Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:53 AM EST
S&P 500: +6.10; 1,539.00
NASDAQ 100: +8.75; 1,941.00
Dow: +45.00; 13,695.00
NIKKEI 225: +0.47%; 17,958.88 (+83.13)
HANG SENG: -0.15%; 20,602.87 (-31.60)
S&P/ASX 200: +0.32%; 6,333.50 (+20.00)
BSE SENSEX 30: +0.18%; 14,570.75 (+26.29)
FTSE 100: +0.24%; 6,637.00 (+15.60)
CAC 40: +0.45%; 6,131.49 (+27.49)
XETRA-DAX: +1.26%; 7,982.01 (+98.97)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.17%; $63.90 (-$0.11)
Gold: +0.30%; $668.70 (+$2.00)
Natural Gas: -0.73%; $7.88 (-$0.06)
Silver: +0.89%; $13.59 (+$0.12)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Payrolls Surge and Inflation Falls, But So Does Personal Income
Nonfarm payrolls surged a surprising 157,000 in May, well ahead of the 135K gain forecast by economists. Inflation came in lower than expected, personal income dipped, while consumer spending was stronger than forecast. The number of unemployed persons (6.8 million) and the unemployment rate (4.5%) were unchanged, while average hourly earnings increased by $0.06 (0.3%) to $17.30, following April's 0.2% gain, according to data released by the Labor Department Friday morning. Economists expected unemployment to hold at 4.5% and hourly earnings to gain 0.4%. Healthcare and food services saw job gains, while employment declined in manufacturing. "The economy is going to perform pretty well, and that will mean stable interest rates for the balance of the year," LaSalle economist Carl Tannenbaum said. Separately, core consumer price inflation increased just 0.1% in April, the Commerce Department said Friday morning. That brings y/y inflation down to 2% -- marking the first time in 14 months that the rate has fallen within the 1-2% targeted by the Fed. Real inflation, which includes food and energy prices, was up 0.2%. Personal income unexpectedly fell 0.1%, and real disposable incomes declined 0.4% -- the first decline in a year. Consumer spending rose an unexpected 0.5%. Economists had been looking for a 0.2% gain in core inflation, a 0.3% increase in personal income, and a 0.4% gain in spending. "Consumer spending will not shoulder all the burden of growth going forward but it continues to be resilient," said Diane Swonk of Mesirow Financial.
Sources: Department of Labor news release, Personal Income release, MarketWatch, Bloomberg I, II
Commentary: Where are the Markets Headed Next? • GDP Update Fails to Derail Market's Momentum • Rising Treasury Yields: Sign to Sell Equities?
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Cantor to Combine eSpeed and BGC; eSpeed's Shares Struggle
Privately held Cantor Fitzgerald plans to sell its closely held BGC Partners brokerage unit for $1.3 billion to eSpeed, a publicly owned electronic bond trading house controlled by Cantor. Post-merger the entity will be named BGC Partners and trade under a new symbol, "BGCP," on the NASDAQ. BGC had filed a $460 million IPO proposal earlier this year and will now withdraw its offering. eSpeed's Board of Directors has approved the merger agreement and transaction via issuing 133.86 million shares of common stock. Cantor spun off eSpeed in 1999, but Cantor chairman and CEO Howard Lutnick retained majority control. The CEO of consulting firm Celent, doubted any increase in the combined unit's competitiveness against rivals Icap and Tullett, saying the transaction is more about simplifying the "bizarre, triangular" relationship. The CEO noted the deal is less attractive for shareholders if Cantor keeps voting control. In a press release from Wednesday, eSpeed's shares are said to be valued at $9.75/share in the transaction, but it has yet to trade near that level, losing 1.4% to $9.10 in normal trading Thursday. In mid-April, eSpeed rejected a possible $12/share takeover from London-based Tullett.
Sources: Press release [pdf], Associated Press, MarketWatch
Commentary: eSpeed: Chapman Capital Cuts Stake to 6% • eSpeed, Inc.: Chapman Rips Into CEO Lutnick And Short Seller Hughes • eSpeed Comments on Tullett Proposal, Recent Shareholder Statements
Stocks/ETFs to watch: eSpeed Inc. (ESPD)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
A revised Q1 GDP (which was lower than expected by 0.1%) would, under other circumstances, have resulted in a weak opening -- but not yesterday.
Preceding the GDP revision was another acquisition, and this time it was one impacting one of Wall Street's own. Wachovia Corp. (NASDAQ:WB) announced that it was buying St. Louis-based A.G. Edwards (AGE) for $6.8 billion and a 16% premium over Wednesday's close.
This sent investors and analysts scurrying to discover other candidates in the financial sector that could become takeover targets, and the buying in that area made everyone forget about the GDP number -- almost with the attitude of "that was then and this is now." The buyout makes AGE the second-largest broker after Merrill Lynch (MER) and ranks it in size ahead of Citicorp (NYSE:C).
