Morning Update

Under Pressure Despite a Drop In Jobless Claims

Stocks are lower in early action as traders digest retail same-store sales numbers, which Wal-Mart easily topped, and as no stimulus efforts from China were announced as was expected. The gloomy mood on the Street comes despite a larger-than-expected drop in jobless claims. In other equity news, General Motors reports that its auditors warned that the company may not survive as a going concern. Treasuries remain higher after the jobs data, as nonfarm productivity was revised lower. Overseas, Asian markets were mixed, and Europe is lower as key central banks lowered interest rates.

As of 8:52 a.m. ET, the March S&P 500 Index Globex futures contract is 19 points below fair value, the Nasdaq 100 Index is 18 points below fair value, and the DJIA is 165 points below fair value. Crude oil is down $1.60 to $43.78 per barrel, and gold is up $10.50 at $917.20.

Dow member Wal-Mart (WMT $48) reported February same-store sales rose 5.1%, excluding fuel sales, easily topping the Reuters estimate of a 2.4% gain. The world's largest retailer said its strong sales were driven largely by an acceleration of traffic as it said it believes falling gas prices significantly boosted household disposable income and therefore allowed for both more trips and more spending towards discretionary items.

Target (TGT $27) reported February same-store sales fell 4.1%, slightly better than the analysts' expectations of a 4.8% decline. The company said the results were in line with its planned range and results continue to reflect the significant economic challenges facing its customers.

Macy's (M $7) reported same-store sales fell 8.5% in February, a larger drop than that Street's 7.3% decline forecast. The department store said the results were in line with management's expectations.

Dow member General Motors (GM $2) announced in a regulatory filing that its auditors warned that the company may not survive as a going concern, confirming its warning last week of the possible auditors opinion. The automaker said the warning was triggered by its enormous cash burn rate. GM said if it fails to execute its viability plan, it could potentially be forced to seek relief through bankruptcy. Check out Director of Income Planning for the Schwab Center for Financial Research, Rob Williams' article entitled GM Bonds: Risks and Scenarios for issues to consider when deciding whether to hold or sell GM bonds. See more timely commentary from the Schwab Center for Financial Research at www.schwab.com/marketinsight.

Jobless claims fall, productivity revised lower

Weekly initial jobless claims fell 31,000 to 639,000, versus last week's figure that was upwardly revised by 3,000, and well below the Bloomberg consensus which called for claims to fall to 650,000. The four-week moving average rose 2,000 to 641,750, and continuing claims declined 14,000 to 5,106,000. Although the data was better than expected, the employment picture remains depressed as the claims data continue to sit at severely elevated levels, and is offering little relief to depressed consumer sentiment, which is major headwind for the economy as consumers are saving more to reduce debt, build their retirement accounts back up, and increase their emergency savings to protect themselves in case of future job loss.

Final 4Q nonfarm productivity fell at a 0.4% annual rate in 4Q, revised sharply lower from the preliminary reading of a positive 3.2% rate and versus of the Bloomberg forecast of a 1.0% annual rate. Output fell 1.8%, from a previous decline of 1.0%. Unit labor costs increased 5.7%, revised solidly higher from the previous report of 1.8% and above the 3.8% estimate, and the number of hours worked dropped at a 4.0% annualized rate. The downward revision to productivity for the final quarter of last year follows last week's sharp downward revision of 4Q GDP.

Treasuries remain higher as traders digest the data, and later today, factory orders for January will be released and are forecast to fall 3.5%.

Europe hold early losses after interest rate cuts

Stocks in Europe remain solidly lower in afternoon action, led by financials on a disappointing earnings report in the UK, and as traders mull over key interest rate decisions in the euro zone region. Aviva (AIVAF $4), the UK's largest insurer, is down almost 30% after it maintained its dividend despite posting a full-year loss. In other equity news, Germany's second-largest steelmaker Salzgitter (SZGPF $62) is down sharply after it posted disappointing full-year earnings and warned that it is "unlikely" that it will break even for the first half of the current year. Additionally, Anheuser-Busch InBev (AHBIF $25), is gaining ground after it said cost reductions since the InBev/Anheuser-Busch merger had "exceeded expectations" thus far with at least $1 billion less capital spending this year. The comments from the world's largest brewer are offsetting its 41% drop in full-year profit, which missed analysts' expectations.

Meanwhile, traders are digesting key interest rate decisions. The Bank of England reduced its key lending rate by 50 basis points as expected to a historic low of 0.5% and also announced an asset purchase facility of 75 billion pounds, following the US's lead of using quantitative easing as BoE Governor Mervyn King said in a letter published today that, " In these highly uncertain times, there are merits to stimulating the economy through a variety of different channels." Elsewhere, the European Central Bank also lowered its key lending rate by 50 basis points, to 1.5%, which was expected. Traders are awaiting a press conference from ECB President Jean-Claude Trichet later today for any comments explaining today's decision and any signals of future monetary efforts that may help stem the slide in the global economy.

Asia mixed as China offers growth comments but no new stimulus efforts

Stocks in Asia were mixed as the Chinese government did not announce any new stimulus efforts but did say that its 8% growth target for the year was within reach. Yesterday, a report from the former head of the statistics bureau that today China would announce new economic stimulus plans, in addition to the $585 billion already pledged, led to a global rally as fears about the global recession eased. Today, the Chinese Premier said it is "possible to meet this target," regarding its 8% annual growth target, when delivering his annual speech to parliament. The Premier adding that the nation needs to "reverse the economic slide as soon as possible." The economic growth outlook helped soothe some of the disappointment from the lack of any new stimulus and markets finished mixed with the Shanghai Composite rose 1.0%, and Japan's Nikkei 225 Index gained about 2.0%, while Hong Kong's Hang Seng Index fell about 1.0% and Korea's Kospi Index was down about 0.1%. Japan also received some support from the continued slide in the yen, which helped export issues lead the solid advance in the region.