China-inspired market strength dashed by poor jobs report

Newly released reports show U.S. payroll and manufacturing data down, while the Chinese government gave investors some good news in overnight announcements, according to an analysis from Miller Tabak & Co. Chief Economist Strategist Andrew Wilkinson.

Private forecaster ADP reported that the economy gained 118,000 jobs in November, down from 157,000 in October. The report noted that Hurricane Sandy and uncertainty over the presidential election and the fiscal cliff negotiations all contributed to the decrease. “Abstracting from the storm, the job market turned in a good performance during the month,” Mark Zandi, chief economist of Moody’s Analytics said in a statement. “Businesses appear to be holding firm on their hiring and firing decisions.”

Manufacturing data also contracted this month, which Wilkinson attributes to shutdowns of Northeast businesses along with concerns over the continuing budget negotiations. Meanwhile, he says, “U.S. equity index futures keep building on gains and pushing up the daisies with a 5-handle advance at 7:54 am.”

Overseas, investors were watching China, as several government announcements pushed stocks higher. “Investors’ bullish receptors were earlier tickled by overnight events in China where the new leadership announced a drive towards ‘urbanization’, which means more infrastructure investment,” Wilkinson says. “At the same time rules preventing insurance companies taking a larger stakes in banking companies were relaxed.”

The Hang Seng index rose 2.2% on the news, while the mainland Shanghai composite jumped by 2.9%, putting it above the important 2,000 level, according to Wilkinson. The biggest market gains came from industrial companies, which rose by 3.7%, and technology and materials stocks, which gained 3.6%. The construction and insurance sectors also rose following the announcements.

The news coming out of Europe was more mixed, Wilkinson notes: “Despite the earlier wave of enthusiasm that helped drive Germany’s Dax index to within 5-points of Tuesday’s high, European benchmarks have lost their mojo and [are] deflating by 7:30am ET.”

Although German stocks have rebounded over the past several weeks, the region-wide PMI composite indicator showed that the Eurozone continues to contract, albeit at a lesser rate. The PMI services index fell in France and Italy; in Germany the index advanced from 48.0 to 49.7, “indicating the health of the sector is heading towards standstill following a period of contraction stretching back as far as August,” according to Wilkinson.

One sector that has experienced gains is the financial arena, Wilkinson says. In the Eurostoxx, the financial sub-index shows gains of 0.85%, beating the overall increase of 0.24% in the index. The financial sector of the Dax also rose, by nearly 1%, while the flat Ibex index is hiding gains of 0.54% for financial companies.

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