08/10/07

In economic news, employers added 110,000 jobs to their payrolls in August, just topping forecasts for a rise of 100,000. In addition, the August number was revised to a gain of 89,000 jobs from the originally reported loss of 4,000 jobs. Despite the gain in payrolls, the unemployment rate rose to 4.7 percent in the month from 4.6 percent in the previous month. The gain was expected. Average hourly earnings rose 0.4 percent after rising 0.3 percent in August. Economists thought wages would rose 0.3 percent.

Fed Vice Chairman Donald Kohn, speaking to the Philadelphia Chamber of Commerce Friday said that while financial market conditions have improved since the Fed cut interest rates on Sept 18, liquidity in the credit markets is not back to normal. He also said that the Fed's policy action won’t stem the problems in the economy for several quarters, with the housing market in particular likely to continue to lag for some time.

In corporate news, Merrill Lynch warned about the earnings impact from the fallout in the housing and credit markets. Merrill said it will post a third quarter net loss of about 50 cents per share and will write down about $5.5bn.

Bear Stearns is reportedly the focus of a criminal probe related to the collapse of two of its mortgage related hedge funds. Yet, after sliding in the morning, the stock rebounded and closed higher.

Late Thursday, Research in Motion reported higher quarterly earnings and revenue that beat expectations. The company also boosted its current quarter profit forecast. Shares jumped nearly 13 percent on Friday.

Also after the close Thursday, Alcoa said it will sell two of its divisions and that it will restructure another one. Shares in the company rose 3 percent on Friday.

Treasury prices fell, boosting the corresponding yields on bets that the Fed won’t cut rates at the end of the month. The selloff lifted the yield on the 10 year note to 4.63 percent from 4.51 percent.

US light crude for November delivery fell 22 cents to close at $81.22 a barrel on NYMEX.

COMEX gold for December delivery rose $3.40 to $747.20 an ounce.

Japan is closed for a national holiday today.

UK stocks closed 47.9 points higher at 6595.8 on Friday, led by commodity stocks, as a strong US employment report eased concerns about the outlook for the US economy. Miners were the biggest winning sector, adding more than 17 points to the index rise, helped by an upbeat report from ABN AMRO on the sector. Kazakhmys climbed 4.6 percent, Anglo American added 2.9 percent, BHP Billiton added 2.5 percent and Xstrata rose 1.3 percent. ABN said BHP remained its preferred investment and that Xstrata looked cheap but it downgraded Rio Tinto on the back of recent share price gains.

Barclays added 0.8 percent after the bank conceded defeat in the long battle for ABN AMRO, and said that it would start its buyback programme. Elsewhere in the sector, Alliance and Leicester and HBOS fell 6.8 percent and 1.2 percent respectively, after Deutsche Bank downgraded their rating.

Real estate stocks also suffered as British Land fell 3.4 percent after postponing a part sale of its flagship retail property asset, citing uncertainty in financial markets. Liberty International , Hammerson and Land Securities fell between 2.7 and 4.3 percent.

Yell Group added 3.1 percent to 463.2 pence, after Bear Stearns started its coverage on the company with an "outperform" rating and a price target of 540 pence.

Cadbury Schweppes added 2.6 percent with traders saying the stock was eyeing the 600 pence level.

Economics
UK PPI (Sept) 09.30 bst

Oil prices in sterling terms rose over 7 percent in September, which will boost reported input prices. While demand remains sufficient, these cost pressures will be passed on in higher prices. This is the issue for Central banks going forward. With no sin that cost pressures are easing they need to be sure that demand will weaken so that cost pressures are absorbed in firms margins.

UK Industrial production (Aug) 09.30 bst

The PMI manufacturing survey has eased back recently, but continues to point to more than robust growth than the official data have reported. We expect manufacturing production to rebound from last months decline. Any gains in manufacturing should limit concerns at the Bank of England about the level of sterling.

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