Disappointing Payroll Numbers Have Markets Under Pressure

Jan.10.11 | About: Alcoa, Inc. (AA)

Markets have started the weak on a slightly negative note Monday, under pressure after Friday's U.S. Non-Farm Payroll number came in lower than expected.

Despite the headline number showing a 103,000 increase in jobs for December, while at the same time unemployment fell to its lowest point since May 2009 at 9.4%, the data just did not hit market expectations on Friday, and has caused some pull back in the more optimistic positions held before it was released.

Today's economic calendar sees a very light day, with Canadian Building Permits at 8:30 EST and U.S. Employment Trends Index numbers at 10 EST, the only real figures of note. The fourth quarter earnings season does begin to kick off today, however, with aluminium producer Alcoa (NYSE:AA) releasing its Q4 results after the bell today.

U.S. stock futures pointed to a negative open for Wall St today, following on from negative trading in Asia and Europe overnight, with the financial sector set to take focus as large institutions brace themselves for a new battery of stress tests to determine who is healthy enough to raise dividends and buy back shares.

The Fed will be examining data this week from 19 groups, in order to gauge how well their balance sheet would hold up to a series of financial and economic shocks, in a similar vein to the stress tests of May 2009. It has been argued by investors and banks alike that the government's tough line on the sector holding back their earnings to shore up capital is leaving the companies undervalued despite returning bumper profits this past year. Results from this current round of testing are expected to come around in March, setting up the large U.S. names for a hike in dividends as Q2 gets underway.

In the FX market, the Brazilian real is once again coming into focus today, after the country’s Finance Minister Guido Mantega signalled that Brazil is preparing new measures to prevent appreciation of its currency, and was planning on raising the issue of exchange rate manipulation with the World Trade Organization (WTO), where he suggests the U.S. and China are the worst offenders. Elsewhere today, the greenback is under pressure following Friday's disappointing NFP payroll data - down around 25 pips against the euro, which is itself treading water somewhat as concerns surrounding Eurozone peripheral debt re-emerge ahead of the Portuguese auction this week.

Yields on the Portuguese and Spanish 10-year notes are at a euro-era high again today of 7.17% and 5.57% respectively, although the traditional flow of money towards the safer haven bonds has not emerged, with U.S. Treasuries, U.K. Gilts and German Bunds all seeing yields a few basis points higher on the day.

Disclosure: None