Unemployment Falls, Payrolls Better-Than-Expected, Factory Orders Jump

- The Change in Non-farm Payrolls for April was -20K versus estimates of -75K and -81K in March.

- The Unemployment Rate for April fell to 5.0% versus estimates of 5.2% and 5.1% in March.

- Average Hourly Earnings for April rose .1% versus estimates of a .3% gain and a .3% gain in March.

- Factory Orders for March rose 1.4% versus estimates of a .2% increase and an upwardly revised -.9% decline in February.

BOTTOM LINE: The US lost fewer jobs than forecasts in April, and the unemployment rate dropped, signaling that the slowdown may be milder than economists had expected, Bloomberg reported. The construction industry cut 61,000 jobs during the month. Service industries, which include banks, insurance companies, restaurants and retailers, added 90,000 jobs last month, the most this year. The advance was propelled by business and professional services, along with health and education jobs. The current unemployment rate of 5.0% remains well below the 20-year average of 5.4%, notwithstanding significant housing-related job losses. Average Hourly Earnings are now growing 3.4% year-over-year versus the 20-year average of 3.3%. I expect the job market to improve modestly over the intermediate-term as companies gain confidence in the economy, fiscal/monetary stimuli take hold, inflation decelerates, the American Axle strike ends, exports continue to boom and the drag from housing subsides.

Orders to US factories rose more than forecast in March on strong demand for US products from overseas customers, Bloomberg reported. The US trade deficit shrank in the first quarter to the lowest level in more than five years on record exports. Excluding orders for transportation equipment, demand rose 2.2%, the most in a year. Orders for machinery surged 6.4% during March. Shipments of non-defense capital goods excluding aircraft, which are used to calculate GDP, rose 1.1% versus a 1.7% decline in February. Orders for military gear fell 5.5% in March. Aircraft orders jumped 6.6% and automobile bookings increased 1.4%. Total sale at manufacturers rose 1.1% in March versus a 1.9% decline in February. The number of goods on hand was unchanged at 1.27 months’ supply at the current sales pace. I expect Factory Orders to rise again in April. The US Dollar Index is rising .21% and the 10-year yield is rising 10 basis points on today’s better-than-expected economic data.

Bull Radar

Style Outperformer:

Large-cap Value (+.63%)

Sector Outperformers:

Homebuilders (+2.82%), Construction (+1.9%) and Oil Service (+1.8%)

Stocks Rising on Unusual Volume:

CBEY, MRO, SM, VMED, PVTB, STO, PCBC, DLB, CAB, PHTN, IDTI, RBA, SCRX, AOB, CMVT, MFLO, SCOR, CSTR, BPHX, HNSN, MORN, RDEN, FORR, TSON, EZCH, NTCT, DRIV, UFPT, MNST, CNQR, APEI, SUNH, CPHD, GENC, TGI, B, WBD, CAB, GFA, CQB and ACS

Stocks With Unusual Call Option Activity:

1) DSCO 2) CEPH 3) IBN 4) MNST 5) JAVA

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Friday Watch

Late-Night Headlines
Bloomberg:
- The risk of Australian and Japanese companies defaulting on their bonds fell, credit-default swaps show. The Markit iTraxx Australia Series 9 Index dropped 10 basis points to 83 basis points in Sydney, Citigroup said. The Markit iTraxx Japan Index fell 9 basis points to 70 basis points in Tokyo, according to Morgan Stanley.
- Crude oil fell for a fourth day as the US dollar rose against most currencies, limiting the appeal of commodities as an inflation hedge.
- The yen fell for a second day against the dollar and declined against the euro as gains in stocks encouraged investors to increase holdings of higher-yielding assets funded in Japan.
- Canon Inc., Japan’s biggest office equipment maker, rose the most in a week in Tokyo trading after the company said it plans to spend $600 million in the US to expand laser-printer cartridge production. Tokyo-based Canon will build a new 700,000 square-foot factory to produce cartridges in Hampton Roads, Virginia. The new plant will create more than 1,000 jobs.

Wall Street Journal:
- Electric Nissans Planned in US by 2010. Nissan Motor CEO Carlos Ghosen said he is preparing to take advantage of a “mass market” in electric vehicles he expects to emerge by 2012.
- Microsoft Corp.(MSFT) CEO Steve Ballmer said he can build an Internet advertising business without buying Yahoo! Inc.

MarketWatch.com:
- Commonly cited measures of US home prices are overstating the degree to which the vast majority of Americans’ home values have declined in the last year, producers of two of the most widely tracked indexes acknowledged this week.
- Richard Russell says we’ve seen this market’s bottom.

CNBC.com:
- Help Wanted In Filling These Hot Jobs.
- Big Wall Street investment companies are pulling back on their borrowing from the Federal Reserve’s emergency lending program. This week marks the fourth straight where investment firms borrowed less from the central bank.

NY Times:
- Soaring gas prices have turned the steady migration by Americans to smaller cars into a stampede.

BusinessWeek.com:
- The Mac in the Gray Flannel Suit. More office workers infatuated with iPods and iPhones are demanding Macs.
- Stocks: 11 Innovation Plays.
- Strong Summer Rentals for the Hamptons.