On Thursday, the Dow Industrials set another new intraday high but closed lower by five points at 13,628. The S&P 500 set its second-consecutive closing high by just 0.39 points at 1,531, and the Nasdaq added 12 points to close at 2,605. Volume on the NYSE was 1.8 billion shares, and 2.4 billion shares traded on the Nasdaq. Breadth was positive on both exchanges but narrow on the New York, with gainers-to-losers at 19-to-13, while on the Nasdaq the ratio was a positive 3-to-2.
On the commodities front, crude oil (July contract) lost 70 cents and closed at $62.79 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) lost 52 cents at $68.15 and gave a minor reversal signal. Gold (July contract) rallied sharply gaining $7.90 to close at $661 per troy ounce, and the Philly Gold and Silver Index [XAU] rose by $3.70, ending the day at $139.76.
The rally in the XAU penetrated last week's high and confirmed yesterday's reversal. If the XAU can successfully attack the May 7 close at $143.14, then that would reverse the intermediate downtrend and put it in a good position to break out of the pennant that has been forming for more than a year.
The Wachovia/A.G. Edwards deal is only the latest of the merger-and-acquisition activities in May, and according to Thompson Financial, the month ranks as the most active in history. In May, a total of 41 mergers of at least $1 billion were announced. And as a climax to the big month, Morgan Stanley (NYSE:MS) announced that it bought Australia's Investa Property Group for $3.9 billion.
As for the stock market's performance in May, the Dow Jones Industrial Average gained 4.3%, the S&P 500 was up 3.2%, the Nasdaq gained 3.1% and the NYSE Composite gained 3.6%.
What the Markets are Saying
The sentiment numbers published by the American Association of Individual Investors (AAII) offer a fascinating study of the effects of the two major market motivations -- fear and greed -- on investors' actions. Two weeks ago, I remarked about the reaction of the public to a day in which the Dow Industrials took a 140-point loss -- they went to a more neutral stance after turning slightly more bullish the week before. That reading, you may recall, was 39% bullish, 38% bearish and 25% neutral.
Now, after a rally of 146 points, the AAII Sentiment Survey for this week is 33.33% bullish, 44.79% bearish and 21.88% neutral. As the market moves steadily higher, instead of becoming more bullish, they're again retreating to their fear stage from a more-neutral stance and taking on a more-bearish attitude.
Meanwhile, the professionals are still very bullish, and Standard & Poor's notes that we are seeing an even greater spread between the pros and the public than was reported several weeks ago. This is another indicator that should keep us fully invested even though our emotions may tell us to flee.
Today's Trading Landscape
This is a very busy day for economic reports, with the following queued up for today (read above): nonfarm payrolls, jobless rate, hourly earnings, average workweek, personal income, consumer spending, the Institute for Supply Management's index, and finally consumer sentiment.
There are few significant earnings reports due. The big focus will be on the jobs report and its related items. Techs could be weak as a result of a downgrade of Dell (DELL) by Merrill Lynch (MER) and other analysts' comments on the group.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to Record for Second Day; BHP Billiton, Samsung Advance Asian stocks rose to a second straight record, led by BHP Billiton Ltd. (NYSE:BHP) and Samsung Electronics Co., as prices of metals and memory chips climbed.
• Packer Sells Control of Media Empire Built by Father to Buyout Firm CVC James Packer, Australia's richest man, sold a further 25 percent stake in his Nine television network and magazine publisher to buyout firm CVC Asia Pacific, relinquishing control of the media empire his grandfather founded in 1933.
• China's Stocks Decline on Speculation of Further Measures to Cool Market China's shares fell, erasing earlier gains, on concern the government may impose more taxes to cool the market after a tripling of the duty on securities trades failed to deter new investors.
• Malaysia Open to GM, Volkswagen or Local Partner for Proton, Khazanah Says Proton Holdings Bhd., a Malaysian state-owned carmaker seeking a partner, may pick a local automaker after the government said Germany's Volkswagen AG (OTCPK:VLKAY) ended plans to buy a stake.
• HSBC's Hang Seng Bank Plans to Add Employees, Triple China Branch Network Hang Seng Bank Ltd., Hong Kong's second-largest by assets, will triple its branch network in China and add employees as it starts offering consumer banking in the world's most populous nation.
European Headlines (via Bloomberg.com)
• Stocks in Europe Advance on Takeover Speculation; Iberdrola, Lafarge Rise European stocks climbed for a second day as takeover speculation buoyed the utility and construction industries and investors bet a report today will show economic growth in the U.S. is rebounding.
• British Airways Doesn't Expect to Attract Private-Equity Bids, Walsh Says British Airways Plc CEO Willie Walsh dashed speculation about a private-equity bid, saying the airline isn't attractive as a buyout target and hasn't been courted.
• European Manufacturing Growth Unexpectedly Slowed in May as Economy Cools Manufacturing in the euro region expanded at the slowest pace in more than a year in May, signaling that economic growth may have peaked.
• Hedge Funds Should Accept Increased Regulatory Oversight, ECB's Weber Says European Central Bank council member Axel Weber said hedge funds should accept increased oversight by regulators to head off a potentially tougher crackdown in the event of a collapse that disrupts financial markets.