Patersons Securities - Leading Australian Stockbroking and Financial Services Firm

US stock markets were steady to a touch higher by Thursday’s close, after bouncing off mid-session lows. Many investors retreated to sidelines in both stock and fixed interest markets ahead of the pending January nonfarm payrolls number due Friday (Bloomberg consensus forecast: +144,000). The preliminary December quarter nonfarm productivity data were not too far from expectations, with the stats including some recovery in the unit labor costs measure – while lower wages are a near-term positive for corporate profitability, some growth along with enhanced productivity must be delivered over time if economic growth is going to be half-decent. The weekly jobs claims numbers were slightly under economists’ consensus forecasts, adding to hopes that the US jobs market was still on the improve (albeit gradually).

The S&P 500 edged 0.1% higher, as buying in Financials (+0.7%) and Energy (+0.4%) sector stocks more than offset the drag provided by declines in the Utilities (-0.4%) and Health Care (-0.4%) segments. The Dow was kept in the red by selling in IBM and Exxon Mobil. However, some support for Chevron Corp, American Express Co and McDonald's Corp kept a lid of the benchmark’s interday decline. On the profits front, MasterCard Inc rallied after its earnings advanced by 24%. In the IT space, mobile-phone chip maker Qualcomm Inc rose after bolstering its sales and earnings guidance. US Treasury Secretary Geithner foreshadowed he would in the current year name nonbank financial companies that were deemed to be systemically risky. He also indicated that Treasury will also release more plans for an overhaul of housing finance, which will include an attempt to bring private capital back into that market segment.

US Treasuries
US Treasuries were little changed by the end of Thursday trading, with buying interest confined to mid-range maturities.

Commodities
Crude oil prices were mixed in overnight markets. The West Texas Intermediate (WTI) slipped back to six-week lows, as energy traders reacted to higher than expected oil stockpiles and reduced demand levels revealed in the latest US Energy Department inventories report. However, Dated Brent crude rose in European markets, taking the premium between it and WTI to 12 week-highs (this price differential is now near US$16 a barrel). International Atomic Energy Agency inspectors are preparing for more talks over the “possible military dimensions to Iran’s nuclear program” according to the Vienna-based agency said after its most recent visit to Iran (it will return there in a few weeks’ time).

Gold prices climbed to a two-month high in Thursday New York trading, helped by the reasonable US economic stats released on the day and a Bernanke House Budget Committee testimony that contained few surprises (he left the door ajar to a QE3 stimulus package). However, base metals slipped in LME markets, with copper prices retreating for the fourth time in five trading days.

European bourses
European bourses were for the most part a little higher by the end of their Thursday sessions helped by the well-received jobless claims stats released in US markets and some M&A developments. Only the AEX and Swiss Market indexes ended the day in the red, the former on selling in consumer goods giant Unilever NV after its quarterly revenues came in short of expectations. Glencore International Plc is in merger talks with Xstrata Plc. If successful the combined group would have a market cap of around US$82B. Glencore already holds 34% of Xstrata, so it will be tough for someone else to come in over the top of any deal to merge. Its stake also means there is serious doubt about whether any marriage would, as stated by Xstrata, be a “merger of equals”. Xstrata jumped by nearly 10% in Thursday UK markets. Glencore rose in Hong Kong trading before being suspended. Any Glencore/Xstrata tie up will logically increase expectations that Anglo American Plc is in the sights of the combined group (Xstrata had a crack at Anglo in 2009). Royal Dutch Shell Plc said it expects to deliver a higher dividend in the current year as new projects come on-stream. In a key profit announcement, Germany’s number-one bank Deutsche Bank AG slipped by 0.4% after reporting a worse than expected 76% drop in its earnings over the final quarter of 2011. The bank was hurt by reduced trading-related revenues and asset write-downs. The latter drags included some provisions for litigation and write-downs on its Greek government bond holdings. Soon-to-retire CEO Josef Ackermann at the same time warned of a “challenging” 2012. Luxembourg’s Jean-Claude Juncker, the chief spokesman for euro-area finance ministers, said that steps to tighten fiscal discipline and tackle the sovereign-debt crisis adopted at the late January EU summit were “largely insufficient”. The Stoxx Europe 600 index edged 0.2% higher in Thursday markets, kept in the black by gains in its Basic Materials (+1.7%), Financials (+0.9%) and Industrials (+0.5%) sectors.

Currencies
The US$ did its best impression of a yo-yo in Thursday New York trading, as forex market players absorbed sound bites coming out of House Budget Committee testimony Fed Chairman Bernanke. The Fed boss said that the US economy remained vulnerable to shocks, causing interest rate bulls to talk up the chance of another round of quantitative easing. Fears that Europe’s debt crisis could still worsen also lingered. The A$/US$ rate spent most of overnight trading in the US$1.07-1.075 range. After touching highs of US$1.0747 mid-way through US markets, the Au0ssie later settled back to around US$1.071. The A$ continued to advance against the euro, peaking at 0.8173 euros in early US business.

Economic Releases
December Quarter Nonfarm Productivity/Unit Labor Costs (Preliminary). US nonfarm productivity edged higher by 0.7% annualised in the December 2011 quarter. This was near market expectations of a 0.8% gain, but well under the 1.9% increment reported in the September quarter. For 2011 as a whole, nonfarm productivity edged just 0.7% higher, the smallest annual increment since 2008, when it rose by 0.6%. This hints that the post-GFC efficiency gains were close to being exhausted and that from here increased investment spend and workforces will be required to bolster output. The accompanying unit labor costs measure increased by a higher than expected 1.2% annualised in the fourth quarter, after a substantial 2.1% fall in the preceding three-month period. Economists were forecasting a more modest annualised gain of around 0.8% in the December quarter. In real terms, average hourly earnings retreated by 1.2% in 2011, this stat’s biggest annual decline since 1989.