Morning Update

Early Gains Maintained Even as Jobless Claims Fail to Wane

Even though the headline reading of the weekly jobless claims report showed an unexpected increase, stocks remain higher in morning action as the report showed the four-week moving average fell and continuing claims tumbled by over 300,000. The advance extends yesterday’s late-day rise as the equity markets showed some relative resiliency in the face of lingering concerns about global government debt. Treasuries are lower as stocks advance and following a narrowing of the US trade deficit. In equity news, Costco Wholesale matched the Street’s profit projections, Citigroup is reported to be close to paying back some of the Treasury’s TARP money, while a separate report suggested Hershey is close to a decision to make a bid for Cadbury. Overseas, Asia was mixed on several economic reports, while Europe is higher after the Bank of England left its main lending rate unchanged at a record low.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 6 points above fair value, the DJIA is 49 points above fair value, while the Nasdaq 100 Index is 8 points above fair value. Crude oil is higher by $0.29 at $70.96 per barrel, and the Bloomberg gold spot price is up $0.60 at $1,129.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 75.94.

Costco Wholesale (COST $59) reported fiscal 1Q EPS of $0.60, matching the consensus estimate of Wall Street analysts, as net sales rose 6% to $16.9 billion, and including membership fees, total revenues came inline with the $17.3 billion that had been forecasted. Same-store sales—sales at warehouses open at least a year—rose 3% as the strengthening of foreign currencies relative to the US dollar and deflation in the selling price of gasoline had offsetting impacts on same-store sales.

CNBC is reporting that Citigroup (C $4) plans to pay back some of the $45 billion in taxpayer funds received from the Treasury’s Troubled Assets Relief Program (TARP), by raising as much as $20 billion through a stock offering. Citigroup has not confirmed that report but its Chairman Dick Parsons told the financial news outlet that the company believes it is “in a position to repay TARP money, but there is an active discussion we have to have with regulators.” Meanwhile CNBC said a Treasury official told it that Citigroup’s negotiations to exit TARP are uncertain, but headed in the right direction. The Treasury has not commented officially on the matter.

The Wall Street Journal is reporting that Hershey (HSY $35) and the philanthropic trust that controls the chocolate maker are nearing a final decision on whether to make a bid for UK confectionary firm Cadbury (CBY $51), citing people familiar with the matter. The report notes that HSY management and the trust’s board are leaning toward making a bid—challenging an existing $16.5 billion bid by Kraft Foods (KFT $27). None of the entities involved have commented on the report.

Jobless claims move higher but trade deficit narrows

Weekly initial jobless claims increased by 17,000 claims to 474,000, versus last week's figure that was left unrevised at 457,000. The Bloomberg consensus called for claims to decrease slightly to 455,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 7,750 to 473,750, and continuing claims also dropped, tumbling by 303,000 to 5,157,000, versus the forecast of 5,450,000.

The trade deficit (chart) narrowed from a favorably revised $35.7 billion in September to $32.9 billion in October, versus the Bloomberg estimate calling for the deficit to widen to $36.8 billion. Treasuries remain lower following the jobs and trade data.

Europe rebounds as financials find stable ground

Stocks in Europe are nicely higher in afternoon action, led by financials as concerns about government debt in Greece—downgraded by Fitch—and Spain—which had its outlook downgraded by Standard & Poor’s—waned, helping European markets try to finish in the green for the first time this week. Economic data is heavy across the pond, headlined by the Bank of England keeping its key interest rate at a record low of 0.5%, while maintaining its 200 billion pound ($326 billion) bond purchase program, although both announcements were expected by economists surveyed by Bloomberg. Elsewhere in eurozone central bank announcements, Switzerland kept its key interest rate unchanged as well at 0.25%, while announcing that it will stop corporate bond purchases as it reins in some emergency stimulus measures that it deployed to combat the recession. In other economic data in the eurozone, France’s industrial production unexpectedly declined, and the nation’s nonfarm payrolls fell 0.6%, while Italy’s industrial production rose by a smaller amount than forecasted.

In equity news, shares of Europe’s largest clothing retailer, Inditex (IDEXY $13), are solidly higher after the company posted a larger-than-expected profit for the first nine months of the year. The company noted growth in Asia and said sales had gained momentum heading into the Christmas period.

Asia mixed amid data

Stocks in Asia were mixed amid the backdrop of persistent global government debt concerns, with traders digesting a few pieces of economic data in the region, trying to determine if the economic recovery will continue to move forward. Japan’s Nikkei 225 Index fell 1.4% following a report that showed machine orders dropped more than expected, declining 4.5% month-over-month in October, compared to September’s 10.5% jump, and versus the forecast of economists surveyed by Bloomberg, which called for a 4.4% drop in orders. In Japanese equity news, shares of Sanyo Electric (SANYY $9) jumped over 10% after Panasonic Corp. (PC $14) acquired slightly more than a 50% stake in SANYY for 403.8 billion yen ($4.6 billion). Meanwhile, South Korea’s Kospi Index rose 1.1% after the Bank of Korea kept its main lending rate unchanged at 2% for the tenth-straight month, while lifting expectations that the central bank may be preparing to increase its rate after the BOK governor said, “The current 2% rate is too low given the 5% economic growth (seen for 2010).”

In other central bank moves in the region, New Zealand policymakers left its key interest rate unchanged at 2.5%, while the nation’s central bank governor said, “If the economy continues to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010.” New Zealand’s NZX 50 Index increased 0.2%. However, Australia’s S&P/ASX 200 Index declined 0.7%, even after a report that showed the nation’s employment change increased by 31,200—the third-consecutive monthly rise—topping the advance of 5,000 that had been forecasted, while the unemployment rate unexpectedly fell from 5.8% to 5.7%, which was expected to increase to 5.9%. Elsewhere, China’s Shanghai Composite Index rose 0.5%, and Hong Kong’s Hang Seng Index fell 0.2%, rounding out a mixed day in the region.