Morning Update

Gains Maintained After Jobless Claims Wane

Stocks are higher in morning action as the upbeat sentiment from Alcoa's smaller-than-expected loss, to unofficially kick off 2Q earnings season, is being preserved by a steep drop in weekly initial jobless claims. However, the Labor Department said seasonality may have amplified the drop and the report showed continuing jobless surged to a new record high. Retailers are in focus as June same-store sales are pouring in mixed, highlighted by Target offering upbeat comments on 2Q EPS after reporting a larger-than-expected drop in sales. In other equity news, EMC won the battle to acquire Data Domain. Treasuries are lower, giving back some of yesterday's gains on the strong 10-year note auction, and ahead of a report on wholesale inventories. Overseas, markets are mixed with Japan under pressure on a stronger yen and Europe is looking like it will snap a five-session losing streak as the Bank of England left its key interest rate unchanged.

As of 8:50 a.m. ET, the September S&P 500 Index Globex futures contract is 7 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 47 points above fair value. Crude oil is up $1.41 at $61.55 per barrel, while gold is up $6.90 at $916.20 per ounce.

The unofficial start to 2Q earnings season kicked of with Dow member Alcoa's (AA $9) report, which showed the aluminum producer posted a smaller-than-expected net loss for the quarter. AA said its 2Q net loss, excluding restructuring charges, was $0.26 per share, compared to the Reuters estimate, which called for the firm to post a loss of $0.38 per share. Revenues fell 41% to $4.2 billion, compared to the same period a year ago, but were up 2% versus last quarter as aluminum prices rose from 1Q but declined from last year. The company said the economic downturn has affected most of its end markets, such as automotive, commercial transportation, building and construction, and aerospace. AA's CEO said the company's cash generation initiatives and productivity improvements are working and it has staying power and a reduced cost base to withstand the most serious downturn in the history of the aluminum industry.

EMC Corp. (EMC $13) announced that it has reached a definitive agreement to acquire Data Domain (DDUP $34) in a cash tender offer for $33.50 per share, expected to have a total enterprise value of about $2.1 billion. This puts to rest the battle with NetApp (NTAP $18) to acquire DDUP and EMC said the acquisition is expected to be neutral to its EPS ex-items in 2009 and add to EPS in 2010. EMC added that the merger will form a powerful force in next-generation disk-based backup and archive.

Target (TGT $37) announced June same-store sales decreased 6.2%, a larger decline than the Reuters estimate of a 5.6% decline. The company said the month of June continued to reflect a very challenging economic environment, but it said it continues to mitigate the impact of a substantial portion of this sales shortfall on its profitability through a better-than-expected gross margin rate and continued expense discipline in its retail segment. As a result, TGT said it expects 2Q EPS to meet or exceed the current FirstCall estimate of $0.64 per share.

Costco Wholesale (COST $46) reported June same-store sales for June-including fuel sales-fell 6%, which matched the Street's forecast, but excluding gas-price deflation, the retailer said sales rose 1%.

Department store Macy's (M $11) posted June same-store sales fell 8.9%, inline with the company's expectations, but a slightly smaller decline than the 9% drop that analysts had anticipated.

Jobless claims tumble

Weekly initial jobless claims fell a much more-than-expected 52,000 to 565,000, versus last week's figure that was upwardly revised by 3,000 to 617,000. This is the lowest reading since January but the decline in claims was amplified by seasonal adjustments, mainly from fewer-than-expected layoffs in the automotive sector, the Labor Department said. The Bloomberg consensus called for claims to reach 603,000. The four-week moving average fell by 10,000 to 606,000, while continuing claims jumped, rising 159,000 to 6,883,000, versus the forecast of 6,710,000. Treasuries remained lower after falling slightly following the report, giving back some of yesterday's gains that came from the auction of $19 billion of 10-year notes, which showed stronger-than-anticipated investor demand.

Later this morning, the economic calendar will yield the wholesale inventory report for May, forecast to show stockpiles fell 1.0%, on top of April's 1.4% decline, as businesses continue to run lean inventories to keep costs under control to help recover from the global recession.

Europe poised to snap a five session losing streak

Stocks in Europe are posting solid gains in afternoon action, and are in the green for the first time in six sessions, led by a rebound in basic materials stocks following Alcoa's upbeat profit report in the US. Materials may also be getting support from some bargain-hunting as the sector has come under recent pressure amid the recent increase in global economic uncertainty. Automakers are higher to help the advance across the pond on an analyst upgrade of the sector and after a report that showed Chinese car sales rose 48% on a year-over-year basis in June. In economic news, the Bank of England left its key interest rate at 0.5%, as expected, and left its 125 billion pound asset-purchase plan unchanged. The BoE said policy makers will review the scale of the program again at its August meeting.

Asia mixed as strength in yen weakens Japan

Stocks in Asia were mixed, with markets in Japan posting solid declines after the yen strengthened versus most major currencies and touched the highest level since February against the dollar. The Nikkei 225 Index fell 1.4% and the broader Topix index dropped 1.7% as the rise in the Japanese currency threatened profits for companies that rely heavily on sales in the US and elsewhere outside Japan. However, Hong Kong's Hang Seng Index rose 0.4% and China's Shanghai Composite Index gained 1.4%, following a jump in auto sales for June, to help paint the mixed picture in the Asia/Pacific region. Elsewhere, Australia's S&P/ASX 200 Index finished lower following an increase in the unemployment rate, which reached the highest level in almost six years, but shares showed some resiliency, finishing slightly lower after paring early losses as commodity-related stocks rebounded following Alcoa's better-than-expected earnings report. In other economic news, South Korean shares finished nearly unchanged after the central bank left its key interest rate unchanged, saying the economy may improve next year, but it will be hard for global trade to recover in the short term.