Morning Update

Intel Warning, Jobless Claims Jump

Intel is pressuring the Nasdaq Composite after issuing a warning that sales will miss initial expectations by a wide margin, while weekly jobless claims jumped to its highest level since 2001, suggesting that falling output is prompting companies to lay off workers. But the broader market is shrugging off the disappointing rise in claims as Wal-Mart beat the Street's profit estimate and is optimistic about the holiday shopping season. Applied Materials, however, offered sluggish guidance. Treasuries are mixed, while the trade gap narrowed. Overseas, Germany's economy contracted for the second-straight quarter, and global markets are mostly lower.

As of 8:38 a.m. ET, the December S&P 500 Index Globex futures contract is 2 points above fair value, the Nasdaq 100 Index is 18 points below fair value, and the DJIA is 10 points below fair value. Crude oil is up $0.43 to $56.59 per barrel, and gold is down $0.90 per ounce at $717.40. The overnight LIBOR rate increased 2 bp to 0.40%, and the three-month LIBOR rate rose 2 bp to 2.15%, the first rise in over a month.

Rising joblessness, narrowing trade gap

Weekly initial jobless claims increased 32,000 to 516,000, above the Bloomberg forecast of 480,000. The four-week moving average increased 13,250 to 491,000, and continuing claims jumped 65,000 to 3,867,000. Weekly jobless claims are just 1,000 below the peak reached in 2001 as the weakening economy prompts companies to lay off workers. A Labor Department analyst said seasonal factors may have played a role in the increase but warned against blaming the rise on technical factors since there was a broad rise across a number of states. Continuing claims are at the highest level since 1983.

The trade gap narrowed from $59.1 billion in August to $56.5 billion in September, below the estimate of $57.0 billion. Exports fell 6.0% to $155.4 billion amid deteriorating conditions in global markets. Imports fell 5.6% to $211.9 billion. Oil imports fell from $37.0 billion to $27.3 billion.

Investors grapple with falling German GDP

Preliminary data in Germany showed that 3Q GDP contracted 0.5% quarter-over-quarter, versus the forecast of a 0.2% decline. The worse-than-expected drop in total output for Europe's largest economy follows a decline in 2Q, indicating that Germany's economy has entered a recession. Weakness in exports contributed to the decline amid sagging conditions in the US and Japan as the economy registered its worst performance since 1996. Rising inventories cushioned sagging output, but the buildup could hamper the economy in coming quarters as businesses work off excess goods on hand.

Stocks in Europe reacted negatively to the report but shares have pared losses in choppy trading. The UK's BT Group (BT $17) is helping to underpin the broad market after posting better-than-expected operating 2Q profits of 1.4 billion pounds and reiterating its full-year revenue target. But in a sign of the times, the UK's largest telecom company said it plans to slash 10,000 jobs. Industrial conglomerate Siemens (SI $49) is also supporting the overall tone and offsetting some of the negative sentiment from the weak GDP report after sticking with profit targets for the upcoming fiscal year and saying new orders have been good in the current quarter. The Germany-based company did miss 4Q profit estimate, however, and added its fiscal 2009 goals are becoming "more demanding." The company plans to cut over 16,000 jobs.

Economy keeps Tokyo on the defensive

Yesterday's gloom on Wall Street quickly spread to most markets across Asia, with the Nikkei 225 Index shedding 5.2% and markets in Taiwan and South Korea losing over 3%. Intel's warning added to the grim mood. Best Buy's (BBY $22) sobering commentary yesterday was the clearest sign yet that the credit crisis that rocked financial markets in late September and early October has sent US consumers into a winter hibernation that will likely dampen Japanese sales in the US. Shares of Konica Minolta (KNCAF $7) fell 12.0% and Sony (SNE $21) lost another 8.7%. Elsewhere, number two lender Mizuho Financial (MFG $5) fell over 6% after announcing plans to raise $3.2 billion in capital via a preferred offering. Separately, the Domestic Corporate Goods Price Index in Japan declined a larger-than-expected 1.6% in October, its biggest decline in at least 48 years as oil and commodity prices plunge and developed economies weaken.