Stock futures flat, investors opt for Treasurys after disappointing jobs report from ADP

By Stephen Bernard, AP
Wednesday, October 6, 2010

Stock futures flat, Treasury yields plummet

NEW YORK — Stock futures wavered Wednesday after a disappointing report on the jobs market renewed concern about the health of the economy.

Stock futures retreated from their morning highs after payroll company ADP said private employers shed 39,000 jobs last month. It was the first time private employers cut jobs in seven months. ADP’s data is often considered a gauge for the Labor Department’s employment report, which is due out Friday.

The jobs report, though, added to the expectations the Federal Reserve will take steps to stimulate the economy at its meeting next month, including buying government bonds. Treasury yields, which move opposite their prices, tumbled to their lowest level since January 2009 after the report.

Weak economic data in the coming weeks could lead the Fed to resume buying Treasurys in an effort to try and stimulate borrowing and spending. Japan’s announcement Tuesday that it cut a key interest rate to near zero percent and will buy some of its government bonds is adding to expectations the U.S. Fed will take similar actions to buy bonds.

The pullback in stock futures was tempered because investors see potential Fed action as eventually being a positive for stocks, creating a crosscurrent of buying and selling on the news.

The U.S. central bank long ago set interest rates at near zero, leaving it few other options but to buy Treasurys to further drive interest rates lower. The move would also make investing in stocks and riskier assets more enticing because yields on bonds would continue to drop.

Private hiring has been slow to pick up as the economy remains sluggish. Uncertainty about costs from health care and financial regulatory reform as well as potential changes to taxes have been major reasons companies have shied away from adding new jobs.

Signs of expansion in hiring would be considered a strong signal that the economy is starting to improve. The Labor Department’s weekly reports on unemployment claims have indicated that few employers are hiring, though layoffs are not prevalent either.

Ahead of the opening bell, Dow Jones industrial average futures rose 3, or less than 0.1 percent, to 10,867. Standard & Poor’s 500 index futures fell 0.70, or 0.1 percent, to 1,154.00, while Nasdaq 100 index futures fell 1.25, or 0.1 percent, to 2,017.25.

Stocks surged to their highest level in five months Tuesday after Japan’s central bank’s surprise move and a better-than-expected reading on the health of the service sector. The service sector expanded for the ninth straight month and accounts for more than 80 percent of all jobs, so continued growth is seen as encouraging.

Bond prices rose Wednesday as expectations grew that the Fed will start buying Treasurys. The yield on the 10-year Treasury note, which is often used to set interest rates, fell to 2.42 percent from 2.48 percent late Tuesday.

In corporate news, Johnson & Johnson agreed to buy Dutch biotechnology company Crucell NV for about $2.41 billion. Johnson & Johnson first announced it was planning an offer last month. Johnson & Johnson shares rose 10 cents to $62.90 in pre-opening trading.

Costco Wholesale Corp.’s shares dipped after its quarterly revenue fell short of analysts’ expectations. They fell $1.51, or 2.3 percent, to $63.15.

The dollar rallied against the euro after Fitch cuts Ireland’s credit rating. Ireland has been among the hardest hit countries in Europe by a weak economy, mounting government debt and problems in the banking sector.

European indexes initially dipped after the downgrade, but have since recovered those losses. Britain’s FTSE 100 rose 0.7 percent, Germany’s DAX index gained 0.7 percent, and France’s CAC-40 rose 0.8 percent.

Japan’s Nikkei stock average jumped 1.8 percent.

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