Jobs Report Pulls Down the Market

[Excerpted from Bill Cara's Daily Report]

After the release of the Department of Labor’s December Employment Report, which was even more negative than expected, there was a broad-based sell-off in equities and pressure on oil futures contracts at the open on Friday. Following a quiet session, there was a late sell-off into the close.

The close in NY was the lowest since Monday Dec. 29. The DJIA (-143.28 -1.64% to 8599.18), S&P (-19.38 -2.13% to 890.35) and NASDAQ Composite (-45.42 -2.81% to 1571.95) all plunged, but not as bad as the Russell 2000 small cap index (-4.13% to 481.30).

The Toronto Composite (-136.40 -1.48% to 9085.18) and Venture Board (+9.43% to 908.90) went off in opposite directions.

Earlier Friday, the Asia-Pacific equity markets were mixed and quiet: Hong Kong (-0.27% to 14377.4), Tokyo (-0.45% to 8836.8), Shanghai (+1.42% to 1904.9), Australia (+1.01% to 3680.4), and India (-1.88% to 9406.5). India made up ground after being closed Thursday when other markets had been quite weak.

The final US Employment Report for 2008 showed a loss of 524,000 jobs (expected loss: 500k) for December, which pushed the total job loss for 2008 up to 2.6 million. The Report also showed that the Unemployment Rate jumped to +7.2% (expected: 7.0%), which is the highest since January 1993.

As the unemployment rate soars, additional pressure is on President-Elect Obama to come up with stimuli plans that will shake the economy out of its recession. Ultimately there will be more jobs and higher consumer confidence, but people are dwelling on the negatives.

Traders seized the expected negative employment news opportunity to sell down the oil market briefly below $40 per barrel before closing at $40.83. Just moments before this report, the Crude Oil contracts had dropped to just $41.13.

Earlier in the day, the European bourses grew softer as the session continued, particularly the DAX: French CAC -0.75% to 3299.50; German DAX -1.97% to 4783.89; and UK FTSE -1.26% to 4448.54.

With all sectors selling off in NY Friday, the best was Utilities XLU -0.8%), and the worst were Energy (-3.4%), Financials (XLF -3.2%) and Consumer Discretionary (XLY -3.1%).

Among the stocks of the Cara 100, there were only 12 winners, including: First Solar (FSLR +4.6%), Whole Foods again (WFMI +2.4%), Genentech (DNA +2.3%), and Research in Motion (RIMM +2.1%). The losers were led by boat-builder Brunswick Corp (BC -13.1%), which fell in line with the falling T-Bill yield (ie, tightening credit conditions), Argentine oil pipe steelmaker Tenaris (TS -6.7%) and Canada’s diversified metals and coal miner Teck (TCK -6.7%).

US Treasury bonds and T-bills lifted in price as yields fell in a credit market squeeze, probably enhanced by the safe-haven move out of equity prices, both due in part to the weak US employment data.

In the forex market Friday, the US Dollar was very strong, up +1.40% to 82.71, and so was the Japanese Yen (+0.77% to 110.60), as risk was sold during the day. The Euro (-1.82% to 134.53), Pound (-0.16% to 151.95), and Loonie (-0.79% to 84.05) were soft.

Despite the safe-haven move and the very strong performance of the USD and Yen, and the higher $USB (30-year Treasury bond +0.09% to 133.14), Gold and other metals managed to overcome the lower start to the day and close slightly higher.

After being at 858.20 at 8:16am ET, $GOLD closed at 855.00, up +$0.50/oz on the day. The gold spot price closed the week at 852.90.

Spot prices for palladium, platinum and silver at the close of the week (compared to the 8:16am ET pre-US Jobs data release at 8:30am) were: 191 (194); 990 (989); and 11.2425 (11.22), respectively. So, despite a weaker $USD earlier in the week, and then a very strong $USD on the day, the precious metals are more or less flat here.

DJIA futures at the close were 8523.

Volume is continuing to return to the market, but that was not so evident on Friday as there was good volume (ie, greater than +25% of the recent average daily volume) in just 17 of the Cara 100.