Morning Market Update

Stocks Lose Traction Following US Labor Report Reaction

The US equity markets are nearly unchanged in morning action following a smaller-than-expected increase is US nonfarm payrolls, which caused an early advance to evaporate. However, the labor report did reveal stronger-than-forecasted average hourly earnings and an unexpected drop in the unemployment rate, though labor force fluctuations may have been responsible for the decline in the jobless rate. Treasuries are lower despite the disappointing job growth data. In equity news, Aetna Inc and JDS Uniphase topped the Street’s profit forecasts and UPS increased its dividend, but Las Vegas Sands Corp posted smaller-than-anticipated revenues. Overseas, M&A action lifted Asian stocks, while financials are supporting the equity markets in Europe.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 3 points above fair value, and the DJIA is 10 points above fair value. Crude oil is $0.61 higher at $91.15 per barrel, and the Bloomberg gold spot price is down $3.92 at $1,350.43 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 78.02.

Aetna Inc. (AET $33) reported 4Q EPS of $0.63, one penny ahead of the consensus estimate of analysts surveyed by Reuters, with revenues declining 2% year-over-year (y/y) to $8.5 billion, above the $8.4 billion that the Street had forecasted. The health benefits company said its earnings were driven by higher commercial underwriting margins, partially offset by lower commercial insured membership. AET issued full-year 2011 EPS guidance that easily topped analysts’ projections.

United Parcel Service Inc. (UPS $74 ¹) reported that its Board of Directors approved an 11% increase in the company’s regular quarterly dividend to $0.52 per share. The package company said it believes that 2011 is going to be “a great year” and it is committed to significantly increasing distributions to shareowners.

Las Vegas Sands Corp. (LVS $50) announced 4Q adjusted earnings of $0.42, above the $0.39 that was estimated by analysts, but revenues, although jumping 57% y/y to $2.0 billion, were short of the $2.1 billion that was anticipated on the Street. The hotel and casino operator said strong revenue growth and margin expansion in Macau, together with outstanding results at Marina Bay Sands in Singapore and improving results in Las Vegas and Bethlehem, contributed to its results.

JDS Uniphase Corp. (JDSU $18) posted fiscal 2Q earnings ex-items of $0.29 per share, ten cents above the consensus forecast, with revenues increasing 16% y/y to $477 million, exceeding the $439 million that was expected. The communications product maker issued 3Q revenue guidance that topped forecasts.

Growth in jobs softer than expected, but earnings rise and unemployment rate falls

Nonfarm payrolls rose by 36,000 jobs in January, well below the consensus estimate of economists surveyed by Bloomberg, which forecasted a 146,000 increase, but the initial 103,000 gain seen in December was revised to growth of 121,000. Additionally, excluding government hiring and firing, private sector payrolls increased by 50,000, versus the forecast of a gain of 145,000, after expanding by an upwardly revised 139,000—from an initially reported 113,000 gain—in December. The unemployment rate unexpectedly fell, dropping from 9.4% to 9.0%, compared to expectations of the rate to increase to 9.5%. Average hourly earnings were up 0.4% month-over-month (m/m), versus the Street's forecast of a 0.2% increase, but average weekly hours declined to 34.2, versus expectations of the figure to remain at 34.3.

Treasuries are lower following the employment data, with the yield on the two-year note up 3 bps to 0.73%, the yield on the 10-year note 4 bps higher at 3.59%, and the 30-year bond yield gaining 2 bps to 4.68%.

Europe mostly higher following yesterday’s resilience in the US

The equity markets are mostly higher in afternoon action following yesterday’s late-day advance in the US, which came on favorable economic and retail sales data, complimented by Federal Reserve Chairman Bernanke’s upbeat tone regarding consumer and business spending and the possibility of an accelerated US recovery in 2011. However, gains are being limited in the wake of today’s disappointing growth in US jobs. Financials are leading the advance across the pond, while a report showing UK home prices unexpectedly rose in January is also contributing to the upward move. Meanwhile, a solid rise in shares of Italian energy firm Enel SpA (ENSTY $54) is also supporting stocks in the region after its better-than-forecasted earnings. But a sizeable drop in Yara International ASA (YARIY $59), after the fertilizer company offered a disappointing 4Q outlook, and a report showing Spain’s industrial output unexpectedly fell, are keeping the advance in check. In other economic news, Italy’s consumer prices came in hotter than forecasted.

The UK FTSE 100 Index is up 0.5%, France’s CAC-40 Index is 0.4% higher, Germany’s DAX Index is rising 0.3%, and Italy’s FTSE MIB Index is gaining 1.0%, while Spain’s IBEX 25 Index is down 0.2%.

M&A leads Asia higher

Stocks in Asia were mostly higher in another short-handed session, with markets in China, Hong Kong, South Korea, and Taiwan all closed for the Lunar New Year holiday, as some M&A announcements in the region boosted sentiment. Japan’s Nikkei 225 Index rose 1.1% with shares of Nippon Steel Corp. (NISTY $37) and Sumitomo Metal Industries Ltd. (SMMLY $26) rising sharply following the announcement that the two companies will merge, creating the world’s second largest steelmaker, per Bloomberg. The deal is valued at about 2 trillion yen ($24.5 billion), per Bloomberg, based on market value and net debt. Moreover, Japanese stocks received support from a solid gain in shares of Sony Corp. (SNE $36) after its better-than-forecasted profit report late-yesterday. Meanwhile, Australia’s S&P/ASX 200 Index gained 0.9% on the heels of the announcement that QBE Insurance Group Ltd. (QBEIY $18) will buy Dow member Bank of America Corp’s (BAC $14 ¹) Balboa Insurance Co. for about $700 million and unspecified future payments. Australia’s equity markets were also boosted by the Reserve Bank of Australia’s quarterly monetary policy statement, in which the RBA lifted its 2011 growth forecast. Finally, Indonesia’s Jakarta Composite Index increased 0.4% after the nation’s central bank increased its benchmark interest rate by 25 basis points to 6.75%, with economists expecting the rate to remain unchanged.