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While you were sleeping: All eyes on US jobs

Friday 4th June 2010

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US stocks were mixed in anticipation of a domestic jobs report that was expected to show an acceleration in the pace of economic recovery.

In late trading, the Dow Jones Industrial Average slipped 0.04%. The Standard & Poor’s 500 Index rose 0.23% and the Nasdaq Composite gained 0.76%.

Among the most active stocks on Wall Street were Wells Fargo, JPMorgan Chase, and Freeport-McMoRan Copper & Gold.

The S&P 500 earlier rose as much as 0.7% on a report US jobless claims decreased and service industries expanded in May for a fifth straight month, showing the US recovery is broadening.

The Institute for Supply Management’s index of non-manufacturing businesses, which makes up almost 90% of the economy, held at 55.4 for a third month. Readings above 50 signal expansion.

The number of Americans seeking jobless benefits last week fell by 10,000 to 453,000 and an ADP Employer Services report based on private-sector payrolls showed a gain of 55,000 jobs, slightly less than the 70,000 economists had expected.

The US Labor Department’s monthly jobs report, to be released tomorrow, was expected to show that payrolls climbed by 523,000 in May, the fifth straight month of gains and the biggest since 1983, according to the median forecast in a poll by Bloomberg News.

Kansas City Federal Reserve Bank President Thomas Hoenig said the US economic recovery had the momentum to sustain itself and called for an increase in the target federal funds rate to 1% by the end of the summer.

“The first step toward a more normal policy is to move policy rates off zero, back toward neutral.” Hoenig said today in a speech in Bartlesville, Oklahoma.

“With the improvements in market conditions and liquidity, and with an improving outlook, the FOMC would be prepared to raise the funds rate target to 1% by the end of summer.”

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, declined 1.26% to 29.79.

The Stoxx Europe 600 Index rose 1.4% to 248.91.

The FTSE 100 gained 1.16%, France’s CAC 40 added 1.59% and Germany’s DAX climbed 1.23%.

Among the most active stocks in Europe were Fugro NV, Petroleum Geo-Services ASA, Air France-KLM Group and Peugeot Citroen.

US Treasuries fell on expectations Friday’s US payrolls report would indicate the economic recovery was gaining momentum.

The US Treasury will sell US$70 billion of notes and bonds next week, down from US$78 billion at the last sale of similar securities. The drop in the total sale is the most since global credit markets collapsed.

“No one wants to take a large position before tomorrow’s data,” Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas, one of the 18 primary dealers required to bid at Treasury auctions, told Bloomberg News.

“The supply story is helping, and there are still euro concerns, but we are trading off thin air and rumours and emotion.”

The 10-year note’s yield climbed two basis points, or 0.02 percentage point, to 3.36% at 1.06pm in New York, according to BGCantor Market Data. The yield earlier reached 3.42%, the highest level since May 18.

In Europe, bank-to-bank lending costs inched higher and money market tensions remained elevated, although there were signs that stress levels had stabilised as last week's gloomy outlook lifted.

The three-month London offered rate for dollars rose to 0.53781% from 0.53750% on Wednesday, according to the latest daily fixings by the British Bankers' Association.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.43% to 87.09.

In mid afternoon trading in New York, the euro was last down 0.7% to US$1.2160.

The US dollar was up 0.1% versus the yen at 92.31 yen.

The yen fell for a second day versus the US currency on concern that Japan’s next prime minister would take a tougher stance in fighting the yen's strength.

The euro was down 0.6% against the Japanese currency at 112.28 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, gained 0.77% to 254.89.

U.S. crude oil futures rose as the US Energy Information Administration said crude inventories fell by 1.9 million barrels last week, far more than the consensus expectation for a 100,000 barrel dip.

Gasoline inventories also fell sharply, sliding 2.6 million barrels, the EIA said. Expectations were for a 500,000 barrel fall. Distillates rose slightly more than expected and refinery capacity use fell.

"There are so many different influences on oil right now that the market can't decide whether it is dealing with an investment asset class or a commodity," Peter Beutel, analyst at Cameron Hanover, told Reuters.

US crude for July was up 20 cents at US$73.06 a barrel at 1.33pm EDT.

ICE Brent rose 80 cents to US$74.55.

Gold fell for a second straight day in Europe. Spot gold declined to US$1,217.10 an ounce by 1517 GMT, down from US$1,224.30 an ounce late in New York on Wednesday.

US gold futures for August delivery eased US$4.10 an ounce to US$1,218.40.

Silver slipped to US$18.11 an ounce versus US$18.45 an ounce.

"If risk appetite returns to financial markets in the coming months and we see a waning of investor appetite for the precious metals, we believe that silver will be more vulnerable to a price correction than gold," analysts at RBS said in a note, according to Reuters.

Spot platinum was at US$1,545.50 an ounce versus Wednesday's US$1,545 an ounce while spot palladium was at US$450.98 an ounce versus US$454.50.

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