Morning Update

Sentiment Stalls as Retail Sales Fall

After showing some resiliency yesterday in the face of concerns that China’s efforts to rein in liquidity could hamper the global recovery, stocks have moved lower in morning action after an unexpected decline in retail sales in December. Treasuries are higher following the report, and after a larger-than-expected increase in initial jobless claims and a flat reading of import prices. In equity news, Target announced that it will resume its share repurchase program, while Williams-Sonoma boosted its guidance on strong holiday sales. Overseas, Asia was mostly higher, while Europe maintained gains following the European Central Bank’s interest rate decision, in which it left its benchmark interest rate unchanged at 1.00%.

As of 8:53 a.m. ET, the March S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 8 points below fair value, and the DJIA is 14 points below fair value. Crude oil is up $0.08 at $79.73 per barrel, and the Bloomberg gold spot price is higher by $2.55 at $1,140.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 76.83.

Target (TGT $49) announced that it is resuming its open-market purchases of its shares under the $10 billion program authorized by its Board of Directors in November 2007. TGT said better results in both its retail and credit card segments, together with disciplined management of its capital expenditures and significant reductions in credit card receivables, have contributed to much stronger-than-expected cash flow generation.

Williams-Sonoma (WSM $23) increased its 4Q guidance as it now sees revenues to come in at a range of $1.06-1.08 billion, and EPS ex-items for the quarter to be between $0.69-0.74. The home products retailer said net revenues for the 8-week holiday shopping period ended December 27th, increased by 7.4% to $783 million versus the same period last year, including same-store sales—sales at stores open at least a year—rose 6.5%. WSM said it is “extremely pleased with our holiday performance,” as revenues, selling margins, and controllable expenses all exceeded the high end of its expectations. The company also said it expects full-year EPS ex-items to be between $0.76-0.81. Analysts are expecting the company to post 4Q revenue of $1.03 billion and EPS of $0.50, while full-year EPS are expected to be $0.58. Shares are higher.

Retail sales unexpectedly fell, jobless claims rise, and import prices were flat

Advance retail sales for December fell 0.3%, compared to the Bloomberg forecast of an increase of 0.5%, while November’s 1.3% advance was revised to a 1.8% gain. Sales ex-autos declined 0.2%, versus the expectation of an increase of 0.3%. Excluding autos, gasoline and building materials, the figure the government uses to calculate the consumer spending component of GDP, sales decreased 0.2%.

Weekly initial jobless claims increased by 11,000 to 444,000, versus last week's figure which was revised slightly lower to 433,000, and compared to the consensus, which called for claims to increase to 437,000. The four-week moving average, considered a smoother look at the trend in claims, fell to 440,750 from 449,750, and continuing claims tumbled by 211,000 to 4,596,000, compared to the 4,750,000 forecast.

Meanwhile, the Import Price Index was flat month-over-month (m/m) for December, matching the expectation of economists. Year-over-year, import prices are higher by 8.6%, also matching forecasts. Petroleum imports declined 2.0% in December, and excluding petroleum, import prices increased, rising 0.5% in December. Treasuries moved higher following the retail, jobs, and trade reports.

Later this morning, the economic calendar will yield business inventories, forecast to decline by 0.3% for November.

Europe higher after ECB leaves rates unchanged

Stocks in Europe are higher in afternoon action, maintaining early gains after the European Central Bank left its benchmark interest rate unchanged at 1.00%, as expected by economists surveyed by Bloomberg, and traders are focusing on the press conference featuring ECB President Jean-Claude Trichet, which followed the announcement. Health care stocks are leading the way, with basic materials also pacing the advance, aided by strength in shares of Rio Tinto (RTP $234) after the world’s third-largest mining firm announced that 4Q iron ore output jumped 49% year-over-year (y/y), due to demand from China and it said it was seeing a recovery in demand across its major commodities. However, RTP said it continues to be cautious on the state of the global economy going into 2010 as stimulus efforts start to wind down. In other equity news across the pond, shares of Delhaize Group (DEG $78)—the owner of Food Lion supermarket chains in the US—are lower after it posted 4Q sales fell 10% to 4.87 billion euros, short of the Bloomberg consensus of 4.95 billion euros. Also, Ubisoft Entertainment (UBSFY $3) is solidly lower after Europe’s largest video game maker forecasted a full-year loss. In other economic news, Eurozone industrial production increased 1.0% m/m in November, doubling the forecast of economists, and the final revision of German consumer prices rose 0.8% m/m in December, versus the forecast for prices to remain at the previous reading, which was a gain of 0.7%. Britain’s FTSE 100 Index is 0.4% higher, France’s CAC-40 Index is up 0.3%, and Germany’s DAX Index is advancing by 0.5%.

Asia gains despite some mixed economic reports

Stocks in Asia were mostly higher, led by a 1.6% advance for Japan’s Nikkei 225 Index as the yen weakened versus the dollar to help optimism regarding profits of exporters, and following yesterday’s resilient gain in the US. The aforementioned sentiment helped drive markets higher, despite an unexpected drop in machine orders in November, which fell 11.3% m/m, following October’s 4.5% decline and compared to the consensus estimate of economists, which called for orders to increase slightly by 0.2%. Meanwhile, Australia’s S&P/ASX 200 Index rose 0.6%, following a report that showed the employment change in the land down under increased by 35,200 in December, following an upwardly revised gain of 31,400, and compared to the 10,000 that was forecasted. However, stocks in China were mixed, with the Shanghai Composite Index rising 1.4% rebounding from the recent slide after the government introduced new measures—including a 50 basis point increase in reserves that banks need to set aside—to contain asset bubbles, but Hong Kong’s Hang Seng Index dipped 0.2%, led by continued weakness in property stocks as real estate valuations are one of the areas that China is trying to prevent excessive speculation in. Elsewhere in Asia, South Korea’s Kospi Index rose 0.9%, Taiwan’s Taiex Index gained 1.1%, and India’s BSE Sensex 30 Index advanced 0.4%.