Morning Update

Labor Data Limits Soured Sentiment

Stocks are poised to start on a slightly sluggish note as the Street digests more gloom on the corporate earnings front and continues to grapple with the impact a stimulus package that is being hammered out on Capitol Hill will have on loosening lending in financial markets and blunting the global recession. However, losses are being limited in early action by a smaller-than-expected drop in private sector jobs. On the equity front, Kraft Foods missed profit projections and lowered its outlook, Costco Wholesale Warned, and Time Warner and Walt Disney came up short of the Street's earnings forecasts. Treasuries are higher, and markets overseas are up.


As of 8:40 a.m. ET, the March S&P 500 Index Globex futures contract is 2 points above fair value, the Nasdaq 100 Index is 3 points below fair value, and the DJIA is 13 points below fair value. Crude oil is up $0.50 to $41.28 per barrel, and gold is up $8.50 at $900.50.

Dow member Kraft Foods (KFT $29) reported 4Q EPS ex-items of $0.43, one penny shy of the Reuters estimate, as revenues of $10.8 billion were also short of analysts' estimates. The company lowered its 2009 EPS and revenue forecast on greater-than-expected pension costs and a stronger dollar. Shares are lower.

Costco Wholesale (COST $46) is under pressure after reporting EPS for 2Q are expected to be substantially below the current First Call estimate of $0.70 per share as general economic conditions have negatively affected its sales, primarily in non-foods, and merchandise margins. COST also said January same-store sales fell 2%, including gasoline deflation and foreign exchange, versus the Reuters estimate of a 3.7% decline.

Time Warner (TWX $10) reported 4Q EPS ex-items of $0.23, three cents below the Street's forecast, as revenues declined 3% to $12.3 billion. The company said the sales decline was due to decreases at the filmed entertainment, AOL, and publishing segments, offset partially by increases at the cable and networks segments. The company said it expects adjusted EPS for fiscal 2009 to be flat. Shares are modestly lower.

Dow member Walt Disney (DIS $21) is lower after reporting fiscal 1Q EPS ex-items fell 35% to $0.41, well below analysts' expectations of $0.50, as revenues fell 8% to $9.6 billion. The company said it faced a challenging 1Q with many of its businesses impacted to various degrees by the economic downturn.

Private sector jobs fall less than expected

ADP reported that private sector jobs fell 522,000 in January, less than the Bloomberg estimate of a loss of 535,000 jobs, and December was revised lower from -693,000 to -659,000. ADP has consistently understated job losses over the past year when compared to the labor report from the Bureau of Labor Statistics, which is scheduled for release on Friday and expected to show 535,000 jobs were shed from nonfarm payrolls in January. Treasuries remained higher following the report, but pared some gains.

The ISM Non-Manufacturing Index is set to be released at 10 a.m. ET. The index has been around since 1997 and is designed to measure the broad service sector. Given the many headwinds buffeting the economy, including tight credit standards and a reluctance by consumers to spend on discretionary items, a decline from 40.1 in December to 39.0 in January is anticipated, according to Bloomberg. A reading below 50 suggests that activity is the service sector is declining.

The Street continues to await details of another stimulus package the Obama Administration is reportedly working on. Yesterday, Treasury Secretary Timothy Geithner said the government will step up efforts to fight the recession and discussions on Capitol Hill are ongoing and include the possibility of establishing a "bad bank" to buy up the toxic mortgage-related assets that continue to clog the financial system, in hopes to return some normalcy to the lending markets-the lifeblood of the economy.

Earnings reports support Europe

Stocks in Europe are higher in afternoon action as traders digest a couple of relatively upbeat earnings reports across the pond. Swedish appliance maker Electrolux (ELUXY $15) is up over 5% after it reported a smaller-than-expected loss and said it will stop its dividend to help maintain cash flow. UK's largest insurance firm, Aviva (AIVAF $4) is up about 10% after reporting larger-than-expected sales in 2008, driven by the UK and North America, and announced its plans to cut back its promised $1.4 billion payout to policyholders. However, gains are being limited by an 8% drop in shares of Swiss drugmaker Roche (RHHBY $36) after it announced an unexpected drop in profit on an unfavorable currency translation and lower sales of its drug Tamiflu.

Automakers aid advance in Asia

Stocks in Asia moved solidly higher as optimism that the flood of recent stimulus in the region is beginning to show signs of relative success, while Asian automakers jumped to help the advance. Yesterday, the world's automakers announced January US sales figures that were sharply lower across the board, but as the dust settled, traders warmed up to the Asian car firms as they fared relatively better in the world's largest vehicle market, helping the Nikkei 225 Index increase 2.7% and the broader Topix Index rise 2.5%. In China, the Shanghai Composite rose 2.3%, and Hong Kong's Hang Seng Index increased 2.3%, after data showed the $580 billion economic stimulus package might be starting to combat the softening economy, as China's manufacturing Purchasing Manager's Index rose from 41.2 in December to 45.3 in January. Yesterday, the Bank of Japan announced that it will buy 1 trillion yen ($11.1 billion) of shares of financial firms aimed at shoring up balance sheets, and today, Indonesia's central bank cut its interest rates for the third-straight month, which also helped sentiment in Asian region.

In equity news, the world's largest mining company, BHP Billiton (BHP $39) finished near the unchanged mark, despite reporting first-half profits fell 57%, more than analysts expected, according to Bloomberg. BHP reported net income fell to $2.6 billion, the lowest since 2004, and said slower demand for steel will have a "pronounced impact," and a weak outlook for the global economy will affect earnings in the second half of the fiscal year. Also, Panasonic (PC $12), the world's largest consumer-electronics maker, announced it will cut about 15,000 jobs, and slash its dividend, after saying it expects its first loss in six years as the global recession blunted demand.