Reddy’s Laboratories fell 1-2 percent.SAIL shares declined 2 percent after the government’s share sale offer for the steelmaker got over-subscribed.Low-cost carrier SpiceJet tumbled nearly 14 percent on reports the Airports Authority of India has withdrawn credit facility relating to airport user fees to the embattled airline at all airports in the country from Thursday midnight.Rate-sensitive stocks outperformed, with Kotak Mahindra Bank, Bank of Baroda, PNB, Mahindra & Mahindra and DLF rising 1-5 percent on hopes of monetary easing from the Reserve Bank of India. ITC rose 1.8 percent, adding to Thursday’s 5.5 percent surge after reports suggested the government may not ban the sale of loose cigarettes.Hindustan Construction Company soared 4 percent. HCC Concessions, the infrastructure development arm of the company, has announced the sale of its annuity project in Andhra Pradesh to Highway Concession One Pvt for Rs. 64 crore.

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DEC 5th – GLOBAL EQUITIES – DAILY REVIEW

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