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S&P 500 at Two-Month High on Nonfarm Payrolls

Friday, 6 Jan 2012 | 9:15 AM ET
Susan Trigg | Getty Images

S&P futures moved up to a two-month high as December nonfarm payrolls came in at 200,000, well above the 150,000 consensus; the unemployment rate fell to 8.5 percent from a revised 8.7 percent in November. The November nonfarm payrolls figure was revised down to 100,000 from 120,000. Average hourly earnings are up 2.1 percent year-over-year, still well below the roughly 3 percent inflation rate.

A third round of quantitative easing (QE3) off the table? So why aren't stock futures stronger? Maybe because good news for the economy may not be immediately good news for stocks. The improving economic statistics likely mutes QE3 talk at the Federal Reserve .

The euro dropped to new lows against the dollar on the positive nonfarm payroll numbers.

The dollar rallies, and stocks are up: Wouldn't that be something to see? We're so used to seeing stocks down when the dollar is stronger that it's hard to conceive that stocks might go up along with the dollar. That will likely happen, however, if the U.S. economy continues to improve and Europe remains mired in slower growth or outright recession.

Euro banks: Good and bad news. The bad news: Banks have 455 billion euros ($582 billion) parked at the European Central Bank, a new record. So it doesn't appear as if there is a large amount of buying of sovereign debt , nor are bank's lending to each other, since they could receive a higher rate (0.36 percent) lending to banks than they could by parking it at the ECB (0.25 percent).

The good news is that emergency overnight borrowing fell to 1.86 billion euros ($2.3 billion), the lowest since Nov. 28. Banks are charged 1.75 percent for these emergency borrowings, much more than they have to pay for their regular refinancing operations, so it's a good sign that they are borrowing less using this facility.

More good news: Euro zone inflation fell to a 14-month low. This will give the ECB more latitude to cut rates and, if necessary, be more aggressive in buying euro bonds in the open market.

Elsewhere:

1) Alcoa drops 2.8 percent in pre-market trade after the aluminum producer said it will slash its smelting capacity by 12 percent due to slowing demand and falling prices. Alcoa is the first producer to take direct action to cut costs as metal prices steeply decline. The U.S. producer will take a charge of $0.15 to $0.16 per share for its fourth quarter, pushing the company into its first loss in nine quarters. Alcoa's move comes before the company reports earnings Monday after the close.

The problem: Production has remained strong, while demand has weakened. Aluminum prices are down about 25 percent since the middle of last year. The result: Prices of aluminum are at or below the marginal cost of production. That's why Alcoa's stock has suffered.

In one sense, this is good news for the industry, bringing supply more in line with demand. Look for other aluminum producers to announce cuts. Watch the Chinese: They are likely selling aluminum at below cost.

2) Companies cut guidance, stocks slump:

RF Micro Devices slid more than 20 percent in pre-market trade after the chipmaker said it expects third quarter revenue to miss expectations due to weaker demand. RF Micro projects revenue of about $225 million, versus its October estimate of $250 million.

Ruby Tuesday falls 2 percent after cutting its profit outlook for the year, citing weak same-restaurant sales and higher advertising costs. The company expects its same-restaurant sales to fall 2 to 4 percent, compared with its previous outlook of flat to a loss of 2 percent. The company expects 2012 to be “challenging” due to the industry’s competitive promotional environment. Ruby Tuesday and other dining chains such as Darden , Brinker International, and Buffalo Wild Wings have been increasing promotions to attract frugal diners.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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