Bloomberg News

U.S. Stocks Drop as Treasuries Advance After Employment Report

January 06, 2012

Jan. 6 (Bloomberg) -- Stocks dropped, trimming a weekly gain, as faster-than-forecast growth in U.S. jobs failed to lift the Standard & Poor’s 500 Index above its October high. Treasuries rose as Federal Reserve Bank of New York President William Dudley said more monetary accommodation is appropriate.

The Standard & Poor’s 500 Index slipped 0.3 percent to close at 1,277.81 at 4 p.m. in New York, trimming its weekly gain to 1.6 percent. The Dow Jones Industrial Average lost 55.78 points, or 0.5 percent, to 12,359.92. Treasury 10-year yields fell four basis points to 1.96 percent. The Stoxx Europe 600 Index ended little changed as Germany’s DAX Index tumbled 0.6 percent and the euro traded at a 15-month low versus the dollar. Natural gas and heating oil led gains in commodities.

While U.S. employers added more workers to payrolls than forecast in December and the jobless rate fell to an almost three-year low, the growth did not beat estimates by as wide a margin as data from ADP Employer Services yesterday that helped trigger gains in equities. A 4.8 percent decrease in German factory orders was the biggest decline in almost three years and fueled concern that Europe was heading into a recession.

“A lot of people knew or suspected that the U.S. number would be a pretty good number but there’s still concerns about the economic growth in Europe,” Mark Bronzo, who helps manage $23.5 billion at Security Global Investors in Irvington, New York, said in a phone interview. “Germany had some economic numbers that were disappointing.”

Alcoa Slips

Alcoa Inc. slid 2.1 percent to help lead the Dow lower after saying it will cut smelting capacity by 12 percent amid a slump in the price of aluminum due to a global surplus. Goldman Sachs Group Inc. and Morgan Stanley fell at least 1.2 percent as analysts at Sanford C. Bernstein & Co., Meredith Whitney Advisory Group LLC and Ticonderoga Securities LLC lowered the banks’ fourth-quarter earnings estimates. Bank of America Corp. lost 2.1 percent.

Banks also retreated after an Obama administration official, who asked for anonymity, late yesterday denied speculation that the White House is considering a trillion- dollar plan to refinance home loans. Bank of America surged 8.6 percent yesterday amid speculation the U.S. may introduce a new mortgage refinancing program.

Alcoa is scheduled to mark the unofficial start of the fourth-quarter earnings season on Jan. 9. Profit at S&P 500 companies rose 6 percent during the September-December period, according to analyst estimates compiled by Bloomberg, which would mark the slowest growth since the third quarter of 2009.

Jobs Data

The 200,000 increase in jobs last month followed a revised 100,000 gain in November that was smaller than initially estimated, Labor Department figures showed. Private payrolls increased by 212,000, beating the median economist estimate by 19 percent. ADP’s payroll figures yesterday showed employers added 325,000 jobs, topping forecasts by 83 percent. The jobless rate dropped to 8.5 percent, compared with the median forecast of 8.7 percent.

Delivery companies such as FedEx Corp. and United Parcel Service Inc. added 42,200 jobs to payrolls in December, about a fifth of the total for all employers last month, as holiday shopping on the Internet spurred hiring of delivery drivers and warehouse workers. History indicates the gain will be followed by a similar-sized loss in January.

‘Need More Catalysts’

With the S&P 500 this week approaching its highest closing levels since Oct. 28 and Aug. 1, chart levels fixated investors today. The index ended yesterday at 1,281.06, within 0.4 percent of its highest close since Aug. 1. Its relative strength index, a measure of how fast prices have risen in the last two weeks, was 61.2. Readings above 70 are considered by some traders as evidence a rally has been too rapid.

“The feeling in the market is that we need more catalysts to break above the resistance levels we are bumping up against right now,” Dan McMahon, director of equity trading at Raymond James Financial Inc. in New York, said in a telephone interview. “We’re in the high end of the trading range that we’ve been stuck in since August.”

Thirty-year U.S. bond yields dropped five basis points to 3.02 percent.

Dudley called on the U.S. government to try new programs to revive the housing market while saying the central bank may still consider ways to cut interest rates.

“Implementing such policies would improve the economic outlook and make monetary accommodation more effective,” Dudley said today in a speech to bankers in Iselin, New Jersey. At the same time, it’s “appropriate” for the Fed to consider steps to ease monetary policy, he said.

Oil, Natural Gas

Crude oil, which surged to the highest price in almost eight months this week, slipped 25 cents to settle at $101.56 a barrel in New York, trimming its weekly advance to 2.8 percent. Natural gas climbed 2.8 percent to settle at $3.062 per million British thermal units on forecasts of below-normal temperatures later this month.

Among European stocks, UniCredit SpA sank 11 percent, bringing its three-day plunge to 37 percent since Italy’s biggest lender priced a 7.5 billion-euro ($9.5 billion) rights offer at a discount. Mitchells & Butlers Plc, the Birmingham, England-based pub owner, jumped 8.7 percent after Morgan Stanley recommended the stock.

The euro weakened against 13 of 16 major peers, dropping as much as 0.7 percent versus the dollar to a 15-month low of $1.2698 before paring losses and trading at $1.2721. Yields on 10-year Spanish bonds climbed seven basis points to 5.71 percent and Italian yields increased four basis points to 7.13 percent. German 10-year bund yields were little changed at 1.85 percent.

The Dollar Index, which tracks the U.S. currency against six trading partners, rose 0.4 percent to 81.26, the highest end-of-day level since September.

Emerging Markets

The MSCI Emerging Markets Index dropped 0.6 percent, cutting this week’s gain to 1.1 percent. South Korea’s Kospi Index declined 1.1 percent and the won weakened against all 16 major counterparts as financial regulators said they were investigating the spreading of rumors about an explosion in North Korea. The nation’s stock exchange said it will probe whether there were any “unusual” trades made to profit from sudden market moves.

Hungary’s BUX Index slipped 0.7 percent, extending its weekly loss to 5.1 percent. Hungarian bonds pared gains after Fitch Ratings became the third company in two months to cut the country’s credit ranking to junk as the government worked to restart talks on an international bailout. Ten-year government bonds yields fell 32 basis points to 10.08 percent, after dropping as low as 9.9 percent earlier, according to generic prices compiled by Bloomberg.

The Shanghai Composite Index rose 0.7 percent, snapping a two-day, 2.3 percent drop, on speculation the central bank will cut banks’ reserve-requirement ratios to boost lending to small companies hurt by a cash crunch.

--With assistance from Stephen Kirkland in London and Robert Willis in Washington. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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