Morning Update

Jobless Claims Unexpectedly Fall to Boost Sentiment

Stocks are higher in morning action as traders have a slew of data to digest, as retailers are reporting their November same-store sales, GE and Comcast finalized its joint venture surrounding NBC Universal, and the European Central Bank announced its monetary policy stance. However, Bank of America’s announcement that it will pay back the entire $45 billion in TARP funds and an unexpected drop in weekly initial jobless claims are dominating the headlines, and supporting the early sentiment on Wall Street. Treasuries are lower following the jobless claims data, and after nonfarm productivity was revised lower, while a key gauge of service sector activity looms on the horizon. Overseas, markets are higher, with Japan surging to buoy Asia.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the DJIA is 22 points above fair value, while the Nasdaq 100 Index is 3 points above fair value. Crude oil is higher by $0.42 at $77.02 per barrel, and the Bloomberg gold spot price is down $1.28 at $1,214.43 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 74.47.

Dow member Bank of America (BAC $16 ¹) is nicely higher after the firm announced that it will repay US taxpayers the entire $45 billion investment under the government’s Troubled Asset Relief Program (TARP). The repayment will be made after the company completes an offering of $18.8 billion in “common equivalent securities,” using the proceeds together with $26.2 billion in excess liquidity to pay the TARP balance in full.

Elsewhere, fellow Dow component General Electric (GE $16 ¹) and Comcast (CMCSA $15) announced that they have signed a definitive agreement to form a joint entertainment venture consisting of NBC Universal (NBCU) and CMCSA’s cable networks, in which CMCSA will own 51%, while GE will control the remaining 49%. The deal, which had been expected for some time, came as Vivendi (VIVDY $31) agreed to sell its 20% stake in NBCU to GE for $5.8 billion. NBCU’s business is valued at $30 billion and CMCSA’s business contribution is valued at $7.25 billion.

Retailers are in focus, with many key firms reporting November same-store sales—sales at stores open at least a year—headlined by Target (TGT $48), which announced that its sales for the month were 1.5% lower, a larger decrease than the Reuters estimate of a 0.5% decline. TGT said its sales were “slightly below” its expectations for November, as softer results in the first three weeks of the month were substantially offset by better-than-expected sales during its post-Thanksgiving two-day sale.

Moreover, Costco Wholesale (COST $61) reported November total same-store sales rose 6%, including the impact of fuel, short of the 8.1% expectation of Wall Street analysts—which includes fuel sales—as US sales rose 2%, while international sales jumped 21%. Excluding fuel, sales were up 2%.

Meanwhile, department store Macy’s (M $16) said its November same-store sales fell 6.1%, a larger decline than the 3.1% drop that had been expected, while specialty retailer Gap Inc. (GPS $22) posted a flat reading in sales for the month, just shy of the 0.1% advance that was forecast.

Jobless claims unexpectedly fall, productivity revised lower, service sector gauge on deck

Weekly initial jobless claims fell by 5,000 claims to 457,000, versus last week's figure that was downwardly revised by 4,000 to 462,000. The number was favorable as the Bloomberg consensus called for claims to increase to 480,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 14,250 to 481,250. However, continuing claims increased, rising by 28,000 to 5,465,000, versus the forecast of 5,400,000.

Elsewhere, final nonfarm productivity (chart) rose at an 8.1% annual rate in 3Q, below the Bloomberg forecast of 8.5%, and well below the 9.5% that was previously reported. Productivity still rose at the fastest pace since 3Q of 2003. Unit labor costs fell 2.5%, versus a drop of 4.1% that was estimated, and compared to the 5.2% drop that was initially announced. Treasuries moved lower following the jobless claims and productivity data.

Shortly after the opening bell, the ISM Non-Manufacturing Index will be released, and is forecasted to have increased to 51.5 in November after falling to 50.6 in October from September’s level of 50.9. The report is generally considered a measure of economic strength in the service sector and is the companion to the ISM Manufacturing Index, which was released on Tuesday and fell more than expected, to 53.6 in November after jumping to 55.7 in October from September’s level of 52.6. The separation point between contraction and expansion is a reading of 50, so while the reported levels of both indices are moving in an uneven monthly trend, they continue to indicate economic expansion.

Today will also bring Fed Chair Ben Bernanke’s Congressional testimony as part of his confirmation process, ahead of the January 31, 2010 expiration of his four-year term as Chairman, although he has been appointed as a member of the Board through January 31, 2020.

Financials leading Europe higher on BAC news and after ECB announcement

Stocks in Europe are higher in afternoon action as traders are digesting the monetary policy announcement from the European Central Bank, where it left its main lending rate unchanged at 1.00%, as expected by economists surveyed by Bloomberg. Traders are paying attention to the press conference that follows the announcement, held by ECB President Jean-Claude Trichet, for details on what led policymakers to the decision and for any signs regarding future monetary policy moves by the eurozone central bank. Financials are leading the advance across the pond following the announcement from Bank of America, while basic materials issues are under some pressure to limit gains in the region. In economic news outside of the ECB’s interest rate announcement, eurozone retail sales came in flat for October on a month-over-month basis, compared to the forecast of a 0.2% gain, 3Q eurozone GDP remained at a 0.4% quarter-over-quarter gain, while the UK Services PMI unexpectedly declined, but remained at a level depicting expansion.

In equity news, shares of Unilever (UN $32) are higher after the Financial Times reported that the world’s second-largest consumer products maker is mulling a sale of its Italian frozen food business. UN did not comment on the report. Meanwhile, Siemens (SI $102) is under pressure after Europe’s largest engineering firm posted a 4Q loss.

Asia higher as yen weakens to strengthen Japanese markets

Stocks in Asia were mostly higher, led by a 3.8% jump in Japan’s Nikkei 225 Index as shares of export issues led the charge. Soothed concerns about the impact of the recent rally in the yen—which touched a 14-year high versus the dollar last week—on profits of companies that rely on sales in the US and outside the Asian nation came as the Japanese currency fell for the third-straight day, to help boost sentiment. In equity news, American Airlines—which is owned by AMR Corp. (AMR $7)—announced that it, along with private equity firm TPG, offered Japan Airlines (JALSY $5) an investment of up to $1.1 billion, which is double a previous offer for the Asian carrier by a group led by Delta Airlines (DAL $9). Meanwhile, shares of Mitsubishi Motors Corp. (MMTOF $1) surged over 12% after the automaker announced that it was in talks with Peugeot (PEUGY $37)—Europe’s second largest automaker—to expand its existing strategic partnership. On the economic front in the Asia/Pacific region, 3Q Japanese capital spending fell more than anticipated by economists surveyed by Bloomberg, Australian retail sales in October rose by an amount that matched expectations, and Hong Kong’s Purchasing Managers Index for November improved.

Other market moves that helped the advance in Asia included advances over 1% in Hong Kong and South Korea, as well as a modest gain in Australia. However, China’s Shanghai Composite Index failed to participate in the broad-based advance, after falling 0.2%.