Stock futures rise as traders increasingly expect Fed to buy bonds; ahead of ADP jobs report

By Stephen Bernard, AP
Wednesday, October 6, 2010

Stock futures point to further gains in market

NEW YORK — Stocks are set to extend their gains Wednesday as expectations continue to grow that the Federal Reserve will take steps to stimulate the economy at its meeting next month.

Traders were also awaiting a reading on private sector employment from payroll company ADP. That report is often seen used as a gauge for Friday’s more important reading on employment from the Labor Department.

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 hiring still remains weak.

But weak jobs figures could also be enough to get the Federal Reserve 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 U.S. central bank long ago set interest rates at near zero percent, so it’s likely to buy Treasurys in an effort 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.

Ahead of the opening bell, Dow Jones industrial average futures rose 38, or 0.4 percent, to 10,902. Standard & Poor’s 500 index futures rose 3.60, or 0.3 percent, to 1,158.30, while Nasdaq 100 index futures fell 0.50, or less than 0.1 percent, to 2,018.00.

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 2.45 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.

Costco Wholesale Corp.’s shares dipped in pre-opening trading after its quarterly revenue fell short of analysts’ expectations. Its shares fell $1.41, or 2.2 percent, to $63.25.

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 0.8 percent, Germany’s DAX index gained 1 percent, and France’s CAC-40 rose 1.2 percent.

Japan’s Nikkei stock average jumped 1.8 percent.

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