Evening Market Update

In the Red Despite Jobless Claims Continuing to be Shed

The US equity markets are lower in early action as the bulls are failing to be energized by another decline in weekly initial jobless claims. Disappointing UK retail sales, a mixed earnings report from FedEx Corp, and hotter-than-forecasted producer prices may be hamstringing the bulls this morning. Treasuries are mixed following the data, which also included a smaller-than-expected increase in the 2Q current account deficit, while a read on manufacturing activity in the Mid-Atlantic region for September is on the horizon. In other equity news, GameStop Corp announced that it will spend an additional $500 million to buy back its shares and pay down its debt. Overseas, Asian markets were mostly lower in the wake of yesterday’s currency intervention by the Japanese government, and the aforementioned lackluster UK retail sales data is pressuring European markets somewhat.

As of 8:56 a.m. ET, the December S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 6 points below fair value, while the DJIA is 38 points below fair value. Crude oil is down $0.90 at $75.12 per barrel, and the Bloomberg gold spot price is up $6.55 at $1,274.60 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 81.32.

FedEx Corp. (FDX $86) reported fiscal 1Q EPS of $1.20, one penny shy of the Reuters estimate, with revenues increasing 18% year-over-year (y/y) to $9.5 billion, just ahead of the $9.4 billion that the Street was forecasting. The package delivery firm said strong demand for its services, due to “improved global economic conditions,” resulted in higher volumes and better revenue per shipment at its express and ground units. Additionally, the company said it will combine its freight and less-than-truckload operations and its workforce is expected to be reduced by 1,700 full-time employees. FDX issued 2Q EPS guidance that missed estimates, while it increased its full-year EPS outlook.

GameStop Corp. (GME $19) announced that is Board of Directors has authorized $500 million in additional repurchase funds, with $300 million going to be used in its share repurchase program, and $200 million earmarked to retire debt. The video-game retailer said it has confidence in its business to continue to deliver consistent cash flow.

Jobless claims slip, producer prices increase

Weekly initial jobless claims dipped by 3,000 to 450,000, versus last week's figure which was upwardly revised by 2,000 to 453,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to increase to 459,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 13,500 to 464,750, while continuing claims dropped by 84,000 to 4,485,000, compared to the 4,464,000 that was anticipated by economists.

Meanwhile, the Producer Price Index showed prices at the wholesale level rose 0.4% month-over-month (m/m) in August, after increasing 0.2% in July, and above economists’ forecasts, which called for a 0.3% rise. Meanwhile, the core rate, which excludes food and energy, increased 0.1% m/m, matching the forecast of economists. On a year-over-year basis, headline producer prices were 3.1% higher, and the core rate was up 1.3%.

In other economic news, the 2Q current account deficit widened to $123.3 billion, from $109.2 billion in 1Q, and compared to the increase to $125.0 billion that was anticipated.

Treasuries are mixed following the data, but later this morning, the Philly Fed Manufacturing Index will be released, expected to increase to 0.5 in September from -7.7 in August (economic calendar).

Europe slipping after disappointing UK data

Stocks in Europe are under some pressure in afternoon action, giving up early gains following an unexpected drop in retail sales in the UK. British retail sales fell 0.4% m/m in August excluding auto fuel, compared to the 0.2% increase that was forecasted by economists, while including auto fuel, sales dropped 0.5% m/m, versus the 0.3% increase that was anticipated. Despite the lackluster retail sales report, shares of Kingfisher Plc. (KGFHY $7) are moving nicely higher, after Europe’s largest home-improvement retailer reported better-than-forecasted first-half profits.

There were some other economic reports that are worth noting, with the euro-zone trade deficit narrowing by a larger amount than forecasted for July, Spain’s 2Q labor costs increasing, Sweden’s unemployment rate falling more than expected, while Switzerland’s industrial production rose by a smaller-than-anticipated amount in 2Q. On the central bank front, the Swiss National Bank kept its 3-month Libor target rate unchanged at 0.25%, as expected.

The UK FTSE 100 Index is 0.2% lower, France’s CAC-40 Index is down 0.3%, Germany’s DAX Index is declining 0.1%, Sweden’s OMX Stockholm 30 Index is decreasing 0.3%, and Switzerland’s Swiss Market Index is dropping 0.2%, while Spain’s IBEX 35 Index is 0.1% higher.

Asia falters as traders mull Japan’s currency intervention

Stocks in Asia were mostly lower, with Japan’s Nikkei 225 Index giving up an early advance and finishing 0.1% lower as the yen regained some strength after yesterday’s steep decline versus the US dollar and other major currencies. The yen found heavy pressure yesterday after the Japanese government intervened in the currency markets for the first time since 2004 to try to stymie the recent surge in the Asian currency. Before the intervention, the yen had reached a fifteen-year high versus the US dollar to threaten profits of export issues and the overall Japanese economy. However, the yen is higher versus the greenback today as some are expressing uncertainty whether Japan’s efforts will be effective and help return some stability to the yen in the currency markets. Meanwhile, stocks in China finished in the red, with the Hong Kong Hang Seng Index dipping 0.2% and the Shanghai Composite Index falling 1.9%. Speculation of tighter capital and deposit rates that could possibly be implemented by the government pressured the banking sector in China, but Hong Kong’s losses may have been limited by a report that showed the nation’s unemployment rate unexpectedly dropped from 4.3% to 4.2%.

Elsewhere, Australian stocks saw some solid weakness, with the S&P/ASX 200 Index dropping 1.2% as mining issues found pressure on lower metals prices, and shares of James Hardie Industries (JHX $28) moved sizably lower after the home siding maker said it has lost some level of market share. In other economic news, New Zealand’s central bank kept its benchmark interest rate unchanged at 3.00% as expected, while India unexpectedly increased its reverse repo rate by 50 basis points to 5.00%, versus the forecast of an increase to 4.75%, while raising its cash reserve ratio by 25 basis point to 6.00% to match expectations. New Zealand’s NZX 50 Index finished flat, while India’s BSE Sensex 30 Index declined 0.4%. Rounding out the day, South Korea’s Kospi Index dropped 0.7% and Taiwan’s Taiex Index fell 0.8%.