MarketView for October 2

 

 

Summary   

 

Stock prices were lower again on Friday as weak jobs data created a new round of expectations and concerns that the economic recovery could end up being a bit less robust than had been previously expected. The larger than expected decline in September non-farm payrolls and a decline in factory orders pulled down economically sensitive sectors like industrials and energy.

 

Boeing ended the day down 1.4 percent to close at $51.40 and was the largest drag on the Dow Jones industrial average.

 

Crude oil futures fell 1.2 percent per barrel to settle at $69.95, prompting traders to sell shares of Chevron and Exxon Mobil, both of which closed down 1 percent.

 

Stocks had their second-straight week of losses and the blue-chip Dow had its largest weekly percentage decline in three months.

 

More downbeat news came from General Electric, which slid 3.8 percent to $15.36 after the company indicated that it was holding discussions on partnerships or an initial public offering for its NBC Universal unit.

 

However, Apple chalked up a 2.2 percent gain to close at $184.90 after UBS upgraded the shares to "buy" and hiked its price target by 56 percent to $265.

 

PepsiCo posted a 4.2 percent gain to close at $60.90 after Deutsche Bank raised its price target on the soft drink company's stock.

 

Unemployment Hits 9.8 Percent

 

Employers cut a deeper-than-expected 263,000 jobs in September, fueling fears the weak labor market could impede the economy's recovery from its worst recession in 70 years.

 

The 21st straight monthly decline in non-farm payrolls helped to lift the unemployment rate to a 26-year high of 9.8 percent from 9.7 percent in August, according to a Labor Department report.

 

While the contraction in employment was worse than the 180,000 drop economists surveyed by Reuters had predicted, many believed it did not signal the start of a reversal in the trend toward stabilization of the labor market.

 

Some analysts even suggested September's reading might have been distorted by a sharp drop in government employment.

 

The jobless numbers might be bad news for U.S. President Barack Obama's attempt to reform the U.S. healthcare system, as Congress will want to limit spending on a health sector overhaul if the economy is taking longer to recover.

 

While Obama's overall approval ratings have stabilized at 50 percent or above since August, deepening unemployment could drag them down and polls continue to show significant opposition to his handling of healthcare.

 

Vice President Joe Biden described the employment report as "tough news" and appeared to indicate the economy, which received a $787 billion spending package this year, might not need a second stimulus package.

 

"We are still working on finishing the first one and doing it right. We also know all along that the recovery was going to take a long time," Biden told reporters at the White House.

 

The government revised job losses for July and August to show 13,000 more jobs were lost than previously reported.

 

Stubbornly high unemployment is viewed as the missing link in recovery from the longest and deepest slump since the Great Depression of the 1930s. The economy is believed to have started growing in the third quarter.

 

Since the start of the recession, the number of unemployed people has soared 7.6 million to 15.1 million, the department said. While the pace of job losses has moderated from early this year, companies are still not hiring on a big scale, likely waiting for a signal that the recovery is sustainable.

 

Manufacturing employment fell by 51,000 in September, while construction industries payrolls dropped 64,000. The service-providing sector cut 147,000 workers in September, while goods-producing industries shed 116,000 positions.

 

Education and health services added a mere 3,000 jobs, while government employment fell 53,000 -- reflecting cutbacks by state and local governments, many of which are facing accelerating fiscal problems.

 

Even more concerning, a gauge of labor market slack that measures both the officially unemployed and discouraged job seekers rose to a record 17 percent in September from 16.8 percent in August. The report also showed 5.4 million people had been unemployed for more than six months.

 

Still some economists are unperturbed by the poor September employment report.

 

The average workweek, which closely correlates with overall output and gives clues on when firms will start hiring, dipped to 33 hours from 33.1 in August, the data showed.

 

Average hourly earnings inched up to $18.67 from $18.66.

 

Crude Down Sharply

 

Crude oil futures for November delivery settled down 87 cents per barrel at $69.95, while London Brent settled down $1.12 per barrel at $68.07 after the day’s employment reportss raised doubts about the strength of the economic recovery.

 

Oil inventories have increased sharply as the recession reduced global fuel demand, sending crude prices from record highs of close to $150 per barrel in July 2008, to below $33 a barrel in December.

 

Crude found some support as the jobs data pushed down the dollar. A weaker greenback tends to boost commodities, which become less expensive to buyers using other currencies.

 

Oil markets were also watching talks between six major powers and Iran -- the second largest oil exporter in OPEC -- over Tehran's nuclear program. Both the United States and Iran described Thursday's talks as productive, after Iran agreed to allow U.N. inspectors into a newly disclosed uranium enrichment plant.

 

While tensions between Iran and the West over the nuclear program have supported prices at times in recent years, the current situation could and should quiet down again.

 

GE Looking To Unload NBC Universal

 

General Electric is holding discussions on partnerships or an IPO for its NBC Universal unit, Chief Executive Jeffrey Immelt said, as expectations grow about a deal with Comcast. "Discussions are ongoing whether it is an IPO or another partnership," Immelt told reporters on Friday in response to a question on whether GE was talking to Comcast to sell a stake in NBCU.

 

The word on the Street is that GE and Comcast are discussing a deal under which Comcast would take control of 51 percent of NBC Universal with GE keeping the rest. GE, which owns 80 percent of NBC Universal, is said to be pondering its options for the fourth-place TV network and ailing movie studio as its partner, Vivendi, draws closer to a decision on whether to unload its 20 percent stake. GE has the right of first refusal to pick up Vivendi's stake if the French company exercises its annual option to sell. Immelt declined comment when asked if GE was planning to buy Vivendi's stake.

 

The Wall Street Journal reported that Vivendi's board would meet on October 16 to decide whether to ratify the company's plan to buy Brazilian telecom group GVT for $2.9 billion. There has been speculation that Vivendi may also discuss the NBCU stake at the meeting. The October 16 date is circulating because it is the deadline for having completed due diligence on the GVT deal.

 

The sale of its NBCU stake would allow Vivendi to continue to expand in emerging countries and to buy out minority investors in Canal Plus France, its pay-TV business. Unlike NBCU, Canal Plus is viewed as a key business for Vivendi.

 

Immelt was in the Indian capital to announce the integration of GE's healthcare units in south Asia into a joint venture it runs with No. 3 Indian outsourcer Wipro Ltd.

 

"The financial aspect is relatively small. The focus is really on growing the business in future, this is more about consolidation of all disparate GE healthcare enterprises inside one substantial JV," Immelt told a news conference.

 

Immelt also said he saw some improvement in the markets of the United States, Europe and other developed economies. "The capital markets have definitely improved. There is reason to see stability and some optimism for the future," he said.