Morning Update

Labor Report Sours Sentiment

Stocks are lower in morning action as early gains were erased by a disappointing labor report, which showed more jobs were shed from nonfarm payrolls and the unemployment rate jumped higher than expected, moving above the 10% mark to the highest rate since 1983. Not even favorable revisions to the previous month’s job losses are helping soothe fears about the impact of the dismal labor conditions on the consumer. Treasuries moved higher on the jobs report, and ahead of releases on wholesale inventories and consumer credit. The focus on the economic front is overshadowing news from the equity front as Starbucks, AIG, and Nvidia all exceeded analysts’ profit projections. Overseas, markets are mixed with Europe giving up early gains on the aforementioned disappointing labor data in the US.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 10 points below fair value, the DJIA is 84 points below fair value, and the Nasdaq 100 Index is 13 points below fair value. Crude oil is lower by $1.97 at $77.65 per barrel, and the Bloomberg gold spot price is down $1.53 at $1,088.78 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 75.79.

Starbucks Corp. (SBUX $20) reported fiscal 4Q EPS ex-items of $0.24, three cents above the consensus estimate of Wall Street analysts, with revenues falling 4% versus last year to $2.4 billion, roughly inline with the Street’s expectations. The coffee company said same-store sales trends improved in its US and international segments, on both sequential quarter-over-quarter and year-over-year basis. The company said its performance was favorably impacted from permanent changes to its cost structure, adding that it is seeing broad-based improvement across its global business, and it is “cautiously optimistic” about the upcoming holiday period. SBUX raised its full-year 2010 EPS outlook.

Former Dow member and government bailed out insurance group American International Group (AIG $39) reported adjusted 3Q EPS of $2.85, topping the $1.98 that the Street had anticipated. AIG said its profit during the quarter resulted from certain businesses continuing to stabilize, as pricing in its commercial property casualty business has been stable. Nonetheless, shares are under pressure in early action.

Nvidia (NVDA $12) reported 3Q EPS ex-items of $0.19, above the $0.10 that analysts had been expecting, with $903 million in revenues growing 16% versus the previous quarter and slightly higher than a year ago, topping the $837 million forecast of the Street. The graphics chipmaker said its revenues increased from a year ago with improvement in each of its PC, professional solutions and consumer businesses. NVDA issued 4Q revenue guidance that topped the Street’s forecast.

Labor report shows unemployment rate breaches the 10% mark

Nonfarm payrolls fell 190,000 in October, more than the Bloomberg estimate that called for a 175,000 decline. However, September was favorably revised to -219,000 from -263,000, and August was also favorably revised from -201,000, to -154,000. The unemployment rate rose from 9.8% to 10.2%, above the consensus forecast calling for the rate to increase to 9.9%. Average hourly earnings increased 0.3%, versus the Street's forecast of 0.1%. Treasuries moved higher after the report.

Later this morning, the economic calendar will yield a key report on wholesale inventories for September, forecast to decline 1.0%, while in afternoon action, consumer credit for September will be released and is expected to fall by $10 billion, following August’s drop of $12 billion.

Europe gives up modest gains as US labor data shows pain

Stocks in Europe have moved below the flatline in afternoon action, as the disappointing employment data in the US is more than offsetting strength in financials that is stemming from a string of news in the group. Shares of Royal Bank of Scotland (RBS $12) are solidly higher as traders are reacting positively to the bank—partly controlled by the UK government—reporting that its 3Q loss narrowed and after it said impairment losses, which totaled 3.3 billion pounds in 3Q, were showing signs of leveling off. Additional support for the financial sector is coming from Hannover Re (HVRRY $23), which is solidly higher after Germany’s second-largest reinsurer topped analysts’ profit projections and raised its full-year profit target.

In other equity news, shares of British Airways (BAIRY $31) are nicely higher after Europe’s third-biggest carrier offered an upbeat outlook on traffic and ticket prices. However, the world’s largest cosmetics maker L’Oreal (LRLCF $103) is lower after reporting sales for 3Q that missed analysts’ estimates, and Lafarge (LFRGY $22) is posting a solid decline after the world’s largest cement maker reported its 3Q net income fell and it offered a softer-than-expected full-year sales forecast. In economic news in the eurozone, German factory orders rose slightly less than expected, while a separate report showed headline UK producer prices also increased at a pace slower than economists predicted. But core prices, excluding food and energy, rose slightly more than expected.

Asia advances on upbeat US action

Stocks in Asia were mostly higher as the steep gains in the US yesterday on the upbeat employment reports carried over to lift sentiment in the region. Additionally, a 1.9% gain in Australia’s S&P/ASX 200 Index led the way after the Reserve Bank of Australia boosted its economic growth forecast. The RBA said given the resiliency of the economy, its GDP is expected to increase by a little more than 2% over the year to mid 2010, “a considerably better outcome than thought likely earlier in the year,” with the economy expected to expand by 3.25% over the year to mid 2011. The RBA added that growth in business investment and exports is expected to be strong, underpinned by the ongoing expansion of the resources sector. The RBA—which has increased its main lending rate twice in the past month and became the first G20 central bank to do so—suggested that more tightening may be in the offing after it said, “The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected.”

Elsewhere, Japan’s Nikkei 225 Index rose 0.7%, led by exporters amid profit optimism on yesterday’s upbeat economic data in the US. Meanwhile, shares of Pioneer (PNCOF $2) jumped 8% after announcing that it will raise less capital than previously expected, and NEC Corp (NIPNF $3) surged about 10% after it announced that it will raise over 100 billion yen to invest in new businesses and strengthen its capital, to help lift stocks in Japan. In other Asian action, China’s Shanghai Composite Index rose 0.3%, and South Korea’s Kospi Index gained 1.3%, while Hong Kong’s Hang Seng Index advanced 1.6%, aided by a solid gain in the world’s number-four PC maker Lenovo (LNVGY $11), after it posted 2Q profits that trounced analysts’ expectations.