Forbes.com:
- Shares of Lehman Brothers(LEH) rose Thursday as Citi Investment Research analyst said the investment bank’s shares could be worth as much as $65 based on Citi’s valuation model and past performance of the investment bank.

CNNMoney.com:
- AT&T(T) price cut could juice iPhone sales. AT&T’s(T) planned $200 subsidy on Apple’s(AAPL) iPhone could increase the sales of the new 3G model by 50%, according to one analyst.
- Apple’s(AAPL) new Hollywood deal: Death of the DVD?

USA Today.com:
- The Federal Trade Commission said Thursday it hoped to complete rules by the end of the year on how it plans to enforce a new law against price manipulation and deception in the oil-trading markets.
- Anybody who dreaded first-quarter earnings reports is probably relieved now. Earnings, excluding the financial sector, are up 12.2%.

greentechmedia:
- Will Micro Fuel Cells Fly High? The US has approved the use of some micro fuel cells in airplanes, removing a major market barrier.

puregreencars:
- General Motors(GM) and Mascoma Corp. announced a strategic relationship to develop cellulosic ethanol focused on Mascoma’s single-step biochemical conversion of non-grain biomass into low-carbon alternative fuels.

Financial Times:
- A growing number of hedge fund managers are trying to persuade investors to back new ventures by offering discounted fees to help make up for losses at funds that have failed.
- Yahoo Inc.(YHOO) could announce an agreement to carry search advertisements from Google Inc.(GOOG) within a week as it braces for Microsoft Corp.(MSFT) to abandon its unsolicited acquisition offer or go hostile.
- Euro shows signs of end to bull run. Many economists are reaching the view that eurozone growth has slowed to the point where the European Central Bank will have to cut interest rates or risk stunting economic growth. “Within the space of one week, the outlook for the eurozone has worsened significantly,” said Carsten Brzeski at ING Capital Markets. “Sound economic fundamentals are melting away.”

Telegraph:
- China has secretly built a major underground nuclear submarine base that could threaten Asian countries.

The Business Times:
- Singapore Prime Minister Lee Hsien Loong said the city-state’s economic slowdown may extend into 2009.

Taipei Times:
- Taiwan’s property market may be in oversupply as developers build more homes than needed, citing Chuang Meng-han, an industrial economics professor at Taipei’s Tamkang University.

Xinhua:
- More than 1,000 children aged from nine to sixteen were put to work as cheap labor at factories in the southern Chinese city of Dongguan, citing the city’s deputy mayor Li Xiaomei. The children were forced to work almost around the clock, beaten and deprived of pay, nourishment and basic medical care. The government will fine those involved as much as $7,156.
- The rapid appreciation of the Chinese currency against the US dollar is taking a big toll on Asian companies using China as base for exports to the US.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CMCSK), lowered target to $29.

Night Trading
Asian Indices are +.50% to +2.0% on average.
S&P 500 futures +.16%.
NASDAQ 100 futures +.18%.

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Earnings of Note
Company/EPS Estimate
- (CCU)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for April is estimated at -75K versus -80K in March.
- The Unemployment Rate for April is estimated to rise to 5.2% versus 5.1% in March.
- Average Hourly Earnings for April are estimated to rise .3% versus a .3% gain in March.

10:00 am EST
- Factory Orders for March are estimated to rise .2% versus a -1.3% decline in February.

Other Potential Market Movers
- The Morgan Stanley Global Healthcare Conference and Fed governors speaking on consumer regulations could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Financial, Airline, Technology and Retail Shares

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In Play

Stocks Soaring into Final Hour on Lower Energy Prices, Stronger US Dollar, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs, Medical longs, Retail longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 7.9%, but remains above average at 19.2. The ISE Sentiment Index is low at 93.0 and the total put/call is above average at .98. Finally, the NYSE Arms has been running about average most of the day and is currently .78. As I said yesterday, investors’ initial negative reaction to the 25 basis point fed funds rate cut and less-hawkish-than-expected FOMC commentary seemed overdone. Today the US dollar is surging, which is further pressuring commodity prices and boosting the broad stock market. I still think the dollar has seen its lows for at least this year and probably much longer. I heard a trader on CNBC say recently that global oil production was capped at 85 million barrels per day, even though global oil production is currently a new record 87.6 mbpd and has been above 85 mbpd for quite some time. I also heard someone say today that US oil demand has been rising for 30 years, which is also an incorrect statement. These are just two of the many false statements I hear from oil bulls regarding the current state of the fundamentals for the commodity. The TED spread is falling 9 basis points today to 139 basis points, which is the lowest since April 8^th. The US dollar-based Libor rate is falling 7 basis points today to 2.78% and appears to be rolling over again. This rate, which many mortgage rates are tied to, has plunged from 5.73% in September of last year. The 30-day asset backed commercial paper yield is falling 11 basis points today to 2.83% and also appears to be rolling over again. The European Financial Sector Credit Default Swap Index is falling another 3.16 basis points today to 59.10. This is another new low and down from 131.41 on March 21, which is also a big positive. Nikkei futures indicate an +314 open in Japan tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, technical buying and less economic pessimism.