Traders bet employment report will show economy remains weak, send futures lower

By Stephen Bernard, AP
Friday, October 8, 2010

Stock futures slip ahead of monthly jobs report

NEW YORK — Traders sent stock futures lower as they bet Friday’s employment report would show little improvement in the jobs sector.

The market couldn’t even get a lift from a relatively upbeat earnings report from Alcoa Inc. as the jobs report dominated investors’ attention. Alcoa’s earnings are historically considered a barometer for how corporate earnings might fare.

High unemployment remains a major hurdle as economic growth continues to be sluggish. The Labor Department’s report, considered the most important on the economic calendar, is unlikely to alter anyone’s perception about the strength of the economy.

However, while the jobs report is expected to be weak, there could be a silver lining. There are growing expectations that the Federal Reserve will try to stimulate the economy through the purchase of government bonds. Anticipation of such a move has driven bond yields and the dollar sharply lower in recent days, though they both rose slightly Friday.

A gloomy jobs report could give the Fed more incentive to act.

The Fed’s goal, if it starts buying bonds again, would be to drive interest rates down further from their already low levels and spark borrowing and spending. Lower rates could also eventually drive investors into riskier assets like stocks or into currencies in countries with more attractive interest rates.

Ahead of the opening bell, Dow Jones industrial average futures fell 33, or 0.3 percent, to 10,879. Standard & Poor’s 500 index futures fell 4.20, or 0.4 percent, to 1,152.30, while Nasdaq 100 index futures fell 9.25, or 0.5 percent, to 2,004.75.

The yield on the 10-year Treasury note, which is often used as a gauge to set rates on loans, rose to 2.40 percent from 2.38 percent late Thursday.

The dollar rose slightly against other currencies and gold slipped to $1,329.90 an ounce, a day after hitting a record high of $1,366.00. Gold has been soaring as traders consider it a safe alternative to the dollar.

The dollar hit an eight-month low against the euro Thursday and has recently touched a 15-year low against Japan’s yen. It has been under pressure because traders expect any action by the Fed would effectively add billions of dollars into the currency market.

The likely keys to the jobs report will be the number of jobs private employers added and the overall unemployment rate.

Economists predict private employers added 75,000 jobs last month, which isn’t enough to even keep up with population growth. The unemployment rate likely crept up to 9.7 percent last month from 9.6 percent in August as more people looked for work than were actually hired.

Weekly reports on first-time unemployment claims have consistently fallen over the past few weeks, but still not enough to indicate employers are ready to ramp up hiring. Payroll company ADP said Wednesday that private employers slashed jobs in September for the first time in seven months.

Employers have not started hiring a lot of workers because of worries about potential tax hikes and unknown costs associated with health care and financial regulatory reform passed earlier this year. Consumers have also kept their spending down, which has kept a lid on hiring.

In corporate news, Alcoa’s third-quarter profit slightly beat analysts’ expectations and increased its expectation for global aluminum consumption. Many companies have said international operations will be the driving factor in improving profits in the coming quarters because U.S. growth is so slow.

Shares of the aluminum maker, which is the first Dow Jones industrial average component to report earnings for the third quarter, rose 32 cents, or 2.6 percent, to $12.52 in pre-opening trading.

Overseas, Britain’s FTSE 100 fell 0.8 percent, Germany’s DAX index dropped 0.2 percent, and France’s CAC-40 slid 0.5 percent. Japan’s Nikkei stock average fell 1 percent.

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