Updated from 11/07/09

Update includes news of Northrop's sale of its TASC advisory unit




) -- An unemployment rate above 10% and continued dollar weakness will be on the minds of market participants during the coming week, with little in the way of earnings reports and economic data to sway them.

The Labor Department said Friday that the U.S. economy lost 190,000 jobs last month. While slightly more than economists had expected, the number wasn't so bad considering the prior two months saw upward revisions that totaled 91,000. What troubled investors was the

unemployment rate, which jumped to 10.2%

from 9.8% in September, the highest level in 26 years.

With the

Dow Jones Industrial Average

hovering around the psychologically important 10,000 level and little on the horizon to impact trading more broadly, market observers say traders will likely go over economic releases of the past week -- most notably Friday's employment report -- and parse the data for some clue as to where the U.S. is in the economic recovery.

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"Judging by the very confused market trading Friday, I think we'll see more of the same next week," said Paul Nolte, managing director with Dearborn Partners. "You'll get a residual effect as people look back to the employment data. We could still see a very volatile market with 100- to 150-point swings in either direction."

According to


, when comparing the current employment recession to other post-World War II recessions, the percentage of job losses relative to the peak employment month is now longer and deeper than any other. The U.S. is currently experiencing the second worst unemployment rate since World War II, still below the 10.8% peak in the 1980s.

There is a greater fear that Main Street will be introduced over the weekend to the so-called U-6 measure of labor, which broadens beyond the total unemployed to include discouraged workers not looking for a job. The U-6 measure of 17.5% for October is the highest read since the Labor Department officially began tracking it in 1994 and paints a worse picture than the headline decline of 10.2%.

"Bad news sells on television, so this will be a headline story throughout the weekend," said Quincy Krosby, Prudential financial market strategist. "Reporters on nightly news shows will actually speak about the U-6 number. They will make the case that the unemployment rate, when you go under the hood, is really 17.5%. That becomes the news, and it could have a dampening effect on consumers."

Going forward, the focus will continue to fall on the consumer and whether he or she is spending money. An unemployment rate of 10.2% and a comprehensive unemployment rate of 17.5% will no doubt come as a blow to consumers, especially heading into the critical holiday shopping season.

"The market hasn't really reacted to Friday's data yet, but it has to be a negative in terms of investor sentiment and certainly consumer sentiment," said Brian Dolan, chief currency strategist at Forex.com. "It diminishes the outlook for corporate profitability going into the end of the year and into early next year."

The currency trade and the continued weakness of the dollar will also be key to the direction markets trade in next week. The direction of the dollar and the U.S. equity market has been an inverse relationship, with the dollar trading near its lows and the stock market up more than 50% from the March lows.

"From a trade-weighted basis, we're approaching the all-time lows for the dollar," said Dearborn's Nolte. "If there is any ability for the dollar to reverse, it would have to do it from these current levels. If that does happen, it puts the market in jeopardy of a further correction. That being said, we may have already seen the short-term correction over the last few weeks."

However, that lock-step trade has broken down in the past week, and now market analysts are curious to see if the trading relationship resumes. Because of the dearth of economic data, it is expected that there will be a lot more trading off the carry trade with the U.S. dollar.

"In the last few days, we've seen a bit of a breakdown in the trade, so it's unclear whether the dollar is falling because stocks are rising or if stocks are falling because the dollar is rising," said Forex.com's Dolan. He added that currency traders would be watching the Group of 20 meeting in St. Andrews, Scotland over the weekend, where finance ministers met.

"In the past meetings, they've expressed concern about currency volatility, which is code for dollar weakness," Dolan said. "I think there is consensus within the G20 to forestall further dollar weakness. I would expect to see some dollar-supportive comments coming out of that meeting."

Prudential's Krosby wasn't expecting any surprises out of the G20 meeting, and she argued it will be more important for equity traders to monitor volume on winning days for the market, and whether it's stronger than what has been the norm for a down day.

"Traders are used to hearing a statement that typically says the G20 believes in a strong dollar, so it won't move the currency," she added. "These meetings are fairly generic and the market will go off its own way. However, if the statement deviates from that, which we don't expect, it could certainly have an effect."

Dearborn's Nolte will also be paying close attention to what the dollar's moves mean for the bond market.

"One of the things you have to watch in conjunction with the lower dollar is what happens to bonds," he said. "Treasury bonds have picked up a little bit, but we're not up to levels that are worrisome for the equity markets. In 1987, the dollar declined but we saw a huge jump in bond rates. We're nowhere near that, so that helps rule out a crash scenario some people are worried about."

Of course, there will be a small handful of earnings and economic data scheduled for release. However, the earnings reports are more company-specific reports rather than an indication of how an entire sector is performing. That is, all but one report:


(WMT) - Get Report

, on tap for Thursday.

"As we enter the period where retail sales are so important, we'll be keeping a close eye on the consumer," said Prudential's Krosby. "That means how Wal-Mart talks about the consumer and the holiday season will be very important to the market."

On the deal front, news emerged Sunday that

Northrop Grumman

is selling its


advisory services business to private equity investors. The news is one more sign that the market for leveraged buyouts is coming back to life.

Turning to the week's economic data, there are no reports scheduled for release until Thursday morning, when the Labor Department will post weekly initial jobless claims totals. Friday will feature several more reports, including the October read on import and export prices, the September read on the trade deficit, and the preliminary read on the University of Michigan's consumer sentiment index for November.

-- Written by Robert Holmes in New York


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