Morning Update

Jobless Claims Crush Sentiment

Stocks are near session lows in early action as the Street digests disappointing sales guidance from Cisco, while a surge in jobless claims is exacerbating the soured sentiment. Meanwhile, same-store sales are pouring in, with Wal-Mart topping expectations and Macy's increasing its guidance. In other equity news, Visa and MasterCard reported better-than expected earnings. Treasuries are gaining ground following the gloomy jobs data, while nonfarm productivity was better than anticipated and unit labor costs rose less than forecast. Overseas, markets are lower, and the BoE and ECB announced interest rate decisions in line with expectations.

As of 8:50 a.m. ET, the March S&P 500 Index Globex futures contract is 9 points below fair value, the Nasdaq 100 Index is 23 points below fair value, and the DJIA is 67 points below fair value. Crude oil is down $0.09 to $40.23 per barrel, and gold is up $22.20 at $923.80.

Following yesterday's closing bell, tech bellwether Cisco Systems (CSCO $16) reported fiscal 2Q EPS ex-items of $0.32, two cents ahead of the Reuters forecast, as revenues fell 7.5% to $9.1 billion. The company said it showcased solid financial strength during a period of significant economic challenge. However, shares of the leading maker of routers and switches for the internet are lower after it said it expects 3Q revenue to decrease 15-20% as it said order growth fell 20% year-over-year in January and the forecast assumes the weakness will continue. CEO John Chambers said this is one of the most difficult times in his career for forecasting and challenges that have affected the US and Western Europe have spread to almost all countries.

Visa (V $49) is higher after the credit card processing firm reported fiscal 1Q EPS ex-items of $0.78, topping analysts' estimates of $0.66, as revenues increased 17% to $1.7 billion. The company said it saw strong contributions across all revenue categories, payments volume and processed transactions remained solid in particular in the Asia Pacific, Central Europe, Middle East and Africa, and Latin America and Caribbean regions. Visa said it now expects net revenue growth in the high single digits for 2009 and reaffirmed its full-year EPS guidance.

Fellow card processor MasterCard (MA $140) reported 4Q EPS ex-items of $1.87, well ahead of the consensus that called for $1.61, as revenues grew 14% to $1.2 billion. The company said 4Q gross dollar volume was up 3.4% and purchase volume was up 3.1%.

Dow member Wal-Mart (WMT $46) reported January same-store sales, or stores open more than a year, increased 2.1%, excluding fuel sales, topping the Street's estimate of a 1.1% increase. The world's largest retailer said sales were strong in grocery and health and wellness on gains in customer traffic. WMT said it will no longer give monthly sales guidance but said it expects US comparable sales to be between 1-3% for the period between January 31st and May 1st.

Macy's (M $8) reported January same-store sales fell 4.5%, relatively better than the Street's expectation of a 6.3% decline. The company issued 4Q EPS guidance above analysts' expectations and raised its full-year EPS outlook.

Target (TGT $31) announced January same-store sales fell 3.3%, above the 5.5% drop the Street had forecasted, and in line with the company's planned range for the month.

Jobless claims jump, productivity rises

Weekly initial jobless claims unexpectedly jumped 35,000 to 626,000, well above the forecast of 580,000. The four-week moving average surged 39,000 to 582,200, and continuing claims advanced 20,000 to 4,788,000. The large number of high-profile layoffs announced recently is starting to show up in the numbers, exacerbating pressure on the already weak consumer confidence and the economy.

Preliminary nonfarm productivity rose at a 3.2% annual rate in 4Q, well ahead of the Bloomberg forecast of 1.6%. Output fell 5.5%, the fastest pace since 1Q in 1982, according to Reuters. Unit labor costs increased 1.8%, versus a 2.9% estimate, as the number of hours worked dropped at an 8.4% annualized rate, the lowest since 1Q of 1975.

Treasuries are higher as traders digest the data, and later today, factory orders will be released and are forecast to fall 3.1%.

Europe lower on more corporate gloom

Stocks in Europe are lower in afternoon action as traders digest more pessimism on the corporate front, led a sharp drop in shares of Swiss Re (SWCEY $26), the world's second-largest reinsurer. Shares of the insurer are down almost 17% after it reported a net loss for 2008, said it plans to cut its dividend, and received a $2.6 billion capital injection from Warren Buffett's Berkshire Hathaway (BRKA $90,290). Germany's largest bank, Deutsche Bank (DTBKY $123) is under pressure despite its CEO saying revenue rose "significantly" in January and he has confidence for 2009. The bank is being weighed down after it reported a large 4Q loss and its first annual loss in more than 50 years. Additionally, consumer products company Unilever (UN $22) is under pressure after it cut its earnings target.

More central bank action was announced to help stem the slide in the global economy, as the Bank of England cut its target interest rate an expected 50 basis points to 1.0%, the lowest since the bank was founded in 1694, according to Bloomberg. Also, the European Central Bank left its key interest rate unchanged at 2.0%, as was expected since ECB President Jean-Claude Trichet hinted recently that the central bank may pause after reducing rates four times since October. Traders are awaiting the press conference with Trichet for more details on today's decision.

Asia lower as recession worries weigh on sentiment

Stocks in Asia came under pressure as fears about the impact of the global recession soured sentiment, highlighted by more earnings woes, as tech shares were among the worst performers as traders reacted to Cisco's gloomy outlook. In Japan, the Nikkei 225 Index lost 1.1% and the broader Topix Index declined 0.8%, but strength in shipping companies helped limit losses on the largest rise in the Baltic Dry Index, a key gauge of prices for shipping commodities, since at least 1985, according to Bloomberg. Casio Computer (CSIOY $82), the world's largest maker of electronic calculators, declined 2.8% after cutting its profit target on falling demand and said it expected "greater setbacks" in the global economy. Tokio Marine (TKOMY $27), Japan's largest casualty insurer, came under solid pressure after warning it will book a $1.4 billion charge in 3Q on securities writedowns, helping insurance stocks lead the decline in Japanese trading. Elsewhere, Australian stocks were stymied by an 18% drop in shares of Qantas Airways (QUBSF $1) after it sold new shares at a 19% discount to strengthen its balance sheet.