Morning Update

Modest Pressure Despite Jobs and Retail Data

Even after a smaller-than-expected rise in weekly initial jobless claims and favorable components of the report, coupled with generally better-than-expected December same-store sales from retailers-headlined by an unexpected increase from Target-stocks are lower in early action. The bulk of the pressure on sentiment is coming from an unexpected rate increase in China and some disappointing economic data out of Europe. In other equity news, Dow member Verizon Communications' CEO offered a full-year profit warning, while Bed Bath & Beyond posted earnings that exceeded the Street's expectations. Treasuries are lower in early trading after the jobs report. Overseas, Asian shares came under pressure and Europe is slightly lower, following the Bank of England's monetary policy announcement, in which it left its key interest rate unchanged and maintained its asset purchase target.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is at fair value, and the DJIA is 27 points below fair value. Crude oil is down $0.40 at $82.78 per barrel, and the Bloomberg gold spot price is lower by $6.68 at $1,131.72 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.5% at 77.91.

Verizon Communications' (VZ $32) CEO warned yesterday that 2009 profit would be down roughly $0.13-0.15 per share year-over-year, after the company posted $2.54 per share in earnings for 2008. This was a larger drop than analysts had forecasted, calling for the company to report full-year profits of $2.45 per share. The company's chief did say that 2009 was a good, solid year for the Dow member and said most of the drop in earnings would come from pension headwinds.

Bed Bath & Beyond (BBBY $39) reported fiscal 3Q EPS of $0.58, much higher than the $0.42 that Wall Street analysts had expected, with revenues of $1.98 billion, an increase of 10.8% versus last year and just above the $1.9 billion that had been expected. BBBY issued full-year EPS guidance that exceeded analysts' expectations.

Target (TGT $50) headlines a plethora of retail industry reports of same-store sales-sales at store open at least a year- as the company said its sales unexpectedly rose, gaining 1.8%, versus the Reuters estimate, which called for a 0.2% decline. TGT said December's stronger-than-expected sales were due to better-than-anticipated guest traffic throughout the month.

Costco Wholesale (COST $60) reported December same-store sales rose 9%, including the impact of fuel, compared to the 7.9% increase that analysts had forecasted. Excluding fuel and the impact of foreign exchange, sales would have rose 4%.

Macy's Inc. (M $17) announced that its December comparable store sales rose 1.0%, just above the 0.8% increase that analysts had forecasted.

Gap Inc. (GPS $21) posted a 2% increase in same-store sales, versus the 2.6% gain that the Street had anticipated.

Jobless claims tick higher to a level below forecast

Weekly initial jobless claims rose by 1,000 to 434,000, versus last week's figure which was revised slightly higher to 433,000. The Bloomberg consensus called for claims to increase to 439,000 following last week's unexpected drop. The four-week moving average, considered a smoother look at the trend in claims, fell to 450,250 from 460,500, and continuing claims tumbled by 179,000 to 4,802,000, compared to the 4,975,000 forecast. Treasuries are lower following the data.

Bank of England's monetary announcement headlines heavy data day in Europe

Stocks in Europe are under some modest pressure in afternoon action on the heels of the surprising interest rate increase in China and as traders sift through a plethora of economic reports. The Bank of England's monetary policy announcement was a headline report across the pond, and the central bank left its benchmark interest rate unchanged at a record low of 0.5% and maintained its 200 billion pound asset purchase plan, as expected by economists surveyed by Bloomberg. In other economic news, data out of Germany-Europe's largest economy-is doing little to help sentiment in the Eurozone, as retail sales unexpectedly fell and factory orders rose by a smaller amount than expected. However, UK home prices rose more than expected and Eurozone consumer confidence improved to help limit some of the losses in the region. Rounding out a busy day, Eurozone retail sales surprised to the downside, falling 1.2% month-over-month in November, compared to the flat reading the was forecasted, while the previous month's data was revised higher.

Telecom issues are one of the largest drags on European trading, led by a solid decline in shares of Vodafone (VOD $23) on the disappointing earnings comments from Verizon Communications which jointly owns Verizon Wireless with VOD.

Asia comes under pressure as China moves to dry up liquidity

Stocks in Asia were broadly lower, led by weakness in commodities, as China's central bank increased the interest rate on its three-month bills for the first time since mid-August as it follows through on recent pledges to keep loan growth under control. China's Shanghai Composite Index fell 1.9% to pace the decline in the region on concerns that China's central banker may be getting close to raising its benchmark lending rate, potentially impeding growth in the nation that has led the global economy out of the recession. Japan's Nikkei 225 Index fell 0.5%, led by another steep decline in struggling air carrier Japan Airlines (JALSY $5) on a media report that the airline, which is battling bankruptcy concerns, is set to post a hefty loss. Elsewhere in Japan, the nation's newly appointed Finance Minister Naoto Kan sent the yen under pressure after saying at his inaugural press conference that he hopes the Asian currency, which reached a three-month low at the end of 2009, will weaken "a bit more," adding that Japan will make efforts to make the yen an appropriate level.

In other economic news, Australia's retail sales jumped more than four times the forecast of economists surveyed by Bloomberg, but the country's S&P/ASX 200 Index declined 0.5% on the aforementioned weakness in commodities, exacerbated by concerns that the Australian central bank will hike rates for a fourth-straight time next month. In other action in the region, Hong Kong's Hang Seng Index decreased 0.7%, South Korea's Kospi Index dropped 1.3%, Taiwan's Taiex Index fell 1.1%, and India's BSE Sensex 30 index declined 0.5%.