Morning Update

Relative Relief in the Face of More Labor Market Grief

Stocks initially moved higher as traders seem to be breathing a relative sigh of relief after the labor report showed jobs fell generally in line with expectations, but gains are being pared as huge downward revisions to previous sharp monthly declines are tempering sentiment. There has been little to cheer about on Wall Street recently amid the plethora of dismal economic data and uncertainty, which has pushed the Dow Jones Industrials well below the 7,000 mark and the broader market to twelve-year lows. In equity news, Wells Fargo slashed its dividend and H&R Block easily topped the Street's EPS expectations. Treasuries gave up early gains following the labor data and are modestly lower, while overseas, markets are mostly lower.

As of 8:41 a.m. ET, the March S&P 500 Index Globex futures contract is 4 points above fair value, the Nasdaq 100 Index is 3 points above fair value, and the DJIA is 37 points above fair value. Crude oil is up $0.72 to $44.33 per barrel, and gold is up $14.00 at $941.80.

Wells Fargo (WFC $8) announced that it will reduce its quarterly common stock dividend from $0.34 per share to $0.05 per share, enabling the company to retain $5 billion in common equity each year. The company said the decision is absolutely right to further strengthen its ability to grow market share and continue profitable growth. WFC added that operating results for the first two months of the year are "strong." The announcement comes as the government is set to begin its "stress tests," aimed at determining the financial strength of the nation's largest financial firms.

H&R Block (HRB $17) reported fiscal 3Q EPS of $0.20, easily topping the Reuters estimate of $0.09, as revenues from continuing operations increased 11% to $993 million. The tax preparer said 3Q results reflect continued cost reductions coupled with double-digit revenue growth, which expanded profits. HRB said 3Q tax services revenues, reflecting growth in tax returns prepared in US retail offices, rose 15% versus last year. The company added that paying down more than $2.5 billion in debt greatly improved its financial strength. HRB said total tax preparation revenues through February 28 were up 6.5% and total tax returns prepared were down 1.8%, and looking ahead, it said it is on track to significantly improve profitability in fiscal year 2009.

Jobs tumble again

Nonfarm payrolls fell 651,000 in February, versus the Bloomberg estimate of a 650,000 decline. January was revised from -598,000 to -655,000, and December was revised from -577,000 to -681,000. The unemployment rate jumped from 7.6% to 8.1%, above the forecast of 7.9%. Average hourly earnings rose 0.2%, in line with the Street's forecast. Treasuries gave up early gains following the labor data and are modestly lower.

The jump in the unemployment rate shows the economy is still in a tenuous state and companies continue to furlough workers. However, the unemployment rate is a lagging indicator, as businesses are often reactive with respect to adjusting their labor forces, and typically peaks about seven months after recessions have ended historically.

The sharp downward revision to previous job losses are likely to offer 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.

Europe off lows but still bogged down by financial woes

Stocks in Europe are under pressure following yesterday's tumble as more concerns in the financial sector weigh on sentiment across the pond, although some losses have been recovered following the US reaction to the jobs data. The weakness in the financial sector is pushing the Bloomberg European 500 Index to the lowest level since the inception of the index in December 1996. Traders are grappling with uncertainty regarding the depth and duration of the global recession, which prompted the Bank of England to follow the US' lead by announcing yesterday that it will deploy unconventional monetary policy measures to combat the economic crisis. The announcement from the BoE accompanied its 50 basis point interest rate reduction to 0.5%, along with the European Central Bank reducing its key lending rate also by 50 basis points to 1.5%. In equity news, Wolseley (WOSLY $2) is down about 12% after the world's largest distributor of heating and plumbing equipment announced plans to raise 1.05 billion pounds ($1.49 billion) by selling shares and said it will exit its US-based stock building supply unit.

Asian stocks slammed by soured financial sentiment

Stocks in Asia were solidly lower on a broad basis, following the sharp declines on Wall Street as exacerbated fears toward the health of the financial sector stymied sentiment. Stocks in Japan were the biggest decliners as the Nikkei 225 Index closed just shy of the 26-year low it reached in October last year, while the broader Topix Index posted a fresh 25-year low. The yen's solid strength yesterday also weighed heavily on export issues to help pressure the major averages in Japan. Automakers-also suffering from the firming yen-came under pressure on fallout from the struggles in the US auto market after 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 and GM said if it fails to execute its viability plan, it could potentially be forced to seek relief through bankruptcy. To make matters worse for the Japanese markets, Japan's largest memory-chip maker Elpida Memory (ELPDF $6) fell over 11% after the Nikkei newspaper said a possible rescue package involving Taiwan's government may be executed later than the company expected. Elpida did not comment.