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Thursday, March 12, 2009

Morning Update


Sales Data Brightens the Mood

Stocks are trying to gain ground for a third-straight session as a better-than-expected report on retail sales, along with some upbeat revisions to last month's figures are helping limit early losses on the Street. Treasuries have relinquished early gains and are slightly lower on the sales data, offsetting a rise in weekly initial jobless claims. In equity news, Pfizer announced upbeat news about its pancreatic cancer drug, eBay revealed growth plans through 2011, while Roche Holding upped its offer and agreed to acquire the remaining shares it did not already own of Genentech. Overseas, markets are mostly lower.

As of 8:51 a.m. ET, the March S&P 500 Index Globex futures contract is at fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 10 points below fair value. Crude oil is up $1.42 to $43.75 per barrel, and gold is down $1.50 at $909.20.

Shares of Dow member Pfizer (PFE $13) are higher after the drug maker said that a phase-3 clinical trial of its pancreatic cancer treatment Sutent has been stopped early after the drug showed significant benefit in patients with advanced pancreatic cell tumors.

Ebay (EBAY $12) announced late yesterday its growth plans through 2011 with investors at a company-held meeting. The online auction firm said revenues are expected to reach $10-12 billion in 2011, up from $8.5 billion in 2008, led by strong growth in its online payments business PayPal and other ecommerce formats. The company also said it sees adjusted EPS to grow in the mid-single digits on a percentage basis between 2009-2011, and it expects $2 billion in savings over three years.

Swiss drug maker Roche Holding (RHHBY $31) announced that it has agreed to a deal to acquire the remaining 44% of shares of biotech firm Genentech (DNA $92)-that Roche does not already own-for $46.8 billion, or $95 per share. Roche raised the offer again from last week's increased bid that prompted the two companies to get back to the bargaining table. Shares of DNA are higher.

Sales better than expected, jobless claims rise

Advance retail sales were down 0.1% in February, versus an expected drop of 0.5%, while January's advance was revised from 1.0% to 1.8%. Ex-autos, sales rose 0.7%, well above a projected decline of 0.1%. January was revised from 0.9% to 1.6%. If gasoline, autos, and building materials are removed, sales at retailers increased 0.5%, indicating that consumers have relatively stepped up spending for the second-straight month of the year despite the headwinds of the recession.

The data has to be welcome news on the Street that consumer confidence in the face of mounting job losses, has led to an increase in the savings rate-short circuiting the spending recovery that will likely be needed before economic activity can turn back up.

Weekly initial jobless claims rose 9,000 to 654,000, versus last week's figure that was upwardly revised by 6,000, and above the Bloomberg consensus which called for claims to rise to 644,000. The four-week moving average rose 6,750 to 650,000, and continuing claims jumped 193,000 to 5,317,000. Treasuries gave up early gains and are slightly lower.

Later today on the economic calendar, business inventories are expected to be released and are forecast to decline by 1.0%.

Also later today, US Treasury Secretary Timothy Geithner will testify at 10 a.m. ET before the Senate Budget Committee on the Obama administration's 2010 budget proposal. The Obama administration continues to throw multiple plans at the credit crisis in an attempt to stabilize lending. Unfortunately, the response of the market has been less than enthusiastic as credit spreads have stopped narrowing for the time being-with some even disconcertingly reversing direction. After the $787 billion stimulus package failed to excite investors, and the housing plan left something to be desired, the administration's proposed budget further ignited concerns regarding increased deficits in the future. Additionally, the budget proposal was broad in its scope of extending the reach of government, which added to the uncertainty. This followed previous disappointments coming from the new governmental leaders, helping lead to the market reaction and lack of confidence that we're seeing.

Europe down as data dumps sentiment

Stocks in Europe are under solid pressure in afternoon action in a broad-based decline amid some disappointing equity and economic data. On the economic front, German industrial production fell the most since data began being compiled for a reunified Germany in 1991, according to Bloomberg. Production in Europe's largest economy fell 7.5% in January-more than twice the -3.0% forecast of economists surveyed by Bloomberg. Illustrating the sharp decline in German output and the impact of the global recession, automaker Volkswagen (VLKAY $54) announced that 4Q profit fell 22% and it warned that 2009 will be an "extremely difficult year," while, fellow German automaker BMW (BAMXY $10) reported a 4Q loss before interest and taxes as European and US vehicle sales have tumbled. Elsewhere, Europe's largest producer of potash-a fertilizer component-K+S (KPLUF $43) is down about 8% after it forecasted "significantly" lower profits for the year, amid sluggish demand for potash and magnesium products.

Japanese stocks get socked

Stocks in Asia were mixed after yesterday's solid advance but Japanese shares moved solidly lower amid a slew of disappointing equity and economic data. The Nikkei 225 Index fell 2.4%, while the broader Topix Index declined about 3.0%-the lowest level in over 25 years-as the yen continued to firm, which weighed heavily on sentiment as the economy relies heavily on exports. Adding to the gloom in Japan, although being revised slightly better, the government confirmed that its economy contracted the most since 1974, according to Bloomberg. Final 4Q GDP in Japan fell at an annualized 12.1%, revised from a previous -12.7% reading, and better than the expectations of -13.4%. On the equity front, Mitsubishi UFJ Financial Group (MTU $4) fell 5.0% after it announced that it will sell 97.4 billion yen ($1 billion) in securities to strengthen its capital base.

Elsewhere, the economic front was heavy and offered little to help support sentiment in Asia as industrial production in China slowed more than expected, Australia's unemployment rate increased, and the New Zealand central bank cut its benchmark lending rate. However, the Korean Kospi Index managed to eke out a gain after its central bank left its key lending rate unchanged.

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