Morning Update

Modest Strength Despite Dour Labor Data

Stocks are looking slightly higher in early action as traders look for some bargains on the Street as the major averages have breached key psychological levels, while still grappling with lingering uncertainty toward the economy and financial markets. The early enthusiasm comes despite a larger-than-expected drop in private sector jobs. Optimism of more stimulus in China is also buoying sentiment. In equity news, Costco Wholesale missed profit estimates and US Bancorp is the latest firm to slash its dividend. Treasuries are lower despite the gloomy jobs data, while overseas, markets are broadly higher.

As of 8:42 a.m. ET, the March S&P 500 Index Globex futures contract is 5 points above fair value, the Nasdaq 100 Index is 9 points above fair value, and the DJIA is 50 points above fair value. Crude oil is up $1.81 to $43.46 per barrel, and gold is up $5.60 at $919.20.

Costco Wholesale (COST $41) reported fiscal 2Q EPS of $0.55, five cents shy of the Reuters estimate, as net sales declined 1% to $16.5 billion. The retailer said same-store sales for the quarter fell 3%, while excluding gas inflation and foreign exchange, comparable sales grew 5%. The company said 2Q results were negatively impacted by a variety of factors, primarily overall weak economic conditions, as results were hurt by continued weakness in non-food sales and related margins. COST said that food and non-food margins were also negatively affected by increased pre-holiday seasonal markdowns and other price reductions to drive sales and increase market share. Lower gas sales also hurt results, along with weakness in international profits as a result of the "significant strengthening" of the US dollar, the company said.

US Bancorp (USB $13) announced that it reduced its quarterly dividend from $0.425 per share to $0.05 per share. The company said the decision to reduce the dividend comes as the industry continues to confront uncertainty in the financial markets and a weakening economy.

Private sector jobs fall more than expected

ADP reported that private sector jobs fell 697,000 in February, more than the Bloomberg estimate of a loss of 630,000 jobs, and January was revised from -522,000 to -614,000. The ADP report is the first read on employment conditions this week, which will culminate with the labor report from the Bureau of Labor Statistics, which is scheduled for release on Friday and expected to show 650,000 jobs were shed from nonfarm payrolls in February. However, ADP has not been a reliable gauge of the labor report, although adjustments have been made recently. Treasuries remain lower following the report.

In other economic news, the US MBA Mortgage Application Index dropped 12.6% to 649.7 after last week's 15.1% decrease. The Refinance Index fell 15.3% to 3063.4 as the continued slide in home prices helped keep demand for refinancing subdued. The Purchase Index also fell 5.6% to 236.4, signaling that any recovery in housing has not yet begun.

Later today, the ISM Non-Manufacturing Index for February will be released, and the expectation is for a reading of 41.0, down from January’s 42.9. The separation point between contraction and expansion is 50. The report will complement the 35.8 posted by the ISM Manufacturing Index released on Monday, which showed the economy continues to decline at a rapid rate, but the pace of decline has slowed.

Additionally, in afternoon action the Federal Reserve Beige Book, which includes anecdotal information on monthly regional economic conditions, will be released and in the face of the continued deterioration in the global economy, traders may be looking for any signs across the nation that may suggest the rate of deceleration in business activity may slowing. However, consumer confidence—a key driver economic health—remains under siege, promoting little optimism in the short term. Consumer confidence is at an all-time low as home prices continue to fall and the equity markets threaten twelve year lows. Economic reports during the next several months are bound to remain grim, but the market generally bottoms before the economy does. The market seems to have already priced in much of the negative economic news

Europe rebounds to snap three-day losing streak

Stocks in Europe are higher in afternoon action, rebounding from three-straight sessions of softness as traders scooped up issues that had been ravaged the most—materials, industrials, oil, and financials—by the exacerbated global recessionary fears. The upbeat sentiment in Asia is also helping boost shares, as traders await tomorrow's interest rate decisions from the Bank of England and the European Central Bank, which are both expected to reduce rates by 50 basis points. Elsewhere, the UK announced that consumer confidence, although remaining close to a four-year low, improved for the first time since October. In equity news, the world's second largest sporting goods manufacturer Adidas (ADDDY $30) is up almost 4% after it announced 4Q profits that beat analysts' expectations. But the company did forecast lower sales for the year as consumers cut back spending amid an "unprecedented economic crisis."

Shanghai and Japan stimulate sentiment

Stocks in Asia were broadly higher, led by a 6% jump in China's Shanghai Composite Index on reports more stimulus is on the way and a third-straight improvement in the Chinese Purchasing Managers' Index. A former member of the Chinese central bank told reporters that in tomorrow's report from the Chinese Premier "there will be an announcement of a new stimulus package." Also aiding sentiment, the Chinese Purchasing Managers' Index improved for the third month in a row, led by the first rise in five months in output and new orders. The upbeat sentiment in China helped Japan's Nikkei 225 Index overcome early pressure and finish 0.9% higher. The reversal in Japan was also aided by a Bank of Japan official saying the central bank should signal that it is prepared to take "bold" measures to combat the recession.

However, stocks in Australia fell 1.6% after its 4Q GDP unexpectedly declined versus last quarter, as the Bloomberg estimate called for a slight growth in the key reading in output from the land down under. The economy contracted for the first time in eight years, exemplifying the impact of the global recession, which was also evident in the sharp downward revision to 4Q GDP in the US last week.