Stock futures point to sharply higher open after upbeat economic reports in China, Australia

By Stephen Bernard, AP
Wednesday, September 1, 2010

Stock futures surge on signs of overseas growth

NEW YORK — Stock futures surged Wednesday after upbeat signs of growth in China and Australia alleviated worries about a global economic slowdown.

Futures retreated from their highs of the morning, but still pointed to a higher opening after payroll company ADP said private employers cut 10,000 jobs last month, a further signal that the domestic economy is struggling to grow.

Overseas markets rose sharply after reports showed the pace of growth in China’s manufacturing sector rose in August for the first time in four months and Australia economy grew by the fastest pace in three years during the second quarter.

The sharp jump in U.S. stock futures is surprising given the disappointing ADP report and with the Institute for Supply Management releasing its monthly manufacturing report later in the day.

Often investors don’t make big bets before key economic reports, particularly in recent weeks as data has consistently showed growth is slowing. Like the ADP report, the ISM data is expected to follow that trend.

Stocks have been volatile over the past month because traders are unsure about the direction of the economy. Data continues to point to meager growth, but exactly where the pace of growth settles remains a major question. By sending stocks lower throughout August though, traders were betting that weak growth will eventually be a drag on corporate earnings.

Ahead of the opening bell, Dow Jones industrial average futures rose 92, or 0.9 percent, to 10,098. Standard & Poor’s 500 index futures rose 11.70, or 1.1 percent, to 1,060.00, while Nasdaq 100 index futures rose 23.50, or 1.3 percent, to 1,790.00.

With stock markets rising worldwide, U.S. Treasury prices dropped and interest rates rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.51 percent from 2.47 percent late Tuesday. Its yield is often used as a gauge to set interest rates on mortgages and other consumer loans.

ADP said private employers cut jobs after adding a small amount of workers each of the past six months. Economists had expected employers added 19,000 jobs last month after hiring 37,000 in July.

Employers are avoiding making any new hires in large numbers because of the uncertain direction of the economy. They are also worried about the potential impact of government health care and financial regulation reforms as well as possible increases in taxes.

With unemployment still high, people concerned about their jobs have cut back on spending, which has further slowed growth.

The ADP report is often considered a gauge for the government’s monthly employment report, which is due out Friday. The Labor Department’s data also includes government employment so it is a broader reading on the jobs market.

Economists expect the government report to show 100,000 jobs were cut last month, but that was largely due to laying off temporary census workers. Private employers likely added just 41,000 jobs last month.

Overall, the unemployment rate is expected to have climbed to 9.6 percent last month from 9.5 percent in July.

Economists polled by Thomson Reuters forecast the ISM manufacturing index slipped to 53.0 in August from 55.5 a month earlier. Any reading above 50 indicates expansion in the sector.

Regional surveys of manufacturing activity in recent weeks also pointed to slowing growth in the sector, which had been among the strongest during the first half of the year.

Australia’s S&P/ASX 200 index jumped 2.1 percent on the upbeat growth report. Hong Kong’s Hang Seng index rose 0.4 percent, while Japan’s Nikkei stock average rose 1.2 percent.

European markets followed Asian markets higher. Britain’s FTSE 100 rose 1.4 percent, Germany’s DAX index gained 1 percent, and France’s CAC-40 climbed 1.8 percent.

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