Morning Market Update

Jobless Claims Dim the Bulls’ Flame

The US equity markets are nearly unchanged in morning action after giving up a modest advance after a report showed weekly initial jobless claims rose much more than expected, overshadowing another successful debt auction in Europe and an unexpected narrowing of the US trade deficit. Treasuries are modestly higher after showing little reaction to the jobless claims number as economists continue to believe that some seasonal factors may have inflated the figures. Meanwhile, a read on US producer prices came in mixed, with the headline rate topping forecasts, while the core rate remained subdued. In equity news, AIG announced that it expects to complete its restructuring plan by tomorrow, which will pave the way to repay the American taxpayers for the bailout it received during the financial crisis, while Marathon Oil Corp announced that it plans to spin off its refining business. Overseas, Asia moved mostly higher on eased concerns in Europe, but South Korea moved lower after its central bank unexpectedly hiked its benchmark interest rates. Elsewhere, Europe is mixed after the US jobs data and a successful bond auction in Spain, while the Bank of England and European Central Bank kept their benchmark interest rates unchanged.

As of 8:46 a.m. ET, the March S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is at fair value, while the DJIA is 13 points below fair value. Crude oil is $0.31 lower at $91.55 per barrel, and the Bloomberg gold spot price is down $2.03 at $1,385.83 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 79.62.

American International Group Inc. (AIG $58) announced that the conditions to the previously announced dividend of about 75 million warrants, determined between the company and the US government, which has control of the insurer due to the bailout it received during the financial crisis, have been satisfied and it expects to close its previously announced recapitalization plan tomorrow. AIG said assuming no material change in the relevant facts, circumstances and conditions, the recapitalization plan will consist of the company repaying the Federal Reserve Bank of New York’s near $21 billion credit facility, paving the way for an orderly exit of the US government’s interests. Also, AIG will be retiring its outstanding preferred shares held by the US Treasury by exchanging 1.655 billion shares of AIG common stock for the $49.1 billion of preferred shares, resulting in the Treasury owning approximately 92% of the company’s common stock. Over time, the Treasury is expected to sell its shares in the open market.

Marathon Oil Corp. (MRO $41) is solidly higher after the energy firm announced its Board of Directors approved moving forward with plans to spin off MRO’s refining business as a separate, publicly traded company named Marathon Petroleum Corporation under the ticker symbol MPC. MPC is expected to be the fifth largest US refiner. Meanwhile, Marathon Oil Corp will continue to trade with symbol MRO, comprised of the company’s crude oil production and exploration business.

Producer prices and jobless claims top forecasts, but trade deficit unexpectedly narrowed

The Producer Price Index showed prices at the wholesale level rose 1.1% month-over-month (m/m) in December, after increasing 0.8% in November, and above the forecast of economists surveyed by Bloomberg, which called for a 0.8% rise. Meanwhile, the core rate, which excludes food and energy, rose 0.2% m/m, inline with economists’ forecasts. On a year-over-year basis, headline producer prices were 4.0% higher, and the core rate was up 1.3%.

Elsewhere, weekly initial jobless claims increased by 35,000 to 445,000, versus last week's figure which was upwardly revised by 1,000 to 410,000, and the level that economists had expected it to remain. Also, the four-week moving average, considered a smoother look at the trend in claims, increased by 5,500 to 416,500, but continuing claims tumbled by 248,000 to 3,879,000, below the forecast of economists, which called for continuing claims to come in at 4,088,000.

In other economic news, the trade deficit unexpectedly narrowed, declining from a favorably revised $38.4 billion in October to $38.3 billion in November, versus the estimate of economists, which called for the deficit to come in at $40.5 billion.

Treasuries are modestly higher in morning action, showing little reaction to the inflation, employment, and trade data, with the yields on the two-year note, 10-year note, and the 30-year bond all up 1 bp at 0.59%, 3.35%, and 4.52%, respectively.

Europe mixed after US jobs data and central bank meetings

Stocks in Europe are mixed in afternoon action after paring gains following US jobless claims data, but financials are gaining ground in the wake of monetary policy announcements in the UK and euro-zone, as well as another successful debt auction in Spain. The Bank of England kept its benchmark interest rate unchanged at a record low of 0.50% and made no changes to its asset purchase program as expected by economists. Moreover, the European Central Bank also expectedly maintained the level of its key interest rate at 1.00%, and traders are paying close attention to the customary press conference by ECB President Jean-Claude Trichet, looking for any new plans by the central bank that could help combat the euro-area’s debt crisis.

Meanwhile, financials are receiving a boost from Spain’s auction of 5-year bonds, which showed that although the interest rate rose from previous auctions, it came in below expectations. This was the second successful debt auction of a troubled euro-area nation in as many days, as Portugal’s favorable auction yesterday helped spark a global rally in the equity markets. Additionally, Spain’s Vice President of the Spanish Government and Finance Minister told CNBC that its banking sector does not need more government support and the nation will not need a bailout from the European Union.

Also, there were some other economic reports across the pond that deserve a mention with UK industrial production rising at a smaller rate than expected, while a separate report showed UK manufacturing production rose more than anticipated. Elsewhere, growth in German wholesale prices accelerated and France’s consumer prices came in hotter than anticipated.

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is rising 0.5%, Germany’s DAX Index is declining 0.1%, and Portugal’s PSI 20 Index is flat, while Spain’s IBEX 35 Index is jumping 2.6%, extending yesterday’s rally, which saw shares surge over 5%.

Asia moves higher following successful debt auction in Europe

The equity markets in Asia were mostly higher, led by strength in financials and oil & gas issues as concerns toward the euro-area debt crisis eased following the successful debt auction by the troubled euro-zone nation of Portugal. Japan’s Nikkei 225 Index rose 0.7%, posting another eight-month high, as the optimism toward Europe helped overshadow reports showing Japanese machine orders unexpectedly fell in November, while growth in the nation’s machine tool orders decelerated in December. Meanwhile, the strength in financials and energy issues as crude oil prices moved solidly above the $90 per barrel mark helped Chinese markets gain ground with the Hong Kong Hang Seng Index and the Shanghai Composite Index rising 0.5% and 0.2%, respectively. Also, the upward momentum in the commodity sector helped Australian stocks shrug off lingering concerns about the economic impact of massive flooding in the region recently and some mixed employment data, as the S&P/ASX 200 Index jumped 1.5% to lead the way. However, South Korea’s Kospi Index declined 0.3%, coming off of a record high, after the Bank of Korea unexpectedly increased its benchmark interest rate by 25 basis points to 2.50%, to combat inflation.