Morning Update

Jobless Claims Boost Sentiment

Stocks are higher in morning action as an upbeat earnings report from tech bellwether and Dow member Cisco Systems is being complimented by a larger-than-expected decline in weekly initial jobless claims and a jump in nonfarm productivity. Meanwhile, Wall Street is mulling over several reports from the nation’s retailers as their October same-store sales are pouring in. Treasuries are mixed as the mid-to-long end of the curve is steepening similar to yesterday’s action in the bond markets following the Federal Reserve’s monetary policy meeting. Overseas, Asia finished lower, while Europe has overcome early losses in afternoon action as the US markets open favorably and as traders digest interest rate decisions from the European Central Banka and the Bank of England.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 6 points above fair value, the DJIA is 67 points above fair value, and the Nasdaq 100 Index is 16 points above fair value. Crude oil is lower by $0.30 at $80.10 per barrel, and the Bloomberg gold spot price is down $1.50 at $1,090.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 75.63.

Cisco Systems (CSCO $23) reported fiscal 1Q EPS ex-items of $0.36, five cents above the consensus forecast of Wall Street analysts, as revenues fell 13% versus last year to $9.0 billion, but was also above the Street’s forecast, which called for the Dow member to post revenues of $8.7 billion. The networking firm’s CEO John Chambers said, “Building off what we saw as a clear tipping point in 4Q, our 1Q results continued to reflect strong sequential growth trends that meet or exceed expectations during normal economic times.” CSCO offered 2Q revenue guidance that exceeded analysts’ estimates.

Meanwhile the nation’s retailers are reporting October same-store sales, or sales at stores open at least a year, headlined by Target (TGT $49) posting a 0.1% decline in sales, compared to the Reuters estimate of a flat reading for October, which the company said was inline with its expectations. TGT added that same-store sales in apparel were slightly stronger than for the company overall, and that it is heading into the holiday season with very clean inventories and it believes it is positioned to perform well in what continues to be a challenging economic environment.

Meanwhile, Costco Wholesale (COST $59) announced that its October same-store sales rose 5%, including the negative impact of gasoline deflation and the positive impact of foreign exchange, above the gain of 4.7% that analysts’ had expected. Excluding fuel and foreign exchange, COST’s sales would have gained 4%.

Department store Macy’s (M $18) reported its comparable store sales were down 0.8% for the month, a larger decline than the 0.1% dip that the Street had expected.

Elsewhere, Gap Inc. (GPS $22) announced that its sales increased 4%, higher than the 1.6% gain that had been anticipated.

Jobless claims fall, productivity jumps

Weekly initial jobless claims (chart) fell by 20,000 to 512,000, versus last week's figure that was upwardly revised by 2,000 to 532,000. The Bloomberg consensus called for claims to fall to 522,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 3,000 to 523,750. Continuing claims followed last week’s steep drop with a solid decline of 68,000 to 5,749,000, versus the forecast of 5,750,000.

Elsewhere, preliminary nonfarm productivity (chart) rose at a 9.5% annual rate in 3Q, well above the Bloomberg forecast of 6.5%. Productivity rose at the fastest pace in six years, due to hours worked falling 7.5%, more than output, which declined 3.5% versus the same period a year ago. Unit labor costs fell 5.2%, versus a drop of 4.2% that was estimated.

Europe overcomes early losses as key central bank decisions are announced

Stocks in Europe have erased early losses and are higher in afternoon action amid the upbeat data in the US and as traders mull over interest rate decisions from some major central banks in the eurozone. The Bank of England and the European Central Bank both kept their main interest rates unchanged at 0.5% and 1.0%, respectively, but traders are paying attention to ECB President Jean-Claude Trichet’s customary press conference. Meanwhile, the BoE announced that it will expand its quantitative easing program by purchasing an additional 25 billion pounds ($41.4 billion) in assets, bringing its total purchase amount to 200 billion ($331 billion), the equivalent of more than 14% of the UK’s economic output, per Reuters. However, stocks pared losses and came off the worst levels of the day as the BoE’s asset purchase program was increased by a smaller amount than the 225 billion pounds that economists surveyed by Bloomberg had expected. Separately, the UK reported that its manufacturing rose 1.7% month-over-month in September, well above the 1.0% advance that was expected and the largest increase in seven year according to Bloomberg, which is helping stocks show resiliency across the pond. In other economic news, a report showed eurozone retail sales unexpectedly fell in September, which may be limiting some enthusiasm in Europe.

There are some eurozone equity stories that deserve a mention, with the world’s second-largest consumer products maker Unilever (UL $30) coming under pressure even after it reported 3Q profit and sales growth that topped analysts’ estimates. Elsewhere, the world’s largest reinsurer, Munich Re (MURGY $16) and Switzerland’s largest insurer, Zurich Financial Services (ZFSVY $23) are both lower after each firm posted worse-than-expected 3Q profits.

South Korea leads Asia lower

Stocks in Asia were broadly lower following the late-day slide in the US, led by a 1.8% drop in South Korea’s Kospi Index following the government warning that the current economic recovery is not yet strong enough to be recognizable in the industrial sector as a whole, and the government needs to help boost consumption and investment in the private sector. Japanese stocks came under pressure, with the Nikkei 225 Index falling 1.3% as the yen strengthened versus the dollar after yesterday’s announcement from the US Federal Reserve about keeping rates near zero, which weighed heavily on the profit prospects of Japanese exports that rely heavily on sales in the US. Also, shares of Sanyo Electric (SANYY $12) fell over 20% to pressure markets in Japan after Panasonic (PC $14) began its tender offer for the company at the previously announced price, but some pointed out that some may have expected Panasonic to raise its bid. Meanwhile, after the closing bell in Japan, Toyota Motor Corp. (TM $79) reported an unexpected profit and slashed its full-year loss forecast.

Elsewhere, Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index both declined 0.7% after some disappointed data out of New Zealand. The government reported that the nation’s 3Q employment change fell more than expected, pushing its unemployment rate slightly above what economists had expected. Moreover, Hong Kong’s Hang Seng Index declined 0.6%, while China’s Shanghai Composite Index bucked the downward trend in Asia, gaining 0.9%